A recent survey of board members of large businesses around the globe highlights today’s most pressing business risks and just how much things have morphed over the last five years.
According to global business leaders, cyber and environmental risks have gained increased attention in corporate boardrooms in the last five years – and there are signs that the ethos of corporate governance is shifting as well, with greater emphasis on personal accountability and social responsibility.
These and other findings were drawn from a recent survey of 200 board members of large businesses in various industries around the world, “View from the Top 2019: How boards’ attitudes and approaches to risk management have evolved since 2014.” The survey, conducted by The Economist Intelligence Unit on behalf of the global law firm Clifford Chance, compares the 2019 results to results from 2014.
“We are seeing a clear evolution in boardroom priorities in response to both emerging global risks and an intensifying expectation of societal responsibility,” says David DiBari, co-head of Clifford Chance’s Global Risk Team and managing partner of the firm’s Washington, D.C. office. “These challenges are fueled by regulatory and geopolitical changes, along with a growing sense of accountability. Companies are well advised to get out front in addressing these shifts.”
The survey findings are divided into five key areas:
The Growing Expectation of Personal Accountability
There is a mounting sense that individual directors should be held personally accountable for key risks. As a result, a culture of individual accountability, complementing traditional collective responsibility, seems to be emerging. This trend is particularly strong in two areas: technology and diversity and inclusion. Eighty-nine percent of respondents say board members should be held personally accountable for illegal and unethical uses of technology by their companies, and 84 percent say the same of a company’s failure to meet diversity and inclusion targets.
Media coverage of gender gaps and sexual harassment in the workplace has likely contributed to this shift toward individual responsibility. As Michelle Williams, leader of Clifford Chance’s People Risk Team, puts it: “Board-level decision makers are now front-page news. Beyond the traditional scrutiny of boards as a collective, we see increasing pressure to hold individual board members responsible where a company has found itself in front of angry shareholders, aggressive regulators and a finger-pointing public. Understanding risks and decision-making processes are critical in light of this emerging trend of personal accountability.”
Shifting Corporate Priorities: Doing Good or Making Money?
The imperative for companies to minimize risk and be a positive force in society is now front and center as a key business priority. While corporate board members continue to discuss financial risk more than any other type of risk, the emphasis has waned. Concerns about so-called ESG issues – environmental, social and governance issues – have dialed up concern for human rights and progress around diversity. Growing pressure from the public seems to be a key driver in this area: Seventy-eight percent of respondents say that, over the next two years, social and consumer activism will be equally or more important than it is now – up from 59 percent in 2014.
Managing Exposure to Political Risk
Despite the recent rise in geopolitical tensions, only 23 percent of respondents included political risk among their top three areas of focus in 2019. Its prominence, however, is likely to grow in the near future, with more than half of respondents expecting political risk to become more important in the next two years. As a result, corporate boards already are developing strategies to mitigate this risk. Fifty percent of respondents say they will seek to manage political risk through enhanced corporate governance, while 41 percent may seek to limit new or additional investment in countries that are deemed difficult places to do business.
Climate Change Emerges as Major Concern
Environmental risk is increasingly regarded as a business concern, especially as global awareness of climate change itself continues to grow. Forty-nine percent of respondents express “significant concern” about environmental risks, compared with only 16 percent in 2014. There is broad agreement that companies should be held responsible for their contributions to climate change, with more than 90 percent of respondents saying that they fully understand their company’s contributions to climate change.
Surprising Confidence on Technology-Related Risk
In the five years since the 2014 survey, artificial intelligence (AI) has emerged as a day-to-day technological reality – and a cause for some societal concern. Nevertheless, respondents are remarkably confident in their ability to understand and address the risks posed by the use of AI, with 88 percent saying their board fully understands the legal, regulatory and ethical implications of their company’s use of data and AI.
Published November 6, 2019.