Some Predictions from Clyde & Co;
People and regulatory risks have soared to the top of board, C-suite and General Counsels’ (GC) agendas against the backdrop of continued pandemic-related challenges and an ever-more complex risk landscape, according to global law firm Clyde & Co and membership network Winmark’s latest Looking Glass Report.
People-related risks, such as those that arise from difficulties retaining and attracting talent and concerns over mental health, have risen to the top of the list of risks, with 69% of all respondents expecting this risk to have a high or very high impact on their organisations, while increased regulation and compliance (64%) is in second place in terms of respondents ranking it as a high or very high impact risk, and the most significant among the GC sample. Technological risk (54%) features in third place.
The annual Looking Glass report brings together the findings from Clyde & Co and Winmark’s survey of senior leaders from Board Directors and CEOs, GCs as well as other senior C-Suite executives, including CFOs, CIOs, COOs and CROs, asking them to assess greatest risks impacting their businesses in the next two to three years.
Chris Burdett, a commercial litigation Partner at Clyde & Co, comments: “The pandemic was of course a risk management exercise like no other seen in a generation but its ripples are still being felt. Our survey of GCs and the c-suite speaks of a risk landscape that is more complex and difficult to manage and one where the focus has shifted rapidly onto the challenges of the post pandemic transition as organisations face skills and labour shortages, fractured supply chains and the pressures of an ever more active regulatory environment. While many organisations are to some extent more comfortable in their ability to digitise their operations following the pandemic, they are less comfortable with the ongoing risks associated with this rapid shift.”
People challenges rise in pandemic recovery
People challenges – from recruiting and retaining staff due to record vacancies and high competition for talent, to succession planning and fears of skills shortages that will affect long-term planning – were cited most commonly as high impact risks. Staff well-being, mental health, and supporting remote workers are other high priorities. Sixty-nine percent (69%) overall ranked people challenges as a high or very high impact risk, with 80% of C-suite respondents citing it as a high impact risk. 30% of C-suite respondents suggested they were not prepared for this risk.
Heidi Watson, an employment Partner at Clyde & Co, comments: “Not only have businesses had to cope with the risks that came from the unprecedented shift to remote working, they are now adjusting to new working models while facing a skills shortage as economies bounce back but the workforce takes time to adjust. There will be more focus on workplace culture, training and development as employers seek to attract and retain talent. Meanwhile, the focus on wellbeing and mental health that came from the pandemic and was identified in the survey has been a positive step, and businesses will be assessing how they can implement new processes and systems to ensure they manage the impacts on individuals and their organisations.”
An increasingly regulated global business environment weighs heavy
Sixty four percent (64%) of respondents overall said the increased regulation and compliance would have a high or very high impact on their businesses, particularly when managed across international regulatory regimes. However, 70% of GCs believe that dealing with an increasingly regulated global business environment will have a high impact on them and their legal teams – more than any other risk in the next two to three years. The regulatory issues they face include compliance with bribery and corruption legislation, modern slavery, GDPR, and ESG regulations.
Rachel Cropper-Mawer, a regulatory and investigations Partner at Clyde & Co, says: “This survey bears out the experience of the clients we work with day to day with multinational organisations having to get to grips with a diverse and increasingly complex web of regulatory regimes across different geographies. Not only are laws and regulations more complex, but regulators are increasingly taking enforcement action and baring their teeth with bigger fines. The scale of this challenge can be clearly seen in the various data protection laws, increasing number of strict liability corporate offences, laws requiring transparency of ownership of property and control of companies, and ESG laws unique to specific jurisdictions that have emerged over the last few years and the huge business costs of compliance. Regulators are also not averse to bringing criminal charges against organisations and individuals.”
Technology risks remain prominent but businesses are more prepared
In third place overall, 54% of all respondents said technology risks such as IT disruption, data loss issues, and implementation of new technology are high impact risks.
Remote working, ecommerce, and digitisation of operations – all hastened by the pandemic – have in turn further heightened concerns about data security.
Dino Wilkinson, a technology Partner at Clyde & Co, says: “Digital transformation hit top speed during the COVID-19 pandemic as traditional businesses were forced to urgently adapt to new ways of working. The result is that organisations have confidence in further digitalisation and the positive impact it can have on their businesses. However, this is tempered by concern about some of the risks involved, including cyber threats and increased regulatory compliance challenges.”
Leaders are least prepared for climate change and societal risks
The biggest change in perception since last year’s report is in relation to climate and societal risks. Climate change (which includes climate change liabilities, natural disasters, and energy transition) was cited by 47% of respondents as a high impact risk (placing it 6th in the risk register) which is a significant perception change in GCs (+32%) and boards (+10%) from last year’s survey. Not only that but senior leaders surveyed say that they feel least prepared for climate change risks (30% not prepared), with societal changes (29% not prepared), and geopolitical risk (26% not prepared) following it on the list.
GCs are grappling with how they should identify, assess, and manage climate-related risks; and what metrics and targets they will use.
Nigel Brook, Partner at Clyde & Co and member of the firm’s Climate Change Risk practice, says: “There has been intense scrutiny on governments, regulators and businesses over the past year in relation to climate change, not least as the recent COP26 summit has forced the issue up the global agenda. The importance of good governance cannot be overestimated. Putting climate risk awareness at the heart of decision-making and embedding it into both strategy and culture at all levels of an organisation is crucial. Since achieving net zero will require significant investment as well as regulation, this could create major opportunities for businesses, as well as risks they need to be very alive to.”
Complex risk landscape will require new ways to manage risk
Respondents all agreed that the risk landscape has become so complex and demanding that companies will need to develop new methods of risk management.
Seventy nine percent (79%) said the risk landscape is more complex than two to three years ago. A further 69% said that risks such as the pandemic and climate change will require new approaches to address and manage the risks.
John Madden, Research Director at Winmark said: “The risk landscape in the last 12 months has been increasingly fast-moving and unpredictable, with the pandemic testing the agility and resilience of all organisations. Leaders are having to reframe and rethink their working practices and the purpose of their operations which will result in new ways of managing and adapting to known and unforeseen risks.”
About the survey
The research was carried out by Clyde & Co and Winmark, the professional member network, in Summer 2021], with over 140 senior business leaders from global organisations across a wide range of industry sectors from insurance, construction, travel, tourism and hospitality, to energy and infrastructure. Half of those surveyed were headquartered from outside the UK and with operations across all regions (Asia-Pacific 25%, Europe 9%, North America 11% and Middle East 3%).
This year, Clyde & Co and Winmark have separated the 2021 findings into three separate reports: the first, launched today, looking at the overall risk landscape. The second report will be an in-depth analysis of pandemic-related risk, climate change and digital transformation, and the third report will explore the role of the GC, with both set to publish early next year.
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