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2020 Global Risk Landscape Report

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2020 Global Risk Landscape Report GLOBAL RISK LANDSCAPE 2020 The integrity index GLOBAL RISK LANDSCAPE 2020 3 FOREWORD By Nigel Burbidge, partner and global chair of risk and advisory services at BDO After 45 years in professional services, I Integrity should be woven into appreciate more than ever the power of the fabric of the company integrity. Being trusted confers extraordinary NIGEL BURBIDGE, BDO Nigel Burbidge, advantages to a business. partner / global chair, Risk & Advisory Services, BDO Speed, for example. When the great investor I advise companies to imagine they work in a Warren Buffett bought a division of Walmart, glass box. Everything is visible from the outside. he did so on trust alone. He wrote in his annual report to investors: “We did no ‘due diligence’. In today’s world, reputation has never been We knew everything would be exactly as more important, which is why integrity is at Walmart said it would be, and it was.” While the heart of how we work at BDO. it’s not an approach I’d recommend, just think of the months of due diligence and millions of Our 2019 Global Risk Landscape survey dollars saved because both parties knew they identified “damage to reputation and brand could trust each other. value” as the top risk businesses were unprepared for. In this year’s survey, which Customer loyalty is another dividend. ran from 21st February until 12th March prior Customers flock to brands they believe in. to the Coronavirus pandemic, we wanted to Vicky Gregorcyk British retailer John Lewis is an outstanding explore the links between integrity National Leader, Risk Advisory Services, example. It built its reputation by offering and risk. This 2020 report is the result. BDO USA [email protected] honest advice combined with a “no quibble” It unearths some remarkable insights. returns policy, which customers know they can rely on. There’s no spin with John Lewis. Clearly integrity is vital, with 99 per cent of The high street is a tough place, now more respondents agreed on that, but we found than ever, but that sense of integrity allows deep disagreement on who is responsible for the company to outperform rivals. It regularly transparency. One in three companies admits tops the UK’s most trusted brand rankings. to being “reactive” on reputation: not the best strategy. And a disturbing 87 per cent of respondents believe %that business integrity is 99 You can’t fake it. There was a time when say their company may be guilty of integrity fundamental to a brand’s reputation a company could curate an image with washing. Clearly there is work to do. marketing. The reality could be masked. No more. Social media means a single misstep My view is integrity should be woven into the can be broadcast around the world in minutes. fabric of the company. Everyone from the Investors want deep insight into their holdings. chairman down to the post room must share We are seeing the rise of integrated reporting, the same ethos. whereby companies report wider metrics 100of respondents believe integrity should% be beyond profit and loss. These include the I hope this report provokes a renewal of your built into a business to avoid reputation and carbon footprint of their supply chain and their own commitment to integrity. It has never brand damage corporate social responsibility programmes. mattered more. 4 GLOBAL RISK LANDSCAPE 2020 GLOBAL RISK LANDSCAPE 2020 5 The biggest risks to reputation? Respondents The public remains vigilant about the EXECUTIVE SUMMARY identified a wide variety of flash points. Major behaviour of companies. Our survey shows Businesses’ risk appetite has risen risks in the next one to two years include a one in three respondents believes their in the past year failure to have robust succession planning customers are less confident that the brand 2019 2020 Threats to corporate reputation are constant while (39 per cent); the rate of globalisation (35 will do what is right, compared to five years integrity remains paramount in a fast-changing world per cent); and risk posed by a poor corporate ago. On the plus side, 35 per cent think culture (47 per cent). Risks from people are their customers have more confidence over 31% 19% 10% front and centre: 50 per cent of respondents the same period. Are companies accurately 42% worry about a new generation requiring tracking how customers see them? The issue different working styles and 38 per cent point is examined in more depth on page 24. The chemicals entrepreneur Jon Huntsman to a lack of diversity in their organisations. had a clear view about integrity. For him it The board may be overlooking current threats. was the cornerstone of commerce. “Boards are focused on the critical success Chief risk officers report a significantly higher rate factors to commercial projects,” says Marita of threats than chief executives and managing “There are no moral shortcuts in the Corbett, BDO leader of risk advisory in directors; it implies one in four reputational game of business or life,” he wrote. “There Australia. “But a great strategy can unravel events are missed by company leaders. are, basically, three kinds of people, the as a result of reputational impacts. We can unsuccessful, the temporarily successful, and all think of brands that were damaged, even A key issue is who leads on integrity? Our those who become and remain successful. destroyed by an adverse event that came respondents are in no doubt: 62 per cent The difference is character.” out of the blue. It is imperative boards think agree their brand is either synonymous or about potential challenges before they arise.” closely tied to that of the chief executive. This BDO set out to discover the state of integrity tight connection is a double-edged sword: 85 in business today and why businesses need The survey shows companies are alive per cent of respondents say leaders becoming to treat integrity as a priority to help them to the dangers, with 25 per cent saying more visible introduces a reputational risk. succeed. This report is the result, the fifth in shareholder price is a primary consequence A misbehaving chief executive can destroy a our annual series on risk. of reputational damage, and a quarter brand. The role of chief executives in building also believing customers will take their integrity is analysed in detail on page 14. Our survey of 500 C-suite executives across custom elsewhere. Other impacts include Europe, the Middle East, Africa, Asia-Pacific damage to company culture and low staff We wanted to track the most important threat and the Americas explores how reputational morale, a drop in productivity, financial vectors and the survey supplies the results. In risk is perceived and managed. Companies losses and low employee retention. This 2017 the top three risks were technological that want to defend their good name need to highlights the need for boards to pay close changes, regulatory risk and macroeconomic heed the lessons. attention to integrity. developments. The priorities of 2020 are very different: the top three are economic slowdown, The headline message is that threats to computer hacking and business interruption, corporate reputation are constant. The showing that the world we are living in is survey shows 70 per cent of respondents In the future I expect changing faster than before, bringing new believe their organisation has experienced an to see a focus on how AIs opportunities and challenges for businesses. event that posed a threat to its reputation. are monitored Among family businesses (91 per cent) and Technology poses multiple risks. The threat of Respondents who Respondents who MARKUS BRINKMANN, describe their describe their manufacturing (89 per cent), the threat level a privacy breach is well appreciated, with 31 organisation as ‘risk- organisation as ‘risk was particularly acute. BDO GERMANY per cent citing it as the top IT threat in taking when necessary’ averse’ 6 GLOBAL RISK LANDSCAPE 2020 GLOBAL RISK LANDSCAPE 2020 7 the next one to two years. Almost one in ten less than transparent on how they produce It is clear that too many points to third-party connectivity as a danger. This results. Worse, multiple AIs working together CONTENTS AND is one to watch, as IT ecosystems grow evermore may affect each other’s performance, a companies are reactive in complex and interdependent. Banks, for example, property called emergent behaviour. their approach KEY HIGHLIGHTS are opening up their customer data to third parties MARITA CORBETT, via application programming interfaces, or APIs, “AI is starting to deliver incredible results in BDO AUSTRALIA a trend known as open banking. The model is industries from retail and aerospace, to logistics replicated in other industries. and credit,” says Markus Brinkmann, BDO partner, head of forensic, risk and compliance of environmental concerns and 47 per cent have Expanding the perimeter of security opens the in Germany. “The survey shows widespread been affected by changes to investments. Four in door to misuse of data and unwanted intrusions. concern around AI deployment, especially ten have implemented changes to their business Third-party risk to reputation is likely to be a on how the algorithms operate. In the future I purpose for environmental reasons, profound P11 growth area, particularly with increased home expect to see a focus on how AIs are monitored.” evidence of how important green issues are to The rise of working driven by the Coronavirus lockdowns modern commerce. integrity washing and criminals trying to exploit that situation. Environmental concerns are now front and centre. An overwhelming 85 per cent of respondents What action can companies take to improve P8How do businesses quantify P14Harnessing the cult of The future of tech risk? One in four respondents say their industry has been endangered by the their resilience? Our survey offers a number their integrity? personality of the CEO points to artificial intelligence (AI) as a major industry focus on environmental governance.
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