Executives throughout the world agree that the business landscape is riskier than ever. However, a new survey of 586 senior executives across several international industries reveals that many have not implemented an enterprise risk management plan, despite those feelings of insecurity.
The report, "2017 Global State of Enterprise Risk Oversight," found that 60 percent of executives worldwide have seen both the amount and complexity of risks facing their organizations increase in the past five years. This includes an increase in the number of "operational surprises" that organizations faced and felt unprepared to deal with.
"The increase in risks, and the operational surprises, are tied to the dynamic global business environment,," said Mark Beasley, co-author ofthe survey report and director of the Enterprise Risk Management (ERM) Initiative at North Carolina State University. "For example, Europe and the U.K. have seen issues ranging from the Brexit vote to immigration challenges, while Africa and the Middle East have dealt with a wide variety of challenges, such as disruptions caused by the ongoing war in Syria and conflicts with ISIS. The U.S. has been comparatively stable, but we seem to have entered a period of domestic political uncertainty – which is not reflected in the survey – and of course issues abroad can have significant effects on U.S. organizations."
The increase in perceived risk across the board might be explained by the increasingly connected global business environment. As communications technologies advance and companies globalize, cultures also become more intertwined, and what once could be perceived as an issue isolated to a particular region carries clear business implications for firm's halfway across the world. As these challenges continue to grow, Beasley urged companies to adopt top-down enterprise risk management (ERM) plans to prepare themselves for the seemingly inevitable surprises, whatever they might be.
"All organizations engage in risk management, but conventional risk management is done in silos, whereas the ERM approach allows for a holistic overview of risks across silos," Beasley said. "In other words, it helps executives identify risks that span multiple silos, or that fall into blind spots that an organization might otherwise miss."
That sort of planning remains abysmal among global companies. According to the report, only 21 percent of European executives had a complete ERM process in place. In Africa and the Middle East, only 24 percent reported they had an ERM plan. In the U.S., that number was just 26 percent and in Asia, where executives reported the highest levels of preparation, just 30 percent of companies had completed an ERM plan. In addition to the lack of planning, the report showed 80 percent of responding executives said they don't conduct any formal risk management training for their C-Suite.
"We found that there was no part of the world where a majority of organizations are doing all they can do to address risk – but the U.S. appears to be lagging more than most," Beasley said. "And that could have consequences for our global competitiveness in the long term."
As boards prod executives to become more proactive in an agile, globalized environment, many have expressed an interest in developing their programs. 56 percent of executives in Europe said they would develop an ERM plan, with the number rising to 59 percent in the Africa region and 70 percent in the Asia region. However, only 38 percent of survey respondents in the U.S. said they would move ahead with an ERM plan.
The report was co-authored by Bruce Branson, associate director of the ERM Initiative, and Bonnie Hancock, executive director of the ERM Initiative.