Moral Hazards and Morale Hazards
“Moral” is defined: Concerned with or derived from the code of behavior that is concerned right or acceptable in a particular society.
“Morale” is defined: The confidence, enthusiasm, and discipline of a person or group at a particular time.
Source: Oxford Dictionary
Two words, very similar in spelling, yet their definitions demonstrate the differences between each word. Both words are important to distinguish when applied to risk management. Both morals and morale are intangible factors important to assessing the un-augmented state of an organization’s risk management.
When a risk management survey is in process, we account for potential of loss to a business, whether it be financial or personnel. Most of us have experienced a work environment that is mentally or emotionally difficult. The good news, it doesn’t have to be that way. Most business decision makers focus their attention on the financial health of the organization and its ability to thrive. It is very important to manage a business with the future in mind; however unfortunately the culture of a business is not often thought of as an asset. It can be argued if no revenue is generated from an aspect of the business it is less important or not relevant to operations. This is a narrow-minded view, in that most businesses would be hard pressed to succeed if the employees were uninterested in being productive. There is a correlation between an action by an employee and whether it generates a gain or loss whether immediate or delayed.
Why do morals and morale matter then? The cost of a new employee is not one most businesses like to absorb. It’s far more beneficial to retain staff. Envision you are a hiring manager of a company. It is your job to screen applicants for positions within the organization. This is where the morals asset evaluation begins. It is the first opportunity to quiz a potential employee about how they may contribute to the success of the organization. It is important to be mindful of what can and cannot be asked during an interview. There are laws to protect citizens against unfair hiring practices.
Once a candidate is hired, onboarded, and trained they are now a liability and an asset of the business. An asset because the work they produce is of value to the company. A liability because an error on their part may cause a financial loss to the business.
Moral hazards happen because an employee either is seeking to cause damage or commits a criminal act, such as theft of inventory. It can be difficult to identify a candidate that is going to exhibit such behavior. Sometimes it is an instance where over time, an employee feels like they have been treated poorly, then attempts to make it “right” by stealing or allowing others to cause damage.
Morale hazards often occur because the employee is unmotivated to complete necessary tasks. Low morale is often created because a manager is not doing their job. Morale of the staff is at the heart of a business’ success. If the employees feel like they are not valued, under paid, or taken advantage of, what is their incentive to do well?
Many of us have experienced a manager who was absent, didn’t take time to work with their team, hear their ideas and concerns or one who brings their negative attitude into the workplace. A bad attitude is just as destructive as a spreading a cold or flu around the company.
When a loss to the business occurs it is vitally important to stop and think, what was the root cause? In future articles we will discuss how to assess the source of moral and morale hazards.
