Psychosocial risk management and governance responsibilities

A common trend we are seeing in the world of work is the increasing importance of managing psychosocial risks to prevent psychological harm and create mentally healthy workplaces. 

Psychosocial risks refer to environmental, relational and operational hazards at work that may cause harm to people’s psychological and physical health. Examples of these factors include high workloads, tight deadlines, bullying, and lack of autonomy in the workplace. 

This article is specifically written for Board members or professionals in Executive Leadership Teams or Health & Safety to understand their responsibilities when it comes to identifying and managing psychosocial risks.

Why should Board members, Executive Leadership Teams and Health & Safety professionals care about psychosocial risks?

A recent WorkSafe New Zealand Report nicely summarised why work-related health matters. 

There are many reasons as to why it’s important to manage psychosocial risks at work; here are the main ones:

1. Managing psychosocial risks is a legal requirement – like physical health and safety management

As part of an Executive Leadership Team, we might have appointed Health and Safety managers to ensure health and safety is prioritised for our employees. Historically, Health and Safety teams have focused on protecting physical health and decreasing workplace injuries. 

However, under the Health and Safety at Work Act (2015), a “person conducting a business or undertaking” (PCBU) is required to provide a work environment that is free from risks to health and safety, so far as is reasonably practicable, and this includes risks to worker mental health.

Direct support for individual wellbeing is the responsibility of every organisation under the Act. The Act requires employers to eliminate or effectively reduce the risk of psychosocial harm through risk management policies, practices and initiatives that protect and promote individual health and safety during the performance of one’s work.

This means that organisations have a legal obligation to manage work-related factors that may cause mental harm to employees. Beyond these mandatory duties, many organisations have noticed the benefits of supporting the general health and wellbeing of their employees; for example, whether that’s implementing new initiatives or measuring the wellbeing of their people.

Your health and safety obligations aren’t about providing wellbeing leave and yoga classes. Instead, psychosocial risk management is about the work system and the environment that gives rise to risks of negative mental health outcomes for workers. 

We can use the figure below from WorkSafe’s strategic context, direction and approach report to understand the difference between mandatory and voluntary focus areas for PCBUs. 

2. The conversation on psychosocial risks is constantly changing and growing

The prevalence of psychosocial risks and incidents is on the rise, and this is because employees can be exposed to psychosocial risks anywhere and in any industry. 

The difficult thing with managing psychosocial risks is that this is a relatively new area, which means keeping up to date with the legislative changes and most recent reports can be a task in itself. 

Recent changes to Health and Safety legislation, contextual examples (such as the Ernst & Young incident in Australia) and case law internationally (such as Kozarov v Victoria [2022], Victoria, Australia) reinforces the need for organisations to proactively manage the risks associated with exposure to psychosocial hazards.

In terms of where we are in Aotearoa New Zealand, there continue to be minimal guidelines and no agreed upon codes of practice for organisations to follow. This has led to several legal cases where organisations have been fined or taken to court for causing psychological injuries to their employees.

Some recent examples of this include:

• WorkSafe issues notice to Auckland rail company after finding the psychosocial risk to workers of viewing, experiencing, or hearing about on-track collisions was not being managed effectively and the controls in place to manage the risk required improvement.
• WorkSafe says an incident at Auckland International Airport, where a worker was seriously injured, underlines the importance of training staff to keep them safe.
• Independent review of law firm Russell McVeagh by Margaret Bazley highlights the firm missed warning signs leading up to sexual assault incidents, inappropriate behaviour, excessive drinking, bullying, and wider cultural and management issues. “Incidents were managed poorly, with serious consequences for the people involved … This could and should have been prevented.”

As of November 2023 in Aotearoa New Zealand, WorkSafe has just started to work on developing some useful guidelines around psychosocial risks, their impact on business, and how Boards and members of Executive teams can manage psychosocial risks.

On a side note, it’s important that we acknowledge that there are often difficult or risky aspects of jobs and industries that cannot be changed because they are inherent in the work. This changing regulatory landscape expects employers to proactively manage chronic hazard exposure and support people to “bounce back” after acute exposure, to preserve and not negatively affect the mental and physical health of the people carrying out the work.

3. Psychosocial risk management and mentally healthy work is good for business and the bottom line 

There is a strong case for improving the way that work-related psychosocial risks are managed. Improved management of psychosocial risks brings many benefits, including:

• Fewer preventable deaths: Reducing the incidence of potentially fatal health-related problems such as cancer and cardiovascular disease.
• Improved quality of life: Reducing the development of ill-health conditions. This can enable employees to experience better health, wellbeing and quality of life.
• Reduced societal and economic burden: Improving psychosocial risk management can reduce the financial burden placed on social and healthcare systems, but it can also mitigate the direct economic burden of impaired mental health for businesses due to presenteeism/absenteeism.
• Increased workplace productivity: Healthy employees generally have higher levels of productivity at work. 
• Reduced workplace absence: Reducing the number of employees who develop work-related health conditions will reduce the number of lost working days. 

The New Zealand Institute of Economic Research also released a report in 2021, on the return on investment (ROI) when it comes to wellbeing and productivity at work.

The research found that when we consider employee assistance programmes (EAP) as a tertiary level intervention to support individuals with counselling, the ROI in New Zealand is 3.6:1. 

The estimated ROI ratio for organisational approaches, which develop organisational cultures and activities to improve mental wellbeing is 5:1. Organisational approaches tend to have a greater ROI because of economies of scale and their proactive nature, which can reduce the costs and impacts for the more severe demand services like EAPs. The direct annual cost per employee of these approaches can range from $30 to $3,000 and the indirect costs may include staff time to complete wellbeing activities.

If psychosocial risks are managed effectively and risks to workers’ mental health are eliminated or minimised, and their wellbeing is prioritised, this can create what we call “mentally healthy work”.  When work is “mentally healthy”, it does not cause psychological harm and may improve overall employee wellbeing. This is known as “good work”. Both mentally healthy and good work are important factors that contribute to improving the employee experience.

Ultimately, it goes without saying that psychosocial risk management is essential for fostering mentally healthy workplaces. Offering mentally healthy work is an important value proposition for being an employer of choice – especially as employees have become pickier than ever about who they work for and how the work serves them.