In the current risk landscape, 47% of business leaders believe a poor corporate culture is the biggest risk

19 July 2020

BDO’s latest Global Risk Landscape report reveals 47 per cent of business leaders believe the biggest threat facing their organisation is the risk posed by a poor corporate culture. Following this, 39 per cent view the biggest threat as unsuccessful succession planning, followed by 35 per cent citing the rate of globalisation as the top threat.

The latest global survey of 500 C-suite executives across Australia, Asia Pacific, Europe, the Middle East, Africa and the Americas - which was conducted before the COVID pandemic hit - shows the risks posed by the people within an organisation are front and centre for many leaders. The survey showed 50 per cent of respondents worry about the new generation requiring different working styles and 38 per cent are concerned about the lack of diversity across their organisations.

Marita Corbett, National Leader for Risk Advisory at BDO Australia, said locally and globally businesses are becoming increasingly vulnerable to reputational risk, with 70 per cent experiencing an event that has threatened its reputation.

“COVID has undoubtedly placed risk at the top of the C-Suite agenda and it has forced leaders to think about the full range of risks that all businesses face today. The good news is that if you’re aware of the diverse range of risks facing your organisation, you’re in a better position to respond if they occur,” Marita said.

But while awareness is high, only one in three (35 per cent) businesses believe they have a reactive approach to reputational risk, rather than proactive.

“In recent years we have seen reputable Australian brands damaged, even destroyed, by an adverse event that came out of the blue. It’s crucial companies take a holistic approach to risk – from boards thinking about potential challenges before they arise, to the CEO leading a culture of integrity, to staff at all levels living and breathing that culture knowing it’s legitimate and not a false corporate claim,” Marita said.

Unsurprisingly, 99 per cent of survey respondents agreed integrity is vital and that customers flock to brands they believe in and trust. “It is that sense of integrity that allows companies to outperform their rivals,” Marita commented.

According to the new research, 62 per cent of respondents believe their brand is either synonymous or closely tied to that of the chief executive. However, this tight connection is a double-edged sword with 85 per cent of respondents saying leaders becoming more visible introduces a new reputational risk, as a misbehaving chief executive can destroy a brand.

“In the new world of business, there are no more moral shortcuts. For many companies where the culture is closely tied to the actions and beliefs of the CEO, is it the character of the CEO that sets them apart and reduces the risk of reputational damage,” said Marita.

The survey also revealed the scale of ‘integrity washing’, which is the act of businesses worrying more about the perception of integrity than the practice. A significant 87 per cent of respondents believe their organisation is culpable and almost half (49 per cent) said as long as the company is perceived to have integrity, putting it into practice is not a priority.

Beyond the risk of people, leaders said they are expecting to face multiple technology risks as working from home becomes more accepted and mainstream in the post COVID world.

“Australian companies must understand that cyber criminals are ready to take advantage of our increased use of email, video conferencing and file sharing platforms as people continue to work outside of the office. This will be an ongoing risk that companies need to manage as flexible and remote working become mainstream post-pandemic,” said Marita.

The new report has also highlighted that environmental concerns are now front and centre for global leaders, with 85 per cent of respondents saying their industry has been endangered by the industry and community’s focus on better environmental governance. Companies have moved fast to cope with almost half saying they have reviewed their supply chain as a result of environmental concerns, and 47 per cent saying they have been affected by changes to investments made in their business due to investors seeking better environmental governance.

“Our latest research has shown that four in ten leaders have implemented changes to their business to create better environmental governance – further evidence of how important green issues are to modern commerce and how if not addressed, lack of governance in this area becomes a real risk,” Marita said.

The new BDO report also offers a number of suggestions for actions companies can take to improve their resilience to risk, with the first being appointing a risk officer to the board. In Europe, only 22 per cent of respondents say risk officers hold a C-suite position, compared to 46 per cent in the Australian and Asia Pacific region. A third of respondents said their organisation is considering elevating the risk officer to the C-suite.

“Rightly so, the risks posed by COVID are front and centre for many leaders at the moment but it’s important that a holistic approach is taken now and into the future. Leaders must understand that their risk profile will continue to change as the world of business evolves. Our research has shown that there are many risks beyond COVID that are creating real risks for Australian companies,” said Marita.

“It’s certainly a challenging time for business leaders - on the one hand, the risks are becoming higher but this is coupled with a need to be more conservative in the decisions we make due to the uncertainly around the pandemic.”

Download the full Global Risk Landscape Report 2020 below.

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Read Marita’s comments in the AFR at: https://www.afr.com/work-and-careers/workplace/what-the-c-suite-is-worrying-about-20200717-p55d1w