WTW’s latest Global Directors' and Officers' Survey report covers the seven top risks across more than 50 countries.
|Financial, Executive and Professional Risks (FINEX)|Work Transformation|Health and Benefits|Benessere integrato
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New research reveals the top business risks reported by corporate directors and officers globally for 2024. Health and safety moved to the number one spot from number five last year. Effective leaders adopt an enterprise-wide approach to analyzing emerging risks and creating optimal risk financing programs. And they ask key questions during their analysis.
In addition to health and safety emerging as the top risk, new entrants on the list include systems and controls, and breach of sanctions, reflecting heightened geopolitical tensions and the increasing complexity of corporate governance.
Rankings vary by region. For example, climate change remains a top seven risk in Asia, Australasia and the Middle East, but not in other regions. Breach of human rights is the number two risk in Africa and a top seven risk in Asia. Civil litigation is a top seven risk in North America and Latin America. Board structure is a top seven risk in Asia. AI and machine learning is a top seven risk in the Middle East. Supplier business practices are a top seven risk in Africa.
With thanks to WTW’s Louise Pennington and Erin Boulware in a recent article in Business Insurance, effective leaders take the following actions to manage and mitigate risks:
Take a holistic approach to risk management and dynamic decision making. Today, effective boards and business leaders consider risks ranging from artificial intelligence, climate change and cyber to geopolitical developments and societal shifts in labor. These leaders understand that traditional siloed risk approaches are insufficient in the current environment, which requires decision makers to adopt an enterprise-wide approach to analyzing emerging risks and creating optimal ways to finance risk mitigation.
Agree on risk appetite for the organization. Effective leaders align risk management plans with organizational risk appetite and tolerance. Even within the same industry, companies may have vastly different abilities and appetites for financial volatility. For example, one organization may prefer to retain risk, while another may elect to transfer it whenever possible. The right route for a given organization depends on its financial strength and goals.
Adopt a portfolio approach to risk management and mitigation. Effective leaders use portfolio analysis when considering their organization’s total exposure across risks and when examining combinations of investment options to manage risk. Employing one language and framework across risk portfolios enables leaders to define the strategy that's right for their organization — the set of risk mitigation investments that delivers the needed risk protection for the least cost.
For example, leaders can evaluate investments in areas such as supply chain resiliency, labor reskilling or cybersecurity enhancements. The benefits will include minimizing cost or risk (or both), connecting organizational risk strategy with financial strategy, enabling transparency and enhancing communication about risk across the organization.
Ask the right questions. Two of the most important questions effective leaders ask when considering novel risks are: What do these risks mean for our business? What are our options for managing them? Answering these questions often requires translating data through analytical models and algorithms. Additionally, the following questions serve as a framework for analysis to drive effective risk portfolio management and optimization:
What unexpected, unfunded event would be material to the organization? Materiality differs for every organization and depends not only on size and strength but also on the organization’s financial objectives.
Which events does the organization want to guard against? This question strives to identify types of losses that could exceed the organization’s risk tolerance.
How do we guard against risks that are unknown or not on our screens? Experts often ask, “How can we avoid ‘failure of imagination’ in considering risks we have never experienced before?”
What does the organization’s total risk picture look like? A thorough understanding of one’s total risk picture requires identification and quantification of risks. Even emerging and complex risks can be quantified, which represents an essential component of effective risk management.
What can the organization do to mitigate risk? Another way to consider this question is, what investments can the organization make to reduce its risks?
Which risk financing solutions make the most sense for the organization? After considering the above questions, risk financing options become easier to answer as the protection gained from each investment in mitigation becomes more apparent.
Effective risk management in today’s dynamic and uncertain environment can be challenging to any board or senior management team. The most effective leaders employ an array of strategies to identify, assess, predict, prepare for and mitigate risks.
A version of this article originally appeared on Forbes on April 17, 2024.
