Psychosocial risk: a new challenge for boards

Board members and senior executives are well aware of the importance of managing work, health and safety risks in their organisations. However, they may be less familiar with a relatively new challenge that is emerging in the WHS landscape: psychosocial risk. Here Tony Morris, Partner at Ashurst Risk Advisory outlines what directors need to know.

Psychosocial risk refers to the potential for personal harm that workers may experience due to organisational design, social conditions, governance or the work environment. Unlike physical hazards, which are often more visible and tangible, psychosocial hazards are intangible and can be more challenging for organisations to identify and manage.

Psychosocial hazards can stem from a range of factors, including workplace culture, organisational change, job demands and control, traumatic events or material, the physical environment and social interactions at work.

The rise of psychosocial risk as a work health and safety issue

The concept of psychosocial risk has gained prominence with growing community expectations and its impact on governments and safety regulators. As the understanding of what constitutes a healthy and safe workplace has expanded, mental health issues and their impact on the psychological and physical health of workers, as well as productivity and performance have become a focal point for Australian organisations.

As a result, regulatory bodies are increasingly recognising the importance of proactively managing psychosocial risks, leading to the development of new laws and guidelines aimed at protecting workers' psychological health and safety.

Legal duties and obligations

In Australia, there are specific legislative obligations on employers to eliminate psychosocial risks in the workplace - or if it is not reasonable and practicable to eliminate those risks, to minimise them so far as is reasonably practicable. The evolving regulatory landscape means that organisations should now consider psychosocial risk management as part of their legal obligations under work health and safety laws.

Implications of psychosocial risk

The consequences of unmanaged psychosocial risks are far-reaching and impact workers in different ways. Workers can suffer from stress, anxiety or depression, which can lead to reduced productivity and performance, more sick days and being less engaged in their work.  This can then lead to a decline in the overall performance and productivity, which can in turn adversely impact the organisation's brand and reputation.

Moreover, a workplace that becomes known for not prioritising psychological health and safety may struggle to attract and retain talent. The other challenge for business leaders in managing these risks is that the individual impact on individual workers is less predictable and more varied.

Adopting a proactive approach

To get ahead of these risks, boards are strongly encouraged to adopt a proactive approach. This involves several key steps:

• mining of data from working groups (and reporting to board committees) across the spectrum of psychosocial hazards to understand the current state and where the organisation's risk hot spots are;
• conduct of a current risk assessment that is sufficiently robust to withstand a safety regulator's review;
• clearly articulating risk appetite across the various hazards, including board and senior executive endorsement;
• identifying and implementing mitigating controls to manage the risk within appetite;
• measuring and monitoring the effectiveness of controls;
• reporting to organisational leaders to assist them to demonstrate they have and are taking reasonable steps to ensure the organisation is proactively managing the risk.

Consultation and engagement

The engagement of the workforce throughout the risk management process is a critical element, so there is a contemporary, grounded perspective on the underlying risks. Training and educating leaders, managers and workers should include not only identifying and reporting psychosocial hazards but driving support and ownership for the maintenance of the controls, including (but not limited to) any new policies and procedures.

It is not uncommon for HR and WHS risks to be managed "outside" of the three lines of defence model typically adopted by organisations. However, like any risk class, the approach to identifying risks, setting appetite, designing controls, and monitoring their effectiveness should be integrated into the enterprise risk management framework.

The role of the board

Boards play a crucial role in providing oversight of psychosocial risks. They set the tone for the organisation's culture and are responsible for ensuring the workplace promotes psychological health and safety. Boards need to be equipped with the knowledge and skills to identify and address psychosocial risks. They should also foster an environment where workers feel comfortable to discuss psychosocial hazards, psychological issues and seek support.

Boards should be cognisant that managing psychosocial risk involves ensuring sufficient allocation of time, costs and resources to proactively identify psychosocial hazards and assess and manage psychosocial risks arising from such hazards. In large organisations a common and effective way for boards to exercise this due diligence is through well organised, insightful and action-oriented reporting; providing both lead and lag indicators to measure the effectiveness of the risk environment.

Strategies to consider

Strategies that some organisations have successfully implemented to manage psychosocial risks include:

• using data analytics and technology;
• conducting contemporary and robust risk assessments in consultation with workers;
• innovative and high-impact training such as a psychosocial risk management mock court to demonstrate what can happen if organisations and its leaders fail to manage the risk proactively;
• implementing organisational design controls such as flexible working arrangements, telecommuting and job-sharing;
• detailed and interactive reporting dashboards for leaders on relevant lead and lag indicators.

Future focus

As the focus of work health and safety regulators expands to include psychological risks, organisations should consider how they adapt to manage this new class of risk. Psychosocial risks are complex and require a multifaceted approach that involves the commitment and support of leadership, effective management within the organisation to collaborate and coordinate (including WHS, HR, Risk, and operations), the engagement of workers and the implementation of effective strategies.

By proactively addressing psychosocial risks, organisations can not only comply with regulatory obligations but also create a healthier, more productive and more resilient workforce. The journey to managing psychosocial risks is ongoing, but with the right approach, boards can protect the psychological health and safety of their workers and, in turn, ensure the continued success of their organisations.

About Tony Morris

Tony Morris is an Ashurst Risk Advisory partner in Australia and leads their work health and safety (WHS) and psychosocial risk capability.