The top risks that corporate leaders see on the horizon include the effect of regulatory changes combined with heightened regulatory scrutiny on product and service offerings; global economic conditions that are significantly limiting growth potential; and an unstable political climate in different markets worldwide, according to Executive Perspectives on Top Risks for 2013, a just-released report of survey findings from global consulting firm Protiviti (www.protiviti.com) and the Enterprise Risk Management (ERM) Initiative at North Carolina State University’s Poole College of Management.
The survey sought the views of more than 200 board members and C-level executives across a wide variety of industries about the risks their organizations expect to face in 2013. Participants were asked to rate a list of 20 risk issues on a scale of one to 10, with one indicating “no impact” and 10 indicating “extensive impact.”
Reminder of need for more risk management
“The results of this survey are a staunch reminder of the need to devote more resources to risk management and risk oversight, including greater investment in internal controls,” said Jim DeLoach , a managing director with Protiviti. “The complexities and risks within the global business environment will only continue to expand, which is why it is imperative that corporate leaders and their boards continue to have the right insights and tools to help them manage the developments and emerging issues that surround a very dynamic regulatory, economic and political environment.”
According to the survey results, the top 10 risks rated as having the greatest impact in 2013 are:
|1||Regulatory changes and heightened regulatory scrutiny may affect the manner in which our products or services will be produced or delivered||6.8|
|2||Economic conditions in markets we currently serve will significantly restrict growth opportunities for our organization||6.5|
|3||Uncertainty surrounding political leadership in national and international markets will limit growth opportunities||6.0|
|4(tie)||Organic growth through customer acquisition and/or enhancement presents a significant challenge||5.5|
|Succession challenges and the ability to attract and retain top talent may limit our ability to achieve operational targets||5.5|
|6(tie)||Anticipated volatility in global financial markets and currencies will create challenging issues for our organization to address||5.4|
|Cyber threats have the potential to significantly disrupt core operations for our organization||5.4|
|Ensuring privacy/identity management and information security/system protection will require significant resources for us||5.4|
|9||Resistance to change will restrict our organization from making necessary adjustments to the business model and core operations||5.2|
|10||Our existing operations may not be able to meet performance expectations related to quality, time to market, cost and innovation as well as our competitors||4.9|
Of note, while the overall ranking of the regulatory environment was 6.8, the financial services and healthcare sectors both showed significantly higher levels of concern, with rankings of 8.5 and 8.2 respectively.
“An aggressive regulatory environment is here to stay and companies must be prepared or risk being overwhelmed and distracted by it,” said Carol Beaumier , executive vice president with Protiviti. “The executives surveyed clearly understand the commitment and resources required to manage the new regulatory world they do business in, and the significant risks, both financial and otherwise, to a non-compliant approach.”
Finding new areas of growth a challenge
Beaumier added, “The respondents to our survey also clearly indicated their concern about identifying new areas for growth, given the economic conditions in the markets their companies currently serve.”
According to Dr. Mark Beasley , Deloitte Professor of Enterprise Risk Management and director of the ERM Initiative at NC State’s Poole College of Management, the growing number of companies that have operations in foreign countries and more dependency on a global economy has increased the need to anticipate and manage risk around political uncertainties and volatility in global financial markets.
“While the largest companies may often seem to have the greatest international exposure to these risks, the reality is that few organizations are immune to the vagaries of the global economic and financial markets and the related impact on demand, rates, credit availability and currencies.”
Additional Survey Highlights
- Overall, most executives rated the current environment as significantly risky, with the majority saying they are likely to make changes or deploy more resources during the next 12 months to manage their respective risks.
- Chief risk officers (CROs) and CFOs were the groups with the highest ratings in terms of their likelihood to make changes.
- The largest organizations rated the greatest number of risks as “Significant Impact” risks, reflecting the complexities of their operations.
- The nature of risks varies noticeably across different industries and sizes of organizations, with financial services, healthcare/life sciences, and technology, media and communications organizations reporting the greatest number of significant risks.
- Not surprisingly, information security breaches and cyber threats that have the ability to disrupt core operations ranked high on the list of challenges, with financial services and technology, media, and communication companies showing the highest levels of concern in this area.
Podcast and Webinar
The report from Protiviti and NC State Poole College’s ERM Initiative, Executive Perspectives on Top Risks for 2013, is available at www.protiviti.com/TopRisks and www.erm.ncsu.edu, along with a podcast featuring DeLoach and Beasley discussing the major findings from the study.