Executive Perspectives on Top Risks for 2015: Webinar Recap

An improving economy has made many executives tentatively optimistic about 2015 and beyond, but that doesn’t mean it’s smooth sailing ahead for companies. According to the third annual Executive Perspectives on Top Risks Survey from Protiviti and North Carolina State University’s ERM Initiative, regulatory changes, security breaches and cyber threats are just a few of the top business risks executives are concerned about. 

Protiviti and North Carolina State recently hosted a webinar on the new research to provide insight into these and other business risks. The webinar featured expert commentary from Protiviti managing director Jim DeLoach and North Carolina State University professor Mark Beasley on the survey’s findings, as well as advice on how business leaders can prepare for top risks.

Here’s what they had to say.

The 10 top business risks for 2015

1. Regulatory changes and heightened scrutiny may affect the manner of production or delivery of products or services. Regulatory compliance concerns rank particularly high in the financial services and healthcare industries.

“Even marginally incremental regulatory change can add tremendous cost to a corporation,” said DeLoach. “And the mere threat of regulatory change can create uncertainty in hiring and investment decisions.”      

2. Economic conditions may significantly restrict growth opportunities. Despite a slight decrease in concerns about macroeconomic conditions, the health of the economy is still clearly on the minds of many executives.

“We think it’s heading in a better direction, but we’re still going to be cautiously looking at it,” said Beasley. “People are looking at the economy and thinking: ‘Are we now in the new normal? Is this it?’”

3. Cyber threats have the potential to disrupt core operations and/or damage the brand. Recent high-profile cyberattacks on major corporations have caused increasing concern among executives and prompted the need for an effective incident response plan. As DeLoach put it, “Most executives are realizing it’s not a matter of if, but when.”

4. Succession challenges and the inability to attract and retain top talent may hinder the ability to meet operational targets. “This is a concern across all sizes of organizations,” said Beasley. “It’s at the biggest companies all the way down to the smallest companies.”

Research from Robert Half reinforces how problematic these issues are for companies. More than three in four CFOs have yet to identify a successor, and 68 percent of financial executives reported difficulty finding skilled job candidates, up from 63 percent the previous year.

5. The organization’s culture may prevent the timely identification and escalation of risk issues that can affect core operations or cause brand damage. A rapidly changing environment is one of the challenges for businesses when it comes to conducting speedy risk assessments. However, different perspectives are also a contributing factor. “It’s a culture issue,” Beasley pointed out.

6. Resistance to change may restrict necessary adjustments to the business model and core operations. Beasley said, “Our resistance to change may mean we’re not adjusting business models in this rapidly changing environment we’re in. It suggests we may not be as agile and resilient as we need to be in today’s environment.”                                            

7. Privacy/identity management and information security/system protection will require significant resources. Part of the aforementioned resistance to change is because of the expense that comes with staying on top of evolving technology and security threats.

“Social business, cloud computing and mobile technology come to mind here,” said DeLoach. “But they also pose a greater security risk.”

8. The organization is not sufficiently prepared to manage an unexpected crisis that could significantly impact reputation. This is most significantly a concern for smaller organizations, which ranked it among their top five concerns in the Top Risks Survey.

“People have watched firsthand very significant entities dealing with very major crises,” Beasley noted. He also mentioned this was one of the business risks that appeared on the list for the first time this year.

9. Sustaining customer loyalty and retention may be increasingly difficult due to evolving customer preferences. DeLoach pointed to the rapid pace of change and disruptive innovations in the marketplace as the cause of shifting customer preferences, making customer retention more of a challenge.

“Preserving is more cost-effective than attracting new customers,” he pointed out. “Loyal customers reduce marketing costs, as well as the cost of educating new customers.”

10. Existing operations may not be able to meet performance expectations related to quality, time to market, cost and innovation as well as competitors are. Again, the speed of change has caused executives to wonder if their organizations can keep up with expectations.

Further sounding the alarm about the need for more innovative thinking, fewer than one-third of CFOs in a Robert Half Management Resources survey characterized this as a strength of their teams.

Business risks increasing and decreasing in concern

Three of the top five emerging risks are related to operational concerns, and the other two are strategic concerns — none are macroeconomic, unlike prior years of the survey. Beasley explained technology was a major theme among the operational concerns, including an inability to utilize big data, manage cyber threats and meet performance expectations.

In contrast, four of the five decreasing risks are macroeconomic, including uncertainty surrounding the costs of healthcare compliance, changes in trade restrictions and volatility in global financial markets. “We still have overall economic concerns, but it’s lightening up,” said Beasley.

Differences in business risks across roles and organizations

“There is quite a bit of variation between boards and CEOs as far as what are the risks on the horizon,” said Beasley.

Boards are more concerned with strategic risks, CEOs worry more about macroeconomic risks, and CFOs rank operational risks the highest. Beasley suggested the first step toward better collaboration and alignment is to foster dialogue between company directors and officers. 

Organizations of all sizes rank regulatory compliance risks among their top concerns. “Bigger businesses see themselves as a bigger target to cyber threats,” DeLoach added. Succession challenges and the ability to attract and retain top talent also ranked in the top five risks for all business sizes.

Listen to the webinar replay for additional insights and to hear the full discussion between DeLoach and Beasley.