The boardroom blindspot: why leaders are the biggest risk
Leadership and people management capability is a critical risk control.
Across Australia, organisations are experiencing a convergence of two forces - the rapid escalation of psychosocial related claims, and a noticeable (and likely related) erosion of people management capability in leaders.
People management apathy is a significant organisational risk. I have long argued that leadership is, in fact, the biggest risk to performance, culture and people, yet I remain baffled that it is rarely categorised this way on risk registers or governed with the same discipline as financial, operational or safety risks.
What is the blind spot?
In the current climate, where psychosocial terminology is increasingly used to reframe reasonable management action as bullying or harm, leaders are becoming reluctant to manage people. That, of course, assumes they have the underlying capability to manage people in the first place.
Performance conversations are delayed or poorly executed. Behavioural issues ignored. Low level conflict left to fester. Toxic senior leaders remain untouchable. Micro aggressions become normalised.
Not because most leaders don’t know something needs to happen, but because they either lack the skill, or they fear the consequences of acting.
The core function of managing people and performance is not advanced theory. It is fundamental and you have to be good at it before you can be a great leader, you particularly have to be good at it in the current context.
However, in all the work we did in 2025, I can say with confidence that almost all organisational challenges we encountered traced back to a lack of fundamental people management. Poor expectation setting (for performance and behaviour); lack of early intervention; ineffective or non existent feedback; little or no coaching on the job; pitiful communication; and unmanaged conflict.
In many organisations, people management doesn’t happen at all. Where it is happening, it is often being done poorly or inconsistently.
As these fundamentals deteriorate, organisations experience higher turnover, more interpersonal conflict, weakened performance standards, cultural drift, low trust, and missed growth and financial targets.
The escalation of psychosocial related claims
The Fair Work Commission (FWC) has reported that lodgements in 2024–25 are up 24% on the five year average. Unfair dismissal claims are up around 20%, general protections dismissal claims up 27%, general protections non dismissal claims up 59%, and bullying and sexual harassment claims up 54%.
What, exactly, are leaders doing?
The escalation reflects tightening regulatory expectations that organisations proactively identify, manage and prevent psychosocial hazards, but they also reflect poor management.
If you’re sitting on a Board and you haven’t read Allianz Australia’s recent reporting on psychosocial and mental health claims, you should. Urgently.
This is not a short term anomaly. It is the new normal. The FWC predicts that, if current trends continue, total lodgements will escalate to 50,000 per annum. That places unprecedented pressure on the need for high quality people management and leadership at every level.
The loss of fundamental people management skills
More often than not, organisations fail to properly scrutinise people management capability when making appointment decisions. As a result:
• many leaders lack confidence in managing performance
• expectations are unclear or unenforced
• proactive performance conversations are rare or ineffective
• “leadership as a contact sport” is substituted for HRIS systems
• conflict is ignored or dismissed as “personal”
• leaders rely on HR as the “bad cop” rather than owning their role
These are not just capability gaps, they are significant risks.
When leaders lack the fundamentals, psychosocial hazards increase. When psychosocial hazards increase, dispute activity rises. When dispute activity rises, leaders freeze due to fear or lack of know how. When this happens, performance tanks, and the cycle repeats.
Mid last year, I was exposed to a “managing people” training program delivered by a well known training organisation. It was expensive and woeful. Content dragged from the dark ages, rebadged and wrapped up in lecture style training, is not going to get the job done. Leadership capability is not built on theory or by those who have barely managed or led themselves; it is built through real world, lived experience, where the messy, complex realities of managing people can be truly understood.
The risk when leadership goes unchecked
Across industries, claim data and case trends reveal a consistent pattern - underperformance or behavioural issues that were not addressed early, or appropriately, are often framed as bullying, discrimination or psychosocial harm.
To be clear, I am not suggesting claims are not valid. Legitimate claims absolutely exist. And while I don’t have empirical data beyond my own sphere of practice (albeit not a small sphere), what I can say definitively is this - when Courts are making the decisions they are making, and the regulatory framework is what it is, failing to manage people effectively, while romanticising leadership principles, is asking for trouble.
Because the failure points are almost always the fundamentals.
When management capability is not deliberately developed and governed, organisations face increased exposure. In this environment, psychosocial safety is inseparable from leadership effectiveness.
Boards, CEOs and HR leaders who fail to scrutinise a leader’s ability to actually manage people expose themselves to preventable reputational, legal and performance risk.
As recent public scandals across multiple industries demonstrate, leadership failures can quickly escalate into regulatory investigation, whistleblower action, and significant brand and financial damage.
Boards must now treat leadership as a governance imperative
Culture is cultivated, reinforced and normalised by behaviour at every level of the organisation, nothing more or less.
Yet leadership too often escapes the scrutiny applied to financial or operational risks. Boards routinely rely on surface level indicators such as flawed engagement/culture surveys (please stop doing these), glossy dashboards, and retention metrics, rarely interrogating what actually sits underneath.
Low emotional intelligence, excessive task focus, inconsistent standards and weak communication are directly correlated with:
• increased psychosocial hazard exposure
• reduced accountability
• productivity decline
• financial impact
Boards, and their CEOs, must take a very different lens to how they assess risk in relation to people and performance. Boards must now:
1. Elevate leadership behaviour into the risk register
Leadership capability, conduct, emotional intelligence, and consistency of management action should be assessed with the same rigour as financial, operational and safety risks.
2. Strengthen oversight beyond dashboards
Culture surveys and metrics can distort or mask reality. Boards must triangulate data, seek independent insight, and understand lived experience, not just executive narratives.
3. Require a structured, organisation wide capability uplift
Line managers, not executives, carry the day to day burden of psychosocial safety. Boards should expect systematic investment in:
• early intervention skills
• conflict management
• psychologically safe performance management techniques
• emotional intelligence foundations
4. Ensure early HR visibility
Proactive HR involvement is critical but only if HR has the capability. Early intervention, real time coaching, people centric development programs and strategic future focussed reporting are proactive, core HR imperatives to reduce risk.
5. Mandate frameworks that embed emotionally intelligent leadership
Emotional intelligence is not a “woke nice to have”. It is no longer optional. Boards that embed it into leadership frameworks outperform on all metrics.
Sure, Boards have always cared about culture. But culture is an outcome not a cause. Leadership behaviour is the cause. Psychosocial risk is the consequence. Performance is the casualty when both are ignored.
The next frontier of governance is clear. Boards must treat leadership and people management capability, including emotional intelligence, as strategic risk controls essential to both risk management and high performance.
The downstream effect is a more stable, predictable operating environment, where leaders can focus on execution rather than crisis management. Organisations that invest in the right type of leadership and people management capability ultimately deliver stronger financial results, cultural strength and operational resilience.
Check out our new program: Managing People - The New Fundamentals©
