February 7, 2023
February 7, 2023
A global survey of C-level executives and directors, focused on macroeconomic, strategic, and operational risks, highlights their views regarding the disruptive risk landscape over the next 10 years through 2032. Conducted online between September and October 2022, the survey captures insights from 1,304 leaders across multiple industries, with broad geographic representation.
Below are the 10 highest-rated global risk themes in order of priority to provide a context for understanding the most critical uncertainties that companies face looking forward over the next 10 years to 2032.
The following are key takeaways from the survey, highlighting several major narratives.
There is churn in the top risk list. Exposure to substitute products and services, ease of entrance of new competitors into the industry, and changes in the work environment impacting organizational culture and the business model were among the top 10 risks last year when looking out 10 years. This year, these risks fell to the 11th,12th, and 22nd spots, respectively, looking forward to 2032. Top 10 risks for 2032 that did not appear on last year’s top 10 list for the coming decade include data privacy concerns, facing competitors that are either “born digital” or investing heavily in technology to gain competitive advantage, and anticipated increases in labor costs.
The 10-year outlook presages disruptive times ahead. Most of the above risks along with exposure to substitute products and services, ease of entrance of new competitors, cyber threats, the challenge of sustaining customer loyalty, and third-party exposures are ranked higher over the next decade than for 2023. These risks sustain the ongoing narrative that the 2020s are indeed a decade of disruption.
People and culture are a long-term strategic imperative. Several important themes were noted related to people and culture for the next 10 years. Finding and keeping talent is at the top of the list. The future of work continues to be a defining business challenge. Rising labor costs are a long-term concern. Culture is a long-term priority, with resistance to change an issue that has become a formidable obstacle to success. Finally, diversity, equity, and inclusion risk is rated higher this year but has declined in relative importance to other risks.
Economic issues remain significant. Economic uncertainty is the eighth-rated risk looking out 10 years, down from third in last year’s survey. There is uncertainty over central bank policies amid persistent inflation and high sovereign debt, leading to sustained higher interest rates over the next year or two as well as an end to quantitative easing. There will also be impacts from several trends in transitioning from globalization to regionalization, fossil fuels to renewables, dysfunctional to reliable supply chains, rising to stable labor costs, persistent to target inflation, and a tight to a neutral or an easing monetary policy. With some anticipating a possible global recession on the horizon, the question arises as to the duration and severity of that scenario should it occur.
“Big data” is an even bigger player for the long term. This risk is rated seventh overall looking 10 years out, up from 10th last year. In the long term, insightful data and intelligence will win, and everyone knows it, which is why this risk is ranked as high as it is relative to other risks.
Cybersecurity and data privacy have escalated as long-term priorities. Looking out 10 years, risks associated with data privacy and cyber threats are rated fifth and 13th, respectively, up from 11th and 16th, respectively, last year. The speed of technological change, an ever-transitioning workplace design, evolving business models, proliferating regulatory requirements, and workforce turnover increase the challenge in managing these ever-present threats.
Climate change risk is a priority primarily for fossil fuels-based companies. Concerns over the effects of climate change have increased looking out longer term but are ranked about where they were last year (rated 20th looking 10 years out this year compared to 19th last year). Outside of industries concentrated in fossil fuels generation and use, many respondents do not perceive the risk of adjustments to their business strategy as a result of climate change with as much concern as they view the implications of other risks. Geographically, climate change risk is ranked highest in India (7th), Europe (10th), the Middle East (13th), and Africa (13th).
The largest risk increases support the narrative of a changing world. Looking out 10 years both this year and last year, we were able to determine the risk themes that saw the largest year-over-year increases based on ratings by survey participants of the severity and magnitude of individual risks. The five largest risk increases noted relate to geopolitical shifts and regional conflicts; activist shareholders pursuing significant performance shortfalls (including with respect to environmental, social, and governance expectations); global trade and changing assumptions underlying globalization; transitions to a remote and hybrid work environment; and political uncertainty.
The risk of regulatory changes and scrutiny continues to loom large. Regulatory risk is the ninth-rated risk overall for 2032, down from seventh overall for 2031. As a top 10 concern for the long-term, this risk and its implications to the processes, products, and services of the organization remain top of mind for many business leaders.
A long-term outlook helps companies face the future confidently. Five of the top 10 risks and six of the top 15 risks over the next decade are not in the top 10 and 15 lists, respectively, for 2023. Understanding and managing toward the long view facilitates resilience and agility in pivoting at the speed of change. This is why the elevation of concerns regarding resistance to change in this year’s survey results is troubling.
With a disruptive decade ahead, organizations embracing the long view with a trust-based culture, effective utilization of data analytics, and the ability to pivot at the speed of change are likelier to sustain their relevance over the long term. Scenario analyses, early warning systems, response plans, and innovative cultures that facilitate acting on relevant market trends enable leaders to “reality test” their assumptions about markets and the business environment and be more decisive and agile in making timely adjustments to the strategy and business model.
The board of directors may want to consider the above risks and commentary in evaluating the company’s strategic outlook in the context of its business model and operations. If management has not identified these issues in the formal risk assessment process, directors should consider their relevance to the company’s business and ask why not.
Jim DeLoach is a managing director of Protiviti. DeLoach is the author of several books and a frequent contributor to NACD BoardTalk.
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