C-suite focuses on risk as volatility continues
23 July 2012: A joint Deloitte and Forbes Insights survey ‘Aftershock: Adjusting to the new world of risk management’ has revealed risk is increasingly a C-Suite issue. Almost half the executives surveyed (49%) said the main responsibility for overall risk management now sat with either the Chief Executive Officer or the Chief Financial Officer, while only 19% said that responsibility belonged with the Chief Risk Officer.
Harvey Christophers, Deloitte’s Risk Services Leader, said that while the ‘Aftershock’ had surveyed executives in the United States, the results reflected the climate of uncertainty that has prevailed in Australia and globally since the GFC.
“Of the US executives interviewed, 41% identified the global economic environment as the greatest source of risk over the next three years and that’s certainly being reflected in local sentiment despite our strong overall economic position,” Mr Christophers said.
“Since the GFC, companies globally have continued to experience massive disruptions within their businesses – a trend that is reflected in the Aftershock survey with respondents saying they were concerned about increased volatility in their financial (66%), strategic (63%) and operational (58%) risk profiles,” Mr Christophers said.
“As a result, Boards and the C-Suite both here and abroad are becoming increasingly aware of the importance of managing risk in the face of ongoing volatility and many are now realising that in some respects their true competitive advantage will lie in their ability to manage and respond to these challenges better than anyone else,” he said.
“In fact, 40% of Australian Audit Committee Chairs who responded to Deloitte’s recent Audit Committee Effectiveness Survey identified risk as one of their top three issues over the next 12 to 24 months and we are seeing a number of ASX100 organisations embark on projects to overhaul their risk management processes – often sponsored or lead by the CEO and Board.”
“However, despite advances in risk-related technologies and concern about unstable risks, less than 25% of respondents to the Aftershock survey said their organisations continuously monitored risk, with most monitoring done only periodically.”
“The vast majority of US executives surveyed (91%) saying they planned to reorganize their risk management approach to some degree in the next three years,” Mr Christophers said. ”However, according to 28% of respondents the most common challenge to effective risk management was that ‘people are unaware of what they need to do concerning risk’, indicating that traditional risk management approaches are no longer hitting the mark.”
“In Australia, we are increasingly seeing businesses take a critical first step in moving beyond the old compliance based approach. Instead, they are looking for solutions that not only identify where the risks currently lie and how well they are managing those risks, but also how well they are responding to looming risks and anticipating what they could be five or even ten years down the track. Companies are beginning to see that a ‘one size-fits-all’ approach to risk management is falling short because, in the current environment of uncertainty, risk processes need to be adaptable to a multitude of scenarios,” Mr Christophers said.
“The risk landscape is continuously changing. A few years ago, social media would not have been on the radar for most risk processes and now we’re seeing it ranked among the top five sources of risk by 27% of the US survey respondents - neck and neck with financial risk. It’s just one more factor in the volatile risk environment that is requiring organisations to be nimble in assessing their risk profile with a forward looking ‘organisational preparedness’ approach.”
Mr Christophers said that despite their increasing focus on risk, the executives surveyed identified a number of issues hindering their risk management programs, including cost and budgetary constraints (27%), organisational complexity (21%), lack of top leadership prioritization (17%), and weakness in risk culture (15%).
This report is based on a survey of 192 U.S. executives from consumer and industrial products, life sciences, healthcare and technology/media/telecommunications industries conducted by Forbes Insights in association with Deloitte. Roughly one quarter of the respondents were from companies with revenues of $1 billion to $5 billion; another quarter were from companies with revenues ranging from $5 billion to $10 billion; a third quarter were had revenues of between $10 billion and $20 billion; and the remainder were from companies with revenues of more than $20 billion.
The largest group of respondents (65) had titles of SVP/VP or director, and the second-largest group (49) consisted of CEOs, presidents and managing directors, followed by CFOs/treasurers and comptrollers (26). Their main functions were finance (93) and corporate management (81). The information obtained during the survey was taken “as is” and was not validated or confirmed by Deloitte.