Topics:   Corporate Governance,Featured,Risk Management

Topics:   Corporate Governance,Featured,Risk Management

January 9, 2020

Executives and Directors View Economic Conditions and Technological and Regulatory Disruption as Top Risks in 2020

January 9, 2020

A recent global survey of C-level executives and directors on macroeconomic, strategic, and operational risks highlights the influence of the economy, talent, digital disruption, and culture on the risk landscape.

The survey, conducted by Protiviti and North Carolina State University’s Enterprise Risk Management Initiative, captures insights from 1,063 C-level executives and directors across multiple industries. These results were used to rank risk themes in order of priority to provide a context for understanding the most critical uncertainties that companies face in 2020. The top 10 risks for 2020, according to this survey, are:

  1. Impact of regulatory change and scrutiny on operational resilience, products, and services
  2. Economic conditions impacting growth
  3. Succession challenges; ability to attract and retain talent
  4. Ability to compete with “born digital” and other competitors
  5. Resistance to change operations
  6. Cyber threats
  7. Privacy and identity management and information security
  8. Organization’s culture may not encourage timely identification and escalation of risks
  9. Sustaining customer loyalty and retention
  10. Adoption of digital technologies may require new skills that are in short supply

Other key takeaways from the survey are included below.

The global business environment is viewed as slightly less risky in 2020, but the risk level is still higher than it was in 2018. While risk concerns for 2020 declined slightly relative to 2019, the perceived overall elevated risk levels continue in 2020.

Most executives are concerned about the economy. Concerns about economic conditions jumped to the second spot for 2020, up from 11th in 2019. Recent concerns about the overall strength of the global economy—particularly in light of the ongoing Brexit developments between the United Kingdom and the European Union, uncertainties over global trade discussions, declines in certain manufacturing sectors, and a general reduction of growth in major economies—have clearly heightened this risk for 2020.

Two overarching themes dominate the top 10. As companies strive to advance their digital maturity and embrace the transformative potential of technology, there are two interconnected themes in our survey results to consider. The first concerns an organization’s inability to attract and retain the right talent and ensure that an appropriate corporate culture is in place. This theme has the potential to directly influence a second theme: concerns over the organization’s ability to execute increasingly complex strategies for navigating a rapidly changing digital marketplace. We refer to these two themes as “talent and culture” and “technology and innovation,” respectively.

  • The talent and culture theme pertains to four risks in our top 10 list. Talent risks include uncertainties around succession and attracting and retaining top talent that is in high demand, as well as the formidable challenges associated with reskilling and upskilling talent that is needed thanks to the emergence of new job roles as a result of the adoption of artificial intelligence-enabled technologies. Culture risks revolve around resistance to change and organizational dysfunction associated with the inability to escalate risks timely.
  • The technology and innovation theme pertains to five risks. Three such risks involve the viability of existing operations, legacy information technology systems, and digital capabilities in competing with “born digital” players; cyber threats; and privacy and information security issues. The top risk—the threat of significant regulatory change—is also relevant to this theme due to concerns that changes in regulations can impact a company’s ability to innovate and transform its business model. Finally, the risk pertaining to customer preferences is germane because embracing technology and innovation are key to maintaining customer loyalty.

In summary, an organization’s digital maturity, ability to innovate, and culture can affect its ability to source and keep A-player talent in direct and powerful ways.

Operational concerns link to strategic implications. Six of the top 10 risks are operational in nature. Our assessment of these risks indicate that they have strategic underpinnings. For example, the acquisition and retention of talent can be critical to the success of a business in the digital economy. Therefore, while talent risk is operational in nature, it also has significant strategic implications as digital-savvy leadership and digital expertise are vital to the execution of the strategy and remaining competitive.

The nature of concerns related to uncertainty varies globally. The overall magnitude of risks increased for respondents at North America-based organizations, but respondents in almost all other regions indicated a lower overall magnitude for 2020 relative to 2019. Operational risks dominate most top five lists, led by North America, which includes four such risks in its top five. The restrictive impact of regulatory changes and scrutiny appears on every region’s top five list. Economic conditions are a top-five concern in every region except North America.

There is still a propensity to invest in risk management. Respondents noted that they are slightly less likely to devote additional time or resources to managing risk over the next 12 months relative to their plans in 2019. However, the likelihood of investing remains higher than two years ago, hinting at a continued appetite for improving risk management.

See the report for additional insights broken down by industry, executive position, company size and type, and geographic area. Consistent with prior years, there is variation in views among boards and C-suite executives regarding the magnitude and severity of risks for 2020, which suggests the need for dialogue at the highest levels of an organization to ensure everyone agrees on the critical enterprise risks. The board of directors may want to consider the above risks in evaluating its risk oversight focus for the coming year. If management has not identified these issues as risks, directors should consider their relevance to the company’s business and ask why not.

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