With every passing year, the risk landscape becomes increasingly fast-moving and unpredictable. The Russia–Ukraine War has plunged the entire world into a new risk landscape and COVID-19 has seriously tested the resilience and agility of all organisations. Leaders have been forced to accelerate digital transformation (whilst maintaining robust infrastructure and data security); respond to rapidly changing customer behaviour and sustain organisational culture and employee well-being in the face of drastic upheaval. All of this on top of an already difficult political, economic and regulatory environment, amid an unstable international situation.
To explore how organisations are dealing with this complex global risk landscape, we consulted +140 senior business leaders from organisations across a wide range of sectors and with a truly global footprint. In a time of increased departmental integration and demand for inter-disciplinary expertise, we also extended the study to take an enterprise-wide view, gaining the perspective of Board Directors, CEOs and General Counsel (GC) as well as other senior C-Suite executives.
PART 1 examines the overall risk landscape, focusing on the risks that business leaders expect to have the biggest impact in the next two to three years: People, Regulation and Technology.
PART 2 takes a deep-dive into three topics currently dominating Board agendas — Digital Transformation, Climate Change and Pandemic Risk.
PART 3 explores how the GC role is adapting to an era where the Ukraine war, digital transformation, increasing regulation, the pandemic and climate concerns have been adding further complexity to an already challenging business risk environment.
1: THE EVOLVING GLOBAL RISK LANDSCAPE IN 2022/23
What are the key risks facing business leaders and how has the risk landscape evolved in the last couple of years? Are Boards and management ready to tackle these new challenges?
The three areas of risk that business leaders expect to have the biggest impact on their business in the next two to three years are People, Regulation and Technology.
People risk is identified as the highest impact risk overall. The ability to attract and retain staff will become of even greater importance as a driver of competitive advantage. Staff well-being will continue to be a priority in order to attract staff, aid retention and ensure that higher numbers of remote workers are fully supported.
Dealing with an increasingly regulated global business environment is expected to have a bigger impact on GCs specifically than any other risk. Multinational organisations are particularly concerned about the complexities of managing multiple international regulatory regimes. GRC (governance, risk management, and compliance) technology is becoming an increasingly important tool to manage this complexity.
Remote working, acceleration of ecommerce and growing digitisation of operations have significantly heightened concerns about data security.
Supply vulnerability will lead to the following long-term changes: – Diversity of supply to strengthen resilience. Some production is likely to end up closer to home as companies manage their exposure to geopolitical tensions. – Reassessment of the balance between inventory efficiency and resilience.
Climate change has increased significantly as a risk management priority. Leaders are grappling with how they should identify, assess, and manage climate-related risks. They are also evaluating how they will balance a drive for ‘purpose’ with the need to be profitable.
2: A DEEP DIVE INTO THE NEW RISK LANDSCAPE
How are the C-Suite Executive managing the challenges of digital transformation & technology, climate change and the pandemic recovery?
A SPOTLIGHT ON THREE KEY THEMES IN THE NEW RISK LANDSCAPE:
The top three digital transformation and technology trends are data analytics, remote working and Cloud computing. Business leaders are ambitious to improve and extend the capabilities of their remote working tech infrastructure, including technologies such as 3D modelling, to enable remote communication and decision making between sales staff and clients AI is recognised as introducing new and complex implications for risk management. Problems recruiting technologically skilled staff have been severely exacerbated by the skills shortage resulting from the pandemic. Cyber threats remain the top technology risk – instigating common policies and procedures across multiple countries and departments is a great challenge.
Climate change risk
Pressure to set and meet climate change targets is strong, but so is the need to manage recovery from the pandemic without compromising profitability. Organisations are considering whether they have a clear purpose that is compelling to employees, customers, suppliers, local communities, shareholders etc. The need to attract and retain younger staff is a key driver for this mindset. Leaders are increasingly required to consider making decisions that could have a short-term negative impact on returns to shareholders, but may, in the long term, build a more valuable, sustainable business.
Board, GC and C-Suite respondents all agree that the pandemic-related risk with the highest impact will be changed market conditions. All organisations are assessing the long-term impact of the pandemic on demand for their products and services. The pandemic will permanently alter the property portfolios of businesses, leading to many service industries relocating to suburban or rural areas. The character of cities and local high streets will permanently change. Organisations will permanently retain digital interaction with customers, with greater exposure to associated cyber security risks and regulatory demands. This has created a shift to more iterative approaches to product and service development. Board and GC respondents are concerned about the prospect of a high inflation economy. The key challenges of the hybrid working model will be maintaining a positive culture and ensuring that new and younger staff are effectively integrated.
3: THE CHANGING ROLE OF THE GENERAL COUNSEL (GC)
Perceptions of the role of the General Counsel against the backdrop of the continuously evolving risk landscape.
A SPOTLIGHT ON THE CHANGING ROLE OF THE GENERAL COUNSEL (GC):
The role of the GC
GCs need to work closely with colleagues across functions (such as in procurement and commercial contracting departments) to collaborate on decisions and ensure the right digital tools and processes are in place to deliver value. They also need to lead digital transformation of processes in their own departments through implementing legal technology such as contract review, analytics and management tools that streamline timelines
Perceptions of the GC role
For three years in a row, perceptions of the GC role among board respondents have become more closely aligned with GC’s own perceptions of what they do, particularly on the amount of time spent ‘Working on strategic legal projects’, ‘Advising the board on legal, risk and compliance issues’ and ‘Working on strategic projects across the wider business e.g.: ESG’. The GC role increasingly requires in-depth knowledge of regulatory regimes and government policy and is taking on more responsibility for company-wide compliance and ESG implementation initiatives. This makes horizon scanning more important than ever, particularly when predicting the potential impact of legal and regulatory changes.
Perception of GC performance
To succeed, the successful GC of the future will need to have an expanded skillset. In addition to technical legal knowledge and skills, the role will increasingly need to be co-operative, collaborative and cross-functional; and able to demonstrate strategic influence and credibility. Dynamic and creative use of partnering and outsourcing will be necessary to react quickly to new challenges and draw in external expertise.
NAVIGATE THE 2022/23 RISK LANDSCAPE
Read Part 1 of the report to discover whether boards and executive teams feel they are fully prepared to deal with the challenges of People, Regulation and Technology risks.
Read Part 2 for a deep dive into Digital Transformation & Technology, Climate Change and Pandemic risks.
Neil May, Chief Operating Officer, Thackray Williams
“We take the well-being and the mental health of our staff even more seriously than we did before. And I’ve seen other firms do so too. We communicate a lot: we have had weekly calls, including with people who were furloughed, and we’ve done numerous staff surveys. We do a lot of talking and listening and have a specific budget for counselling. We start every board meeting talking about our people and well-being and every partner meeting checking in on how people and their teams are.”
Shaun Johnson, Vice President - Legal, Miahona, Saudi Arabia
“ESG has increased in its prominence at Board level, although I think in this region (Middle East) it gets lower priority than in other developed jurisdictions. Our group of companies have recently put all of our C-Suite executives (including in our subsidiaries), through Board training programs which focused on ESG (including the UN’s 17 sustainability goals and best practice in governance). The driver for this Board level and c-suite training is to instil an ethos in the culture of our group to ensure these issues are on the minds of every senior executive as they carry out their day to day activities.”