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News round-up: March/April 2021

Managers overestimate their business’s agility

Organisational agility is critical to resilience, yet many leaders are currently overestimating their business’s capabilities in this area, according to research by cloud services vendor ServiceNow.

Three-quarters of business leaders, and 90 per cent of chief executives, agreed that it was vital to be agile in a survey of 873 senior decision-makers in large businesses across Europe. This followed a study published in October by McKinsey & Company which found that agility is one of the keys to resilience.

However, when researchers used an assessment model to determine the maturity of organisations in this area, they found that even though half of European businesses claim to be very or extremely agile, most are in reality only starting the process of becoming fully agile.

They found that one in five European businesses are in the top two tiers of “agility readiness”, while a third sit in the lower tiers, described as “static” or “disconnected”.

Those businesses categorised as “agile” or “synchronised” cited clear benefits. Almost two-thirds (65 per cent) of business leaders in these top two tiers said they are either recovering or returning to growth, compared with just under a third (30 per cent) of those in the lowest two tiers.

Over half (53 per cent) of agile businesses performed excellently in terms of customer experience, compared with fewer than a fifth (16 per cent) of organisations overall. 

Global long Covid tops risks for 2021

A world with long Covid and the relationship between the US and China top the list of the five key risks organisations will face in 2021, according to risk management consultancy Control Risks. Its RiskMap 2021 assesses how these may develop in the coming year. The remaining three key risks are: climate change (and whether governments or companies will adapt first); digital acceleration and its impact on competitiveness, regulation, and security; and failing to shift from crisis response to embracing uncertainty during the post-Covid economic recovery. 

Organisations lack vital tools to monitor reputation risk 

Reputation risk and its potential to lead to serious losses of both income and customers is a major concern for 86 per cent of companies, according to risk management consultancy Willis Towers Watson’s recent Reputational Risk Survey.

Most respondents highlighted fears that reputation risks could potentially cripple their business. The primary worries cited included loss of income and weakened human capital if reputational damage affected their ability to retain or attract talented new employees.

This may explain why almost 80 per cent of those surveyed believed that the focus on reputation risk in their business will increase further in the next five years. 

However, if reputation risk rises up the corporate agenda, organisations may struggle to monitor and manage it. Most respondents said they face significant challenges accessing reliable data to measure and monitor reputational risk and a large proportion said they currently have inadequate tools to do this effectively. 

Three-quarters said their risk management teams were at least partly responsible for monitoring and measuring reputational risk. 

Regulators update guidelines for Covid accounts disclosure

The Financial Reporting Council (FRC) and the Financial Conduct Authority (FCA) have published updated guidance for companies and external auditors to ensure a continued flow of high-quality financial information, despite any difficulties caused by the Covid-19 pandemic.

The FRC has issued a series of guidance documents intended to support high-quality reporting and disclosure of the circumstances that companies have faced as a result of the pandemic, as well as the mitigating actions that they have taken to address risks. 

Further guidance was also included in the FRC’s year-end letter to chief executives, chief financial officers and audit committee chairs.

Given the heightened risk, challenge and uncertainty caused by Covid-19, the regulators say that audit committees may consider it appropriate to set out in their annual report the work they have undertaken, and the measures they have agreed, to ensure high-quality reporting and audit for the period affected. 

This may include measures they have taken to ensure there is enough flexibility in the year-end timetable to complete the necessary work to an appropriate standard that will meet investor and stakeholder expectations. 

Boards to head cyber security committees

By 2025, 40 per cent of boards of directors will have a dedicated cyber security committee overseen by a qualified board member, according to consultancy Gartner. Currently, just one in ten companies has such a committee.

According to Gartner’s 2020 Board of Directors Survey, the move towards greater board oversight is fuelled by the fact that cyber security-related risk is the second-highest source of enterprise risk, after regulatory compliance risk.

However, relatively few directors feel confident that their company is properly secured against a cyber attack – hence the need for greater board involvement. 

Organisations must reprioritise and broaden perspective on risk

It is imperative that businesses reprioritise risk and start to innovate and explore new risk management strategies, according to risk management consultancy Aon’s Reprioritising Risk and Resilience For a Post-Covid-19 Future report.

Aon’s researchers found that, before the Covid 19 pandemic occurred, 82 per cent of respondents said a pandemic or other major health crisis was not a top ten risk on their organisation’s risk register. At the time of Aon’s Global Risk Management Survey in 2019, pandemic risk was ranked 60 out of 69 identified risks.

Fluctuating pandemic infection rates in different regions currently determine whether businesses are at “react and respond”, “recovery” or “reshape” stage in coping with the many challenges caused by the virus.

The report found that a critical part of reacting and responding to a crisis, and building a successful enterprise risk management strategy, is to ensure that the workforce is able to adapt, communicate and collaborate when disaster strikes. 

However, it also pointed out that the fact that the pandemic has made organisations increasingly dependent on digital platforms makes them potentially more vulnerable to cyber attacks, information loss and reputation impacts on a new scale. This will require them to refresh their existing cyber and risk management strategies.

The report suggests that in future risk and business leaders must broaden their perspective when it comes to evaluating major shocks and do more than just anticipate losses. Navigating new forms of volatility, building a resilient workforce, and rethinking access to capital will all play a role in a companies’ ability to navigate future events. Equally, a more cohesive and integrated approach will be necessary to recover not only from this pandemic, but from future shocks as well. 

Action on climate change risk requires accounting rethink

If carbon emissions intensity is to reduce at the levels necessary to avoid the most dramatic climate-change scenarios, accounting must be similarly reimagined, according to rating agency S&P’s latest Global Ratings report.

Among its key findings, the report says that incremental changes, such as the improvement of accounting standards, can happen alongside more radical innovations. This would contribute not only to increased transparency around climate-related legal risks, but would also enhance the visibility of capital expenditure needed to adapt to, or mitigate, future climate risks.

Additionally, financial statements that deliver an integrated view of performance may allow investors and managers to make informed decisions based not just on a company’s private profits, but on the broader impact that a company has on society and the environment. 

Duty of care failings put homeworkers at new risk

A new generation of long-term homeworkers created by Covid-19 is at risk physically and mentally if employers fail to implement support.

Recent research found that many employees are feeling the negative effects of operating in a home environment ill-equipped for the working day, and that employment rights are being overlooked.

It said that two out of five people have no employer-provided equipment, such as a laptop, mouse, keyboard, monitor or desk chair and 12 per cent of respondents said they were working from a sofa with a laptop on their knees.

According to the research, some employees are already suffering from homeworking-related issues. Back strain and neck strain are the most common ailments, while a quarter of employees polled complained that they are working longer hours and that homeworking is negatively affecting their mental health. 

This article was first published in March 2021.