Topics: Risk Management
Topics: Risk Management
January 11, 2022
January 11, 2022
Protiviti’s latest global survey reveals that COVID-19, people and culture issues, the economy, and digital transformation are top of mind for C-level executives and directors looking at the risk landscape for 2022.
Our survey captures insights from 1,453 C-level executives and directors related to 36 risks on leaders’ minds for the coming year. Respondents to the survey (conducted in September and October 2021) represent companies from around the globe: 43 percent represent companies based in North America, 20 percent companies in Europe, 20 percent companies in the Asia-Pacific region, and 17 percent companies in other regions.
The highest-rated risk themes, listed here in order of priority, provide context for understanding the most critical uncertainties companies face over the next 12 months:
Many of the risk themes highlighted in last year’s survey remain top of mind this year; however, the way risks are being prioritized has changed. Three risks fell out of last year’s top 10: concerns pertaining to regulatory matters, competition with “born digital” companies, and data privacy. New additions to the top 10 risks list for 2022 center around talent challenges, including concerns about anticipated increases in labor costs, the inability to utilize data analytics and “big data,” and shifts in DE&I-related perspectives and expectations. Shifts occurred within the ranking of the top 10 risks, as well—the most notable being talent management and succession, which jumped from the eighth-ranked risk last year to second for 2022.
The survey also addressed risks over the coming decade. Stay tuned for a blog in February that will summarize those results.
Looking at the survey results, several key themes emerge (all of which come from our survey’s executive summary, with some small variations in wording):
Pandemic-related concerns continue to linger in the near term. New COVID-19 variants, the inability to vaccinate enough people in some countries, and the inability to provide sufficient doses of vaccines to others have sustained the pandemic—hamstringing recovery efforts and dampening sentiments around economic growth. The root cause for two of the top three overall risks for 2022 are pandemic-related and involve leadership concerns about the impact on business performance and demand for products and services.
People and culture are at the top of the agenda. The number-two overall risk for 2022 pertains to succession challenges and the ability to attract, retain, and develop top talent in a tightening market. Company culture also remains a priority, as resistance to change represents the seventh-ranked risk overall for 2022—a concerning issue in an environment of disruptive change. Talented people and culture are related, as the latter attracts the former and, effectively led, the best and brightest workers engender innovative cultures fit for purpose in the digital age. Themes relevant to people and culture include:
The economy continues to have a near-term impact. Concerns related to overall economic issues in domestic and international markets remain in the top five risks for 2022. The economy, including concerns about inflation, continues to represent significant challenges for leaders in many industries. Uncertainties associated with central bank policies around interest rates; the effects of slow-to-recover supply chains on the economic rebound from pandemic lows; the hamstringing effects of coronavirus variants on the economy; escalating fuel, food, and other costs; and a slowdown in the Chinese economy are factors contributing to these concerns.
Cyber risk remains a top risk. The top 10 risks for 2022 include cybersecurity issues. The rush to “go virtual” in all aspects of operations may have inadvertently created unknown security weaknesses, particularly on the human perimeter. Cybersecurity continues to be top of mind as nation-states, cybercriminals, and others evolve new attack strategies.
Social media and supply chain risks increased the most year over year. The risk rating increasing the most year over year in terms of severity—by 13 percent—pertains to social media developments and rapidly developing platform technology innovations significantly impacting operations, customer interactions, regulatory compliance, and brand management. Close behind is the impact of supply chain congestion and disruption, moving from 30th last year to 16th.
Overall, executives view 2022 as slightly less risky than 2021. In response to our survey’s question about the overall riskiness of the environment, the respondents’ collective response suggests that board members and executives perceive the risk environment for 2022 as somewhat less risky than they did when looking forward to 2021, but still slightly higher than pre-pandemic conditions two years ago in anticipation of 2020. The year 2020 was a tough experience for everyone and the unprecedented challenges most certainly influenced the outlook for 2021, whereas the outlook for 2022 is likely influenced by the progress made addressing the virus during 2021. Many people have been vaccinated, and our society is learning to live with the virus as it evolves to an endemic state.
Consistent with prior years, the survey for 2022 found differing perspectives among directors and C-suite executives on risks’ magnitude and severity. Of particular interest is the dramatic increase in overall risk concerns of CEOs relative to board members and other C-level executives. This increase in CEO risk expectations is likely the result of how quickly business conditions and market expectations are changing, as well as how CEOs may be feeling the pressure associated with these market dynamics more acutely than others. Directors should make it a priority to understand their CEOs’ points of view on the risk landscape as well as stress the need for dialogue and engagement among the organization’s key stakeholders in periodic risk assessments.
Boards should consider the above risk themes and takeaways in evaluating their risk oversight and governance focus for the coming year in the context of the risks inherent to their companies’ operations. If senior leadership hasn’t identified or prioritized these issues as matters to consider in managing the business going forward, directors should consider their relevance to the company’s strategy and ask why not.
NACD: Tools and resources to help guide you in unpredictable times.