Topics: Risk Management
Topics: Risk Management
October 22, 2020
October 22, 2020
While the COVID-19 pandemic continues to ravage economies and societies around the world, many companies have been considering the likely longer-term fallout for their organizations, looking at how the current crisis has exacerbated and twisted long-standing risks and introduced new ones that will shape the business environment for years to come.
Some of these risks are featured in the World Economic Forum’s Regional Risks for Doing Business work, undertaken in partnership with Marsh & McLennan and others, which stands out from other surveys in that it secures the views of 12,000 company leaders in more than 120 countries on the macro-level risks that they think may most negatively impact their businesses in their respective key countries of operation. Here are some of the key points drawn from this year’s report.
Of course, it is no surprise to see “spread of infectious diseases” near the top of the rankings in the 2020 edition, released last week, having risen from a very low position in last year’s survey. But the economic, technological, and societal concerns of previous years haven’t gone away and are given a new immediacy in the wake of COVID-19.
The top concern globally, rising rapidly in advanced economies—up seven spots in the United States—and a perennial issue in emerging and developing markets, is the challenge of “unemployment and underemployment.” The pandemic has resulted in staggering job losses, countering the previous trend of increasingly higher employment rates around the world. Looking beyond the immediate factors, rising automation, regional demographic trends, and pressures on migration and mobility are all straining global labor markets and individuals’ job prospects.
In emerging markets, as economies and business increasingly embrace technological opportunities, related risks are growing. For the first time “cyberattacks” entered the top 10 list for emerging markets, and anxieties about the “misuse of technologies” rose five places. As the digital transformation agenda goes global, accelerated by COVID-19’s effects on mobility and workplace practices, these trends are likely to continue.
In advanced economies, where cyber risks have been a leading concern for some time, respondents flagged a greater interest in societal instability and civil unrest this year. Racial, political, demographic, and economic fault lines have become more glaring in many countries, often highlighted or deepened by the pandemic, triggering unrest in many cities over the past 12 months. With increasing stakeholder expectations that businesses engage more meaningfully on sociopolitical issues, in addition to the implications of societal instability on business operations and supply chains, this rising concern is a key topic of discussion in many boardrooms.
In North America, “cyberattacks” and “data fraud or theft” have consistently ranked at or near the top of the list of concerns in the past five years, and 2020 is no different. Although cybersecurity is one of the fastest-growing industries in the United States and Canada, and many businesses have been upgrading their capabilities, large-scale breaches and damages continue.
As part of the oversight of the effective management of cyber risks, boards need a stronger lens on the “misuse of technology.” Its rise into the top 10 risks across the United States and Canada follows continuing examples of privacy breaches, technology-enabled misinformation campaigns, and codified bias in algorithms. Governing how technology is developed and used, especially when interfacing with stakeholders and communities in which companies operate, should be a priority for corporate directors as they oversee risks to reputation and revenue.
Along with the significant health impacts, the pandemic has sparked fresh concerns about “asset bubbles.” The stunning rebound in stock prices after an initial sell-off in March, fueled by unprecedented levels of stimulus from the Federal Reserve System, shows a stark disconnect between economic reality and equity markets.
Environmental concerns are also on the rise for North American business leaders. Recent “natural catastrophes” and “extreme weather events” have made apparent the financial impact of climate change on companies’ bottom lines, in some cases precipitating bankruptcy. Directors have a critical role to play in ensuring that their firms take a broad-based and strategic view of potential business exposures over different time horizons. As regulators and investors become more actively engaged in driving the global sustainability agenda, the imperative to act will strengthen.
Top business leader concerns in the United States and Canada differ most on the global stage with respect to “profound social instability.” The US results recorded the largest jump for this risk among advanced economies and it entered the country’s top 10 for the first time, signaling a more polarized and aggrieved population than before.
The complex and transboundary impacts of COVID-19 offer an outstanding framework through which to evaluate corporate strengths in anticipating multiple, cascading risk consequences, mobilizing swiftly in a crisis, and pivoting strategically to build readiness for future business realities. A continuous probing of novel risks, dynamic threats, and alternative futures will strengthen organizational preparedness to make big decisions when more options than usual, without clear data, are available to directors. Agility and resilience should become business-as-usual.
Beyond this, companies are likely to come under increasing pressure regarding their contributions to an equitable, sustainable, society-wide recovery from COVID-19, and the alignment of this with long-term shareholder value. Boards of directors that are clear in their values, knowledgeable about their firms’ ability to withstand shocks, and prepared to countenance difficult and sometimes uncomfortable changes will be best able to navigate choppy waters to come.
Richard Smith-Bingham is the executive director of Marsh & McLennan Advantage and a key contributor to the 2020 Risks for Doing Business study.
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