North Carolina State University’s ERM Initiative and Protiviti recently completed the latest survey of C-level executives and directors worldwide regarding the macroeconomic, strategic and operational risks their organizations face. The top risks for 2017 provide insight as to what’s top-of-mind currently among leaders around the globe.
Overall, 735 C-level executives — 55 percent of whom are based in the United States, with the balance distributed between Europe and Asia-Pacific — participated in this year’s study, which was conducted in September 2016. These executives revealed that their respective organizations face significant issues and priorities that vary by industry, executive position and company size and type. They indicated that the overall global business context is noticeably more risky than in the two prior years, with respondents in the U.S. indicating it’s about the same as in prior years. The overall risk scores for all of the top 10 risks are higher than prior years, suggesting that executives perceive the level of risk is increasing across several dimensions.
Note that this survey was conducted during the fall of 2016 and was completed just before the 2016 election results were in. It is a fair question as to whether the survey results might have been different had President Trump’s election been known. We believe that, if anything, the results might reflect even greater uncertainty, because many observers were of the view prior to the election that a Clinton administration would have continued the policies of the prior administration. Such is not the case with the Trump administration, which has promised tax and regulatory reform as well as an overhaul of the nation’s trade deals with selected countries. Accordingly, the implications of change in policy on the global outlook must play themselves out over time.
In our report on the results, we ranked the common risk themes in order of priority on an overall basis, noting the previous year’s rankings parenthetically. This summary provides a context for understanding the most critical uncertainties companies are facing as they move forward into 2017.
Three risks fell just short of the top 10 risk cutoff – (a) uncertainty surrounding political leadership in national and international markets, (b) anticipated increases in labor costs impacting ability to meet profitability targets and (c) inability to utilize data analytics and big data to achieve market intelligence and increase productivity and efficiency. The point is that these risks are also significant to some companies.
The above results are global. Respondents from the U.S. noted similar risks but ranked them differently. One other notable survey finding: The respondents in Asia-Pacific and Europe reported that the risks their organizations will be facing with respect to reaching or exceeding profitability (or funding) targets over the next 12 months have increased slightly in terms of magnitude and severity compared to the assessment reported in last year’s survey (in which the participating respondents looked forward to 2016). In the U.S., the level of risk is about the same.
Senior executives and boards of directors may want to consider the above risks in evaluating their risk oversight focus for the coming year in the context of the nature of the entity’s risks inherent in its operations. If their organizations have not identified these issues as risks, executives and directors should consider their relevance and ask why not.
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Jim DeLoach has over 35 years of experience and is a member of Protiviti’s Solutions Leadership Team. With a focus on helping organizations respond to government mandates, shareholder demands and a changing business environment in a cost-effective and sustainable manner, Jim assists companies in integrating risk and risk management with strategy setting and performance management. Jim has been appointed to the NACD Directorship 100 list from 2012 to 2016.