Risk comes in many guises. Our tendency as an industry is to break it down into classes so we can understand and price it more effectively. Omnipresent risks however, such as supply chain, cyber and corporate risk cross traditional classes and pose a significant threat to a company’s business reputation.
Our latest Risk and Confidence survey of UK and European multinationals, carried out in Spring ’18, identified that business leaders’ attention is focused on cyber and regulatory risk. This is a change from previous reports where political and economic risk topped the risk ranking.
Although we welcome this new focus, there are other elements of boardroom risk such as supply chain and corporate risk, which despite recent high-profile corporate failures including Carillion, Weinstein and KFC – worryingly remain on the periphery of boardroom vision.
In our experience, business leaders who fail to get the balance right across the full range of their boardroom threats, put their business in the firing line, exposing it to significant and highly damaging reputational risk.
Supply chain and corporate risk not just ‘also rans’
Regulatory risk is a key driver of boardroom risk, but so too are supply chain and corporate risk – the risk of fraud, corruption, poor governance or pension exposure. Although supply chain problems can make instant headlines and put a corporate reputation in the spotlight, only a surprisingly low 8% of executives ranked supply chain as their key risk in our Spring ’18 survey.
The KFC supply chain issues demonstrated how large companies’ reputations can fall victim to supply chain risk. What started as a move to create business efficiencies ended up not only making the company the butt of the media’s jokes, it reportedly cost the firm over £1m a day in lost revenues (in addition to the impact on their share price), with the longer-term financial impact yet to be seen.
Corporate risk likewise registered as a significant concern with very few (only 10%) of business leaders. So, in the current climate, where stakeholders, customers, investors, suppliers, regulators – society in other words – is setting ever higher expectations of corporate behaviour – businesses need to ensure better management of corporate risks.
Reputational risk brings it all together
Boardroom risk is multi-faceted, defying existing silos, with the most serious risks no longer technical, but behavioural. As insurers, it’s our role to help our clients surmount the risks which dominate board agendas today, respond to the challenges which they identify for tomorrow, and identify the gaps in their risk analysis which are impacting their growth plans. This is the task that will define the industry in the years ahead.
Anthony Williams,
Chief Risk Officer