About the report
30 June 2023
Climate change riskDownload
Each year, our Corporate risk radar (formerly the Looking Glass report) seeks the opinions of General Counsel (GCs) and their in-house legal teams, Board Directors, CEOs, and other senior C-Suite executives from multiple sectors globally.
In partnership with Winmark, we surveyed over 200 business leaders to explore the risk landscape that corporates face, understand how well-equipped they are to navigate it successfully, and what steps they are taking to manage risk and maximise opportunity.
Part 1 of the report delves into the risk landscape and has identified economic risk, people challenges, and increased regulatory and compliance burden as the top three challenges organisations currently face.
The three risks leaders feel least prepared for are geopolitical (which has moved from third place to top place compared to the previous study), climate change and societal risks.
While the pandemic is receding as a primary concern for organisations, the aftermath of COVID-19, along with disruptions caused by the war in Ukraine, has led to supply shortages and growing economic risks such as debt, interest rate increases, and the spectre of a prolonged recession.
These circumstances have led to the return of risks that many current business leaders will not have experienced before, such as high inflation, trade wars and geopolitical tensions that pose a threat of nuclear conflict.
The new and emerging economic and geopolitical challenges have added to the scale and complexity of the risk landscape rather than shifting risk from one area to another.
If the past few years have taught us anything, it is to expect the unexpected. Businesses need to “game-theory” different types of risks that could emerge and give more credence to scenarios that are “highly unlikely” to occur. They need to think way outside of the box - you may not always be able to apply history to the future, and you can’t devote resources to investigate everything, so businesses need to weigh the cost versus benefits of how much devote to future predictions and which areas to analyse.
Marc Voses, Clyde & Co Partner, US
The three risk areas that business leaders expect to have the biggest impact in the next two to three years are economic risks, people challenges, and increased regulatory and compliance.
Economic risk – encompassing factors such as global economic performance, inflation, interest rates and currency volatility - has jumped to the top of the list.
Last year, just 51% of respondents felt that Economic risk would have a high or very high impact on their organisations in the next two to three years. This has jumped up to 74%, rising from fourth to first place.
Geopolitical risk (e.g., trade barriers, supply chain disruption and sanctions) has also risen up the hierarchy, from seventh to fifth place.
Economic risk focus
Economic risk is identified as the highest impact risk (74% think it will have a high impact, and it is the top risk for Boards, GCs and C-Suite executives).
The two most pressing economic concerns are inflation and the prospect of recession. There is fear of a potential decline in demand and consumer spending, which is causing hesitation in making long-term investments or pursuing new projects. As a result, numerous investments are being delayed or reduced in scale, as companies prioritise cost reduction and operational efficiency enhancements to navigate the ambiguous economic environment.
There isn’t a clear strategy from the UK Government that will promote growth and competitiveness. This is important to provide direction and confidence for investment. Key issues such as labour availability and skills, friction in supply channels and infrastructure remain significant challenges as does high levels of inflation.
NED Chairman, Construction, UK
People risk focus
People issues are identified as the second highest impact risk overall (51% think it will have a high impact).
Inflation is causing salaries to rise, exacerbating the existing shortage of skilled workers, and creating particular challenges for people-intensive industries. European workforce demographics point to a continued reduction in the talent pool, leading to leveraging of global labour and an increased focus on developing and retaining internal talent.
When it comes to people challenges, we’re going through a cultural shift. Everyone has a different idea of what the ideal workplace is and managers are struggling with that. It’s not just about working from home, it’s also about management style, work allocation, work-life balance, flexibility, benefits and prospects.
Eva-Maria Barbosa, Clyde & Co Partner, Germany
The ongoing impact of the ‘great resignation’ is being keenly felt across many sectors. In addition, employees are becoming more demanding in their expectations regarding work conditions, with flexible hybrid workplace policies becoming the norm.
Amid wage inflation, companies are having to be more creative around what else they can do to attract and retain talent. People are expecting more from their employers. That’s where softer issues like raising the bar on sustainability and generous parental policies become more important.
Rebecca Ford, Clyde & Co Partner, Dubai
Some organisations have struggled to meet these demands whilst also maintaining productivity and establishing a strong team culture, but all respondents recognise the reality that flexibility, healthcare and childcare provisions, offering work-life balance, and employee development are all crucial tools in the battle to attract talent and maintain competitive advantage.
Regulatory risk focus
Regulatory risk is identified as the third placed risk overall (49%) and is in second place in the risk hierarchy for GCs (61%).
Organisations (particularly those in highly regulated sectors such as finance) are finding it difficult to stay abreast of often complex regulatory changes and the associated drain on time, costs and resources needed to ensure compliance. The risks of non-compliance, such as legal penalties, reputational damage, and operational disruptions, are also perceived to be increasing.
Environmental and data protection regulations are both complex and subject to frequent change, and so are of particular concern.
The screws are constantly being tightened on data protection regulation. Companies have tooled-up in tech terms using innovations like AI to meet economic risks and people challenges, but as they do so they need to be careful not to fall into a compliance trap.
Dino Wilkinson, Clyde & Co Partner, Abu Dhabi
Financial regulations designed to ensure transparency, stability, and consumer protection come with high financial and reputational risk if compliance is inadequate
Hybrid working models have had a considerable impact on compliance with labour and tax regulations and laws.
To mitigate regulatory risk, organisations are increasingly implementing and developing formal regulatory risk management systems to track, monitor, and analyse market changes and assess their potential impact on the business, and to ensure they update business policies accordingly. GRC (governance, risk management, and compliance) technology continues to be an important tool to manage this complexity.
When it comes to regulation, it can be hard to be across everything at once, and businesses have to prioritise. It’s not just about having a policy, it’s about thinking about how issues will play out, having a plan and testing it. We work with our clients to help them build resilience and deal with regulatory change or investigations as swiftly as possible.
Avryl Lattin, Clyde & Co Partner, Sydney
Geopolitical risk focus
Geopolitical risk, along with Economic risk, has risen up the ‘high impact’ hierarchy, and is now in fifth place, up from seventh – it is of particular concern for Board and C-Suite executive respondents.
Proactively assessing the risk landscape and carrying out horizon scanning is now seen as an increasingly vital aspect of all senior roles – GC, Board and the rest of the C-Suite – but is a real challenge given that the current geopolitical environment is arguably more complex and unpredictable than at any time since the Second World War.
Political instability and commodity prices are major risk factors in Latin America. The value of commodities can make or break an industry in a matter of months, and there’s huge competition between countries, for instance to take advantage of lithium production for electric vehicles.
Franco Acchiardo, Clyde & Co Partner, Chile
The top three risks that leaders feel least prepared for remain unchanged – however Geopolitical risk has moved from third place to top place, again underlining the fact that macro-level geopolitical risks are higher on the radar of leaders this year.
To understand how business leaders are addressing the global risk landscape, we have consulted over 200 Board Directors and CEOs, General Counsel (GCs) and other senior C-Suite executives from multiple sectors and across all global regions. In addition to the overview of the risk landscape, we will also be issuing two separate reports, the first taking a deep dive into some of the key topics highlighted here, and the second tracking the continuing evolution of the GC role.