GLOBAL RISK LANDSCAPE 2021 - The art of the unknown - BDO
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GLOBAL RISK
LANDSCAPE
2021
The art of the unknown
GLOBAL RISK LANDSCAPE 2021 3
FOREWORD
By Nigel Burbidge, Partner and Global Chair
of Risk & Advisory Services at BDO
There’s a concept in game theory called a The bedrock of
“wicked problem”. This is a challenge that
profitable business is sound
is hard to complete because of incomplete,
contradictory, or changing information. decision-making
There may be no right or wrong solution.
Nigel Burbidge, The term perfectly captures the last year shows that this is more likely to happen
Partner and Global Chair in business. in organizations that have managed
Risk & Advisory Services, BDO to develop a risk-welcoming attitude.
The global pandemic threw markets Businesses must accept the existence of
into turmoil. Wave after wave of new unknown risks – and deploy key tools and
challenges hit in quick succession. Sudden strategies to manage them effectively.
and unprecedented lockdowns, mass
remote working, travel bans, and a deluge Learning to welcome risk is easier said than
of contradictory information have defined done. A quarter of respondents admitted
the last year. How long will the crisis last? their company did not adapt to the pandemic
We don’t know. A truly wicked problem. as fast as it should – and for 60% of these,
reacting slowly was a conscious decision.
In this worldwide turmoil, some companies Understandably, senior leaders chose
managed to steady the ship faster than to wait for more clarity on the situation
others. Those who managed to make before agreeing next steps. But when the
fast, effective decisions were better able information is as contradictory and fast-
to pivot business models and keep staff changing as it has been during the pandemic,
Sharon Witkowski Tabib, up-to-date and motivated. Others suffered waiting for certainty is risky in itself.
Senior Partner / Head of Risk & from decision paralysis, waiting for news to
Advisory Services, BDO Israel inform their next steps. So how does a company develop
sharont@bdo.co.il agile decision-making? Keeping open
At BDO we work side by side with information channels is critical. In
entrepreneurs and industry leaders, and particular, our survey shows the
wanted to pool knowledge about decision- importance of trust in facilitating
making in a crisis. What are the best information flow. Trust empowers
1 IN 4
methods? This year’s Global Risk Report has employees to speak up without fear of
examined the mechanics of decision-making reprisals. To reap the benefits of this,
under pressure, and in immense uncertainty. effective business leaders need to foster
a high-trust, low-blame company culture.
The chief finding is the importance of an
agile mindset. When information is limited Now the crisis is passing, it’s time to learn the
respondents agreed that their company and conditions are chaotic, businesses lessons. The bedrock of profitable business is
did not adapt to the pandemic as quickly must be ready to react and adapt to the sound decision-making. This report makes a
as it could have reality of their situation. Our survey major contribution to that mission.
4 GLOBAL RISK LANDSCAPE 2021
EXECUTIVE SUMMARY
Organizations that embraced risk during the coronavirus
pandemic have coped better with the crisis and
survived, even thrived, despite the global calamity
Businesses are used to having to deal with a had been “less significant” or “much less Companies faced many risks in 2020,
wide range of risks and uncertainty, but the significant” than they expected in April 2020, with geopolitics, economic slowdown
COVID-19 pandemic wrought disruption on compared to just 16% of companies that and increasing competition all showing
an unprecedented level. Lockdowns across admitted to being risk-averse. major upticks. Geopolitical risks caused
the globe shook the foundations of our the most pressure for all companies
world economy. In fact, 52% of risk-averse firms said they in 2020, but for those that said the
experienced worse impacts than initially pandemic’s impact had been much worse
In our sixth survey on risk, BDO set out to anticipated, while this was the case for than expected, inflexible process was
discover how senior business leaders coped only a quarter (25%) of organizations that the top choice. For the respondents who
with the prolonged uncertainty of 2020, and welcome risk. categorized themselves as risk averse,
the main obstacles they overcame to be able inadequate technology was the top reason.
to continue their operations. One in four respondents admitted they did
not adapt to the pandemic as quickly as they The results suggest that anticipating and
We surveyed 500 C-suite business leaders could have, with 60% citing “uncertainty, acknowledging major crises helps companies
globally across a wide range of industry or lack of clarity” as the reason. This was to react quicker. More than half (53%) of
sectors to find out how they adapted their much higher in companies that thought respondents had a global health crisis on
business models and reinvented products the impact had been “much worse” than their 2020 risk register, and 58% of these
and services – or if they suffered from expected (42%), as well as companies that said this helped them to manage the risk
“disaster paralysis”. were risk-averse (49%). in reality. A quarter of all respondents said
“ignoring or failing to acknowledge the
RISK-AVERSE COMPANIES LOSE OUT The professional services sector felt situation” is the greatest inhibitor to fast
the least impact from the pandemic, and effective decision-making.
The survey’s headline finding is that with just 3% of respondents stating the
companies which embrace risk responded impact had been “much worse” than COPING WITH FUTURE CRISES
better during the pandemic than those who expected. Family businesses and those in
actively avoid it. the leisure and retail sectors experienced How should long-term risk management
the brunt of the crisis, with 37%, 22% practices and principles evolve after this
More than half (53%) of risk-welcoming and 22% saying the impact was worse extraordinary year? In this report, we set
businesses said the impact of the coronavirus than they had anticipated. out key themes that companies should
The impact of the pandemic compared to initial expectations, by risk appetite
Much worse Worse As expected Less significant Much less significant
2%
Risk averse 25% 27% 31% 14%
Risk welcoming 8% 17% 22% 46% 7%
6 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 7
consider. These include changing blame
culture and attitudes to risk; the usefulness
of formal risk management practices, such
The pandemic has also strengthened the
relationship between technology and
risk management. The use of up-to-date
governance (ESG) issues, which will last far
beyond COVID-19. CONTENTS AND
as assessments and frameworks; and the
effective use of up-to-date technology in
technology is essential to evolve risk
management from being just reactive to
As Patrick Verkooijen, chief executive of the
Global Center for Adaptation, said in March KEY HIGHLIGHTS
developing data-driven risk assessments. proactive and predictive. Yet, only 11% of 2021, the pandemic has been a “wake-up
respondents use technology to forecast call” for environmental risks and “we are
The data shows that companies with a future potential risk, while investing in utterly unprepared for the next crisis –
risk-welcoming mindset respond better to new technology or accelerating digital the climate emergency”.
crises. When asked which factors prevented transformation efforts was the most common
their company from adapting quickly to the change that companies made in response to The COVID-19 pandemic has demonstrated
situation, 24% of risk-averse companies the pandemic (36% of respondents). how quickly crises can escalate, and why
cited “stubbornness: choosing to continue businesses must be ready to react and adapt.
P8 P12 P16
with pre-pandemic plans”. Far fewer of ACCEPTING RISK Companies can thrive even in the face of
those with different risk mindsets cited the massive uncertainty by altering their risk
same problem – 15% of risk-takers and 0% From geopolitical tensions to climate change, practices to become more accepting of risk. It
companies will inevitably continue to face The importance of a Eradicating blame culture Are risk frameworks
of risk-welcomers. is only by seeing crises as positive opportunities
many risks and uncertainties. In particular, risk-welcoming mindset still fit for purpose?
to expand their capabilities, rather than falling
While many factors shape the impact the pandemic has focused companies’ victim to disaster paralysis, that companies will Respondents who are “very
of crises, blame culture can significantly attention on environmental, social and thrive no matter what hits them. confident” about managing
exacerbate problems. Almost a quarter the COVID-19 risk in the next
(23%) of all respondents said blame culture six months: 90%
stifles their company’s ability to respond
effectively to disruption.
51% Risk welcoming 23% said the events of 2020 have
triggered their organization
believe a blame culture limits to completely re-evaluate its
Sectors where respondents agreed that 14% Risk averse
their performance risk framework
blame culture is present are also those
where the pandemic’s impact was much
18
worse than expected. In this report, we
look at who is responsible for a company’s
culture, offer practical solutions to limit a
tendency to blame and how to develop a
9%
Limited
48%
Reactive P22
positive, risk-welcoming culture.
Formal risk management practices, such
P The pandemic’s silver linings
Risk, technology
as assessments and frameworks, are and transformation
invaluable. But has COVID-19 proven them
We have improved our
to be too rigid to be effective, when faced Companies’ use of technology
environmental credits,
with unprecedented disruption? Indeed, in risk management: 24% for example by reducing
90% of all respondents said the events of our carbon footprint
2020 have triggered their organization to
completely re-evaluate its risk framework.
We have refocused on
the social purpose of our
20% business, and become
more socially responsible
11% 32%
24%
Predictive Proactive
P24
Embracing future risk
of risk-averse companies said that Organizations that plan for and manage risk
stubbornness prevented their company will be the winners in a post-COVID economy,
from adapting quickly to the pandemic no matter what the future holds
8 GLOBAL RISK LANDSCAPE 2021
THE IMPORTANCE OF A
RISK-WELCOMING MINDSET
Agile businesses with a risk-welcoming attitude
have been able to adapt to challenging
circumstances and beat the pandemic slump
The COVID-19 pandemic exposed huge risk-averse later conceded they didn’t adapt
cracks in many business models. But it has to the new business landscape as fast as
accelerated the development of, or even they could have.
strengthened, others.
This is largely down to mindset around
Companies that embraced risk were the pandemic, says Risk Advisory Services
generally better equipped to deal with partner at BDO, Emanuel van Zandvoort.
the crisis. Not only were risk-welcoming “Being risk averse means that companies
firms less affected than they had expected, are less open to uncertainty – including
51% of them are “very confident” opportunities and change. They see the
about managing the COVID-19 risk in the pandemic as something negative – a risk –
next six months (compared to 14% of risk- and are less capable of seeing the upside,”
averse organizations). he says.
In contrast, businesses that neglected or So which industries were quickest to adapt
avoided risk suffered. 25% of respondents and realize the opportunity? What was
cite ignoring or failing to acknowledge the their success down to? What informed
situation as the biggest inhibitor to fast, senior management’s timing and reasoning
effective decision-making. behind switching to offer new products and
services? And how did they manage the
The ability of companies to pivot their continual pressures on their business?
business models quickly and smartly
during the last year has been key. It’s MANUFACTURERS LEAD THE WAY
also intrinsically correlated to how well
they have handled risk: almost half of Manufacturing was at the forefront of
respondents who said their companies were this change, with many firms switching at
the start to make essential products such
49%
as ventilators and personal protective
equipment. It paid dividends, with one in
four manufacturers reporting the pandemic’s
impact was less or much less significant than
expected after major initial pessimism.
of risk-averse respondents agreed that their “At the start, we were going into the
company did not adapt to the pandemic unknown and firms tended to fear the
as quickly as it could have worst,” says Jack Semple, alliance secretary
25%
at the Engineering and Machinery Alliance
of trade associations. “Firms saw projects
being put on hold across the economy,
there were strong fears over getting paid
and employees were worried. In the event,
however, the picture has started to become
of respondents stated that “ignoring or failing less gloomy. Invoice payments have held up
to acknowledge the situation” is the biggest remarkably well and supplies have got back
inhibitor to fast, effective decision-making on track.”
10 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 11
Manufacturers also cite “people pressures”
like employee wellbeing and satisfaction Less impacted or better prepared?
(16%) as a top-three challenge, perhaps The impact of the pandemic by sector, compared to initial expectations in April 2020
because ensuring staff’s health and
safety is a more urgent challenge in Much worse Worse As expected Less significant Much less significant
physical environments like factories,
than those which are purely office based. Family business 37% 23% 37% 3%
Manufacturers were also less likely than
other sectors to report process, operational
and digital problems, largely because they Retail and wholesale 22% 38% 22% 18%
are, by their culture, process driven and
focused on driving efficiency via technology. Leisure and hospitality 22% 33% 31% 13%
Another sector where the impact was
less significant than first predicted was Real estate and construction 20% 32% 38% 10%
professional services, with 37% of firms
claiming the impact had been less significant
Private equity 20% 27% 27% 20% 7%
than expected and 7% much less significant.
There is more than one factor driving this
result. Firstly, professional services are better Manufacturing 19% 22% 34% 19% 6%
geared up than many sectors to interact with
clients virtually. Secondly, government-led
business support schemes meant more work Healthcare 11% 31% 36% 38% 4%
than usual in areas like compliance.
Renewables 9% 38% 33% 20%
“In Australia, federal government acted
quickly in the provision of significant
support. This led to a lot of advice, Financial services 8% 46% 22% 20% 4%
establishment support and compliance
work, which replaced any lost business from Technology, media and telecom 8% 29% 41% 18% 4%
traditional sources,” says Marita Corbett,
national leader, Risk Advisory at BDO
Australia. “In addition, a lot of the work we Oil and gas 7% 47% 33% 10% 3%
do still needs to be done – it’s more a case
of timing than cancellation.”
Professional services 3% 40% 13% 37% 7%
And van Zandvoort agrees: “Professional
services had a dip in March and April 2020 Power and utilities 3% 32% 29% 29% 6%
because many projects were paused, but
most of these projects restarted once the
first wave was over.”
CONTINGENCY VERSUS having contingency plans in place, the financial transactions, accumulating several Their forward planning paid off; despite the almost impossible to determine a risk score processes. They operate on trust, and see risk
ADAPTABILITY cruise ship sector and wider travel and billions in the process, as well as reducing pandemic, Radisson increased its market for the group,” says Dahlgren. “It becomes management as a lack of trust. Moreover,
hospitality was unprepared for an event of cash flow and costs during the extended share by 1.4% in 2020. even more difficult when companies have the board and executive committee are more
Among the sectors affected considerably this magnitude. Yet, after receiving expert pause in guest operations.” complex supply chains too.” involved in operational decision-making and
worse than initially anticipated was the advice, the company implemented a go- INTEGRATING RISK MANAGEMENT therefore are less likely to see a need for
leisure and hospitality industry, with 22% forward plan and recommenced cruising in Well-rehearsed plans proved essential The family business segment also struggled, formal frameworks and systems.”
of respondents for whom this was the case. Europe in late-2020 under strict health and for Radisson Hotel Group, too. “Prior to More surprisingly, given their prior growth, with the impact worse or much worse than
Understandably, many firms hadn’t forecast safety protocols, he says. 2020, we already had a strong global private equity firms were also adversely expected for 60% of respondents. While The fix for this is to push forward with
such an unprecedented event – but those that crisis management process rolled out affected. The reason for this, says Bruce 87% of family businesses believe their risk formal risk management, but maintain the
were able to put crisis action plans in place “Our top priorities have been compliance, which allowed us to mobilize essential and Dahlgren, chief executive of MetricStream, officer should occupy a C-suite position, engagement of the board and executive
quickly had the best chance of bouncing back. environmental protection and the health, focused resources quickly,” according to a is due to a lack of holistic oversight of all only one in five allow them to have final committee. “Businesses of a certain size or
safety and welfare of our guests, crew, spokesperson for the hotel group. “During risks within their portfolio. sign-off on risk management practices. complexity should have an ERM framework
Arnold Donald, chief executive of Carnival shoreside employees and the communities 2020 and 2021, we had to shift some in place, but do not necessarily need a risk
Corporation, which had to halt its guest we visit,” says Donald. “In addition, we have timelines and focus on cash as a priority, “Every company within the portfolio In family businesses, says van Zandvoort: manager. Risk management should be an
operations from the start, including its worked hard to rebuild our balance sheet but we aim to consolidate the recovery manages their risk separately with different “Risk management is still very implicit and integral part of decision-making and not a
global fleet of 105 ships, says that despite and liquidity through a broad number of during 2021.” processes, and when it gets aggregated it’s less often formalized in frameworks and separate ,and sometimes isolated, function.”
12 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 13
ERADICATING BLAME CULTURE
Leaders with a positive mindset, free from blame culture,
have steered their organization through the COVID
asteroid storm without being hit and broken
“Newark Airport cab stand is broken. There
are 75 cabs, and 75 people in line, and it The impact of blame culture on risk and responsiveness Respondents who agreed that
takes an hour. Broken.” blame culture is an inhibitor
Inhibits my company’s ability to Drives my company’s
respond effectively to disruption risk appetite to their responsiveness, by risk appetite
The management thinker Seth Godin is an
obsessive chronicler of everyday things he 80%
regards as sub-standard. On his blog This Is
Broken he publishes examples. For instance,
how at the Museum of Natural History,
in Washington DC, the garbage overflows 23%
70%
the bins onto the floor every day. Or, the
coffee holders on a Ford car mean you can’t
change gear when used. 27%
37% Risk averse
The Newark Airport example got him 60%
particularly animated: “There is a man in a
uniform who will get you in trouble if you
just get in a cab. If he just said, ‘Everyone,
go!’ it would work.”
50%
After years of observing broken interactions, 50%
Godin came up with a theory of why things
go wrong. A key observation was employees 16% 12% 22% Risk minimising
saying “Not my job”. The man at the cab rank
40%
is only told to keep order, not get people in a 40% 13%
cab. He might get fired for breaking protocol,
so he doesn’t. The reason the garbage 15%
overflows at the museum is because the
15%
janitor is paid to pick up the overflow, but not 30% 32%
empowered to buy a larger bin.
29%
27%
In each case the consumer experience could Risk taking
be improved by an employee taking action. 4% 8% 24% when necessary
22% 10%
Fear of blame prevents them solving the 20%
problem. So the experience remains broken. 20% 7%
18% 2%
16% 16%
‘DIFFERENT PARTS OF THE SAME SHIP’ 6%
13% 13%
10%
The connection between blame culture
and performance is clear. Some 23% of 9%
survey respondents believe a blame culture
limits the performance of their company. 15% Risk welcoming
During the pandemic, the pressure on 0%
employees came to the fore. When asked
Private Family Renewables Real estate and Leisure and Retail and Power and Healthcare Technology, Professional Oil and Financial Manufacturing
which risks caused the greatest pressure, equity business construction hospitality wholesale utilities media services gas services
45% of respondents cited low employee and telecom
14 GLOBAL RISK LANDSCAPE 2021
23%
satisfaction and wellbeing, ahead of
employee productivity. Companies that
cannot support employees will struggle
to grow, as staff underperform due to
adverse pressure.
of respondents agreed that blame culture
inhibits their company’s ability to respond European fintech Thought Machine, which
effectively to disruption makes operating systems for banks,
expanded across Asia and Australia during
81%
the pandemic. A company principle taught
to all inductees is never to say “not my
part of the ship”. It’s a nautical expression.
A co-founder began his career in the navy,
where sailors live or die on the same vessel.
Neglecting one part of the ship is to imperil
of senior leaders believed that the top risk job
it all. The company commands: “We are all
should be a C-suite position
working on different parts of the same ship.
29%
If your part is working, take a breather, then
go offer your help to other teams.”
Another success story is Moneypenny,
an outsourced PA company with 21,000
clients. Chief executive Joanna Swash won
of risk-welcoming respondents said that the final Management Today CEO of the Year in
sign-off on risk management practices lies with
2020. Swash says eradicating blame culture
the with the chief risk officer, compared to just
is key to long-term performance. “You’ve
2% of risk-averse companies
got to make people feel safe and secure,
and that it’s okay to fail,” she explains. “Our
staff know they can use their judgement in
a situation and, if there are problems, they IT’S THE RESPONSIBILITY OF ALL You’ve got to make people
The top three pressures caused by the COVID-19 pandemic give us lessons to learn from in the future.” feel safe and secure, and that
Naturally, she has tips for companies
Ranked 1st Ranked 2nd Ranked 3rd
Vicky Gregorcyk, leader of Risk Advisory wanting to build a similar culture. “It begins it’s okay to fail. Our staff know
Services for BDO USA, agrees. “A solution in recruitment. We got 8,000 applications they can use their judgement,
Low employee satisfaction and wellbeing 11% 15% 19% to counter a blame culture is a ‘full- for 300 positions last year. We recruit and if there are problems, they
accountability’ culture where everyone takes on personality, not skills.” The company
Inadequate technology / lack of
digital transformation capabilities 10% 18% 15%
responsibility,” she says. “It also means using structure is flat to reduce a top-down
give us lessons to learn from in
Internal cultural issues failures as an opportunity to learn and grow.” mentality: “We are all equal pieces in the the future
3% 13% 14%
jigsaw. The CEO has no special parking
JOANNA SWASH
Geopolitical risks 15% 7% 6% The guidance for staff is to do whatever space. At the Christmas party the senior
CEO, MONEYPENNY
the client needs. “There is nothing worse staff serve behind the bar and clear up. We
Security-related risks 12% 7% 5% than hearing someone say they’ll ask their could pay people to do it, but the point is to
manager. It makes it sound like they’ve got serve your people. That’s how you get rid of
Inefficient, inflexible processes that no control. No autonomy. It’s wrong on all
were difficult to sustain during lockdown 11% 5% 7% a blame culture.”
levels,” says Gregorcyk.
Environmental, social and
governance (ESG) risks 9% 6% 6% The result for Moneypenny? In the weeks
This right to fail includes the leadership. A of the first lockdown, business volumes fell
Crowded competitor landscape
and successful rivals 4% 7% 9% Moneypenny expansion to New Zealand by half. A year on and headcount almost keep their eyes open to how it is operating,
ended in failure, with the venture axed at an doubled as the company surged back. not only in policy but also in practice.”
Reputational risk 7% 7% 5% early stage. A ramp-up of American operations
was risky, but so far is proving a hit. “We have Gregorcyk adds that eradicating blame Blame culture is a handbrake on growth. It
Lack of funding or cash-flow issues 8% 5% 5% an attitude of ‘Let’s be brave and bold. What’s culture is a company-wide effort. “Everyone can corrode a reputation. At times it can
Lack of engagement with customers/ the worst thing that can happen?’ If we were is responsible for a company’s culture,” she imperil an entire company. Taking action is
not being able to meet customer needs 3% 4% 8%
only going to have an attitude of doing things says. “Culture is ever-evolving and requires risky. Employees often know what needs to
that were dead certain we would not have the board of directors, the C-suite, HR, be done. If they aren’t taking action, it’s a
Supply chain disruption 7% 3% 3%
grown like this,” says Swash. compliance, management and employees to sign something is broken.
16 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 17
ARE RISK FRAMEWORKS Risk frameworks aren’t
broken - but the focus
STILL FIT FOR PURPOSE? needs to be on how they
are applied
The coronavirus pandemic has tested JAMES CRASK, MARSH
risk frameworks to the limit
“The risk frameworks aren’t broken,” says
Crask. “Rather the focus needs to be on how
they are applied.”
The effectiveness of organizations’ internal address risks,” says Iain Wright, chair of the
risk frameworks has been called into Institute of Risk Management. “In many It wasn’t that risk frameworks were too rigid
question after they were tested to breaking ways, last year’s experience only serves to either, says Julia Graham, chief executive
point during the COVID-19 pandemic. reinforce their importance.” of Airmic. Instead, they weren’t initially
designed to respond to emerging risks such
In the wake of the crisis, concerns have The challenge with COVID-19 particularly, as the pandemic, which require completely
been raised about whether they were, says Lizzie Cryan, risk manager for different tools and interventions.
in fact, too rigid in the face of such Heathrow, is that it manifested itself in
unprecedented disruption. such a wide-ranging manner. And many “An effective risk radar is vital, so risk
frameworks had never before been exposed managers have the tools that can keep an
But risk managers and experts disagree to such a widespread risk, she says. organization informed and up to date when
with this analysis. something is happening at speed,” says
“Particularly in our industry, because of Graham. “However, no matter how good the
“There has been a huge amount of the pandemic’s nature it is a far-reaching, tools, people are always more important.
investment in internal risk frameworks long-tail risk that has caused widespread Resilient companies are likely to have
by organizations to identify, measure and disruption throughout the supply chain,” fast and agile risk management and crisis
says Cryan. “As such, risk frameworks have management in place, empowered with the
never been tested before to this magnitude, ability to respond with agility, flexibility and
so it has been a massive learning curve for adaptability to keep up with events.”
all of us.”
53%
PROBABILITY VERSUS IMPACT
PRIORITIZING FUTURE RISKS
Our survey found 53% of respondents had
James Crask, resilience advisory lead for a global health crisis on their risk register for
the UK and Ireland at Marsh, says the key 2020, indeed pandemics have been on the
takeaway is the need for greater focus on World Economic Forum’s Global Risks Report
of respondents had “global health crisis” future risk. But with so many potential top ten risks for the past decade. Of those
on their risk register for 2020 threats, it’s about prioritising the most respondents, 58% agree it had helped them
important, he says. manage the risk.
58%
Of those
“Many organizations hadn’t necessarily Yet, 90% of all respondents say last year’s
prepared for such an event that impacted event has prompted them to re-evaluate
on all of their geographies at once on such a their risk framework completely. That’s
scale as the pandemic has done,” says Crask. because many were taken by surprise by
“This meant the controls they had in place the pandemic’s extent. Now that it’s on
agreed that it had helped them didn’t work as well as perhaps they should their radar, businesses must prepare for
to manage the risk in reality have done than if they had considered the the likelihood of similar future events.
90%
risk more broadly, which is a note of caution
for the future.” “One major reason why events have still
taken organizations by surprise is the
He argues frameworks need to be rigid to pandemic is a low-probability but high-
an extent to enable a consistent approach impact event,” says Graham. “A significant
to managing risk. The risk register, he adds, factor that many business have struggled
of all respondents agreed that 2020 also needs to be used in conjunction as a with is the sheer speed at which events
triggered them to re-evaluate their tool to inform better decisions, rather than took place, the changing profile and level
risk framework entirely in isolation. of impact it has had across the world.”
18 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 19
RISK, TECHNOLOGY Research shows effective risk management
relies on technology – and no event has
highlighted the need for predictive analytics
themselves cushioned from the impact to a
greater degree. Some 73% of the firms that
said the pandemic’s impact was “much less
Positive strategy changes made
in direct response to the pandemic
AND TRANSFORMATION more than the COVID-19 pandemic. significant than expected” had prioritized
digital transformation.
“We’re in an era in which large-scale,
Technology, notably predictive disruptive and divisive events are not only Technology can enable near real-time Investing in new
more frequent, but are being communicated automated processing of interactions to technology/
analytics, has helped many about faster than ever before. Businesses assess for risk, says Jason Lane-Sellers, accelerating digital 36%
transformation
organizations unlock a positive and their leaders are increasingly being director of fraud and identity at data efforts
response to the challenges defined by their response during and after and analytics provider LexisNexis Risk
these critical moments,” says Helen Sutton, Solutions. If applied appropriately, this
of a global pandemic senior vice president, EMEA and APAC means that operations can shift their
sales, at Dataminr, which uses artificial approach to enable proactive assessment Pivoting cost and
intelligence (AI) to provide real-time and intervention. business models 32%
information alerts to clients.
“Due to the volume and scale this
As a result, businesses need to respond automation provides, it can also mean
to risks and emerging crises with greater that the utilization of technologies such as
agility and precision than ever before and machine learning can move risk assessment Reducing
headcounts and
are therefore seeking out technologies to be predictive in nature, to provide better streamlining 29%
that bridge those gaps in response and risk risk prevention and improved capability in resources
management planning. changing environments,” he says.
Our research confirms this view as 42% of Conversely, we witnessed the collapse of
respondents cited inadequate technology as companies that may have failed to leverage Proactively altering
working culture
a top-three risk that applied extra pressure the data available to them. These included to suit a new 24%
on them during the pandemic. For risk- major bricks-and-mortar retail chains. With remote workforce
averse respondents, this was the number- access to consumer, category and market
one pressure point. trend data sooner, there may have been
opportunities to redesign those businesses.
ACCELERATION OF DIGITAL
Shoring up
“For those that had already begun to supply chains 20%
At the same time, 57% of all respondents invest in this area, they will have had
saw the acceleration of digital transformation more of a chance to regroup quickly and
as one of the top three positive changes make better decisions to capitalize on
stimulated by the pandemic. micro-opportunities as they presented
themselves,” says Matt Andrew, UK
Increasing data
When asked what changes their organization managing director and partner at data analysis capabilities 16%
made in response to the pandemic, the top science firm Ekimetrics.
response was investing in new technology
or accelerating digital transformation efforts, Andrew says one client that did invest in
cited by 36% of respondents. For Enric such forecasting was Accor, Europe’s biggest
Domenech, Risk & Advisory Services lead at hospitality brand. He said they were able
Implementing more
BDO Spain, this finding is not surprising. “The “to take quick and nuanced decisions that rigorous ESG policies 14%
pandemic underlined how important it is to saw them continue to market profitably
react and adapt at speed,” he says. “Flexible throughout 2020, despite being in one
process must be combined with adequate of the worst hit sectors with ongoing
technology for rapid reaction.” uncertainty across a number of markets”.
Increasing headcount
Interestingly, those who invested in MISSING AN OPPORTUNITY and hiring new talent 12%
technology during the pandemic found
Despite this precarious position, only
11% of respondents said they currently
Flexible process must use technology in a predictive way to
forecast future potential risk. This implies
be combined with adequate organizations are still improvizing when it
Offering completely
different products 3%
technology for rapid reaction comes to their risk management function. or services20 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 21
These companies are missing an Uma Rajah, co-founder and chief executive
opportunity to deploy predictive analytics of UK prime property finance lending
to understand the impact of future events, and investing platform CapitalRise, says
CROs AND TECHNOLOGY
says Richard Speigal, Business Intelligence advances in risk management technology
Centre of Excellence lead at UK building
society Nationwide. “Obtaining and
have enabled fintechs to revolutionize
the old-fashioned, manual processes
Technology advocates are emerging
from unexpected C-suite roles.
34%
analysing accurate data to model scenarios used historically by lenders. As a result, of CROs
categorise their
and plan future business risk is key to the alternative lending market has grown Behind only chief financial officers
use of technology
making informed business action that exponentially over the past decade and (CFOs) in terms of driving general
as “predictive”
improves outcomes,” he says. established itself as an attractive alternative digital transformation, chief risk
Speigal says Nationwide deployed Qlik
to traditional bank lending. officers (CROs) are leading on deeper
technological advancements like data
5%
compared to just
analytics dashboards to enable teams to “The use of sophisticated risk management analysis. More than three times the
5% of CEOs
compare and analyse potential business technology can lead to better quality risk number of CROs consider their use of
outcomes before making decisions. For decisions which can drive lower default rates technology as “predictive” compared
example, during the pandemic, the insights and result in cheaper sources of capital for to the average across all respondents
enabled the business to predict a continued borrowers,” she says. (34% to 11%). Only 5% of chief these unlikely partners are at the
increase in call centre demand. executive officers say the same. forefront of driving transformation.
KNOW YOUR ORGANIZATION
“We identified branch staff who were When asked what changes their “This allows the organization to
experiencing decreased in-person demand “Everything in business is risk,” says company made as part of its response not only clearly articulate and
and were able to redirect calls to them, Mike Elliott, chief executive at internet to the pandemic, 40% of CROs and demonstrate differential and return
which helped us maintain team levels of things management platform Over-C, 47% of CFOs said they accelerated on investment to customers, but
in-branch and continue to offer high levels which advises football and rugby clubs, their digital transformation efforts. also understand the long-term
of customer service despite the increase in shopping centres and gyms on avoiding This is compared to just 29% of chief impact of these engagements on
demand,” he adds. risk by transforming their premises into technology officers and 36% of chief the profit and loss, and company
“smart” venues. information officers. valuation,” says Chaudry.
Also in the financial services sector, there is
demand for better risk management to deliver “Whether you’re reopening your business “The CFO and CRO roles have Indeed, his counterpart in risk,
responsible and robust financial solutions. after a pandemic, expanding into new migrated over the last decade, CRO Martin Hawkes, says that
from being on opposite sides of the throughout the pandemic, Foodhub
argument to being boardroom allies,” has utilized technology and data to
markets or launching new products and says Mohamed Chaudry, CFO of assist the restaurant industry.
The top three most significant pressures caused by the pandemic services, there is always a risk profile. online food delivery service Foodhub.
The best way to deal with risk is to “This has enabled us to not only
better understand your organization “This alignment has been driven by survive, but often thrive through
Low employee satisfaction and wellbeing 45%
and its strengths and weaknesses, which an understanding that technology providing data and tools that increase
Inadequate technology / lack of requires good data analysis. Collecting is at the forefront of being able to the restaurant’s engagement with
digital transformation capabilities 43%
and understanding data will help form risk provide both competitive advantage consumers, to help drive food orders
Internal cultural issues insights and inform decision-making and and critical data insights.” and the productivity of restaurants
30%
ability to deal with certain risks,” he says. in terms of streamlining the ordering
Geopolitical risks 28% As the two roles have become and food delivery process as well as
The results indicate risk management is not increasingly focused on technology, food production,” says Hawkes.
Security-related risks 24% only a driving force behind technological
innovation and improvement, but also that
Inefficient, inflexible processes that technology is essential in the evolution
were difficult to sustain during lockdown 23%
of risk management: from reactive to
What changes did your company make
ESG-related risks 21% proactive to predictive. as part of its response to the pandemic?
Accelerating digital transformation efforts Increasing data analysis capabilities
Crowded competitor landscape
and successful rivals 20% The good news is that computing power
40%
26%
47%
23%
29%
17%
36%
13%
36%
12%
29%
11%
34%
10%
and technologies like cloud computing and
Reputational risk 19% AI mean data can be far more accessible
than ever before. But organizations can’t
Lack of funding or cash-flow issues 18% rely on technology alone. They must
Lack of engagement with customers/ be sure they are set up culturally and
not being able to meet customer needs 15% organizationally to use the insights they
uncover and be prepared to act. Before it’s Chief risk Chief Chief Chief Chief Managing Other
Supply chain disruption 13% officer financial technology information executive director C-suite
too late. officer officer officer officer22 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 23
THE PANDEMIC’S Silver linings: the most important positive changes stimulated by the pandemic
moral and business reasons. But equally,
there is nowhere for them to hide now
on these issues. Consumers, employees,
SILVER LININGS
Ranked 1st Ranked 2nd Ranked 3rd Combined top three
investors and governments are all demanding
more action on ESG issues and there is
greater transparency than ever before
Despite the widespread shock and impact of Our digital transformation
thanks to the power of social media and the
programs have accelerated increased availability of big data tools.
the coronavirus outbreak, some organizations more than they would 19% 22% 16% 57%
have done
have experienced unexpected benefits Companies should expect a paradigm shift
in the future, says BDO’s Emanuel van
Zandvoort. “Employees, especially younger
Many people thought that the COVID-19 Van Heel, head of client sustainability and We have refocused on generations, will demand clear values,
the social purpose of
pandemic would signal a reverse of recent environment at law firm Freshfields Bruckhaus our business, and become 20% 18% 9% 47% policies and performance measures on ESG
progress on sustainability, as happened Deringer, says: “Companies that have strong more socially responsible themes to stay engaged with the business.
during the financial crisis a decade ago. sustainability credentials benefit from greater ESG may become potentially more important
However, the reverse appears to be true. loyalty from key stakeholders including than earnings and income,” he says.
employees, customers and suppliers.” We have improved our
The all-encompassing nature of the outbreak environmental credits,
24% 7% 9% 40% BOUNCING BACK WITH ESG
for example by reducing
highlighted how interconnected the global The pandemic has acted to accelerate our carbon footprint
economy is and the need to take a worldwide companies’ commitment to environmental Although it is difficult to predict how
approach when it comes to considering risks. issues, the Dutch bank ING found. In the pandemic will play out, taking a
It has made companies realize that they must part this is because many governments forward-looking, risk-focused approach
adopt a new approach to doing business, one have linked their post-pandemic stimulus Internal culture has improved,
3% will enable companies to become more
that considers all their stakeholders. programs with the imperative to tackle e.g. productivity levels 16% 15% 35% resilient during and after COVID-19, say
have risen
climate change. At the same time, Bloomberg legal analysts Dylan Bruce and
Our research showed that companies feel renewable energy has reached cost parity Sansanee Dhanasarnsombat.
that despite the upheavals of COVID-19, with rival forms of power generation and it
companies have found a silver lining in is becoming obvious that there are growing “Most companies will experience some
the ability to refocus on environmental, risks to remaining wedded to fossil fuels. Employee wellbeing and level of challenge and difficulty in response
satisfaction has improved 6% 12% 11% 29%
social and governance (ESG) factors. In our to the COVID-19 pandemic, but those
survey, 24% of respondents cited “improved As an added bonus, investing in renewables companies with established ESG strategies
environmental credits” as their top benefit of will create many jobs as countries and and infrastructures may be the first to
COVID-19, and 20% said they had “refocused regions focus on “building back better”. All bounce back. Companies that internalize
on social purpose”, which means the top two of this makes it easier and more desirable Operational costs have the experiences of the pandemic, and
spots were occupied by ESG factors. for companies to tackle environmental and
reduced as our processes 11% 7% 7% 25% apply lessons learnt to the next crisis, will
have had to be streamlined
climate issues. continue building resiliency to external
BENEFIT OF COMMITTING TO ESG environmental and economic factors,”
SHIFTING TOWARDS SOCIAL they add.
It is increasingly clear that ESG issues are 3%
Our core competitors
not just an optional extra for corporates, Meanwhile, the other key impact of the struggled to adapt and 6% 16% 25% Peter Bakker, WBCSD chief executive,
they are material factors for all businesses pandemic has been to highlight a whole are now less of a threat points out that unless we use the return
when it comes to managing risks and host of social issues and their importance to to “normal” to create a truly better focus,
identifying new opportunities. businesses. These include not just the health we will miss a massive opportunity to do
and safety of workers but employee welfare 5% better. “We need to strengthen the links
“The pandemic has served as the first real more generally. Issues of gender and racial Our revenue has increased between sustainability, biodiversity loss,
more than expected as 8% 7% 20%
proof-point for sustainability, underlining diversity, and income inequality, also came a result of the pandemic climate change, inequality, health, and big
the fact that ESG investing doesn’t come at to the fore. shocks to the system that are happening
a cost, but can future-proof investments, all today,” he says. “Never waste a good crisis:
while helping to shape a better future,” says And these concerns were not just confined we have both the collective responsibility
Fiona Reynolds, chief executive of Principles to a company’s own employees as there are 2% 5% and the opportunity to act to be part of the
Our supply chains have
for Responsible Investing. calls for greater transparency in how workers become more stable, 7% 14% solution, to take the lessons we can draw
robust or resilient
in a company’s supply chain are treated. ING from this crisis into the core of the future
Yi Sun, an analyst at the World Business reports that employee health and welfare is of business.”
Council for Sustainable Development now the top priority for companies.
(WBCSD), says companies that deal well with It is this opportunity, coupled with the risks
Our customers’ behaviour 2% 2% 3%
ESG issues are less vulnerable to shocks and In part this is because they want to do the has permanently shifted 7% of failing to act, that is driving businesses to
more resilient to systemic risks. Oliver Dudok right thing and support their staff, for both in our favour embrace the ESG agenda.24 GLOBAL RISK LANDSCAPE 2021 GLOBAL RISK LANDSCAPE 2021 25
EMBRACING period must now be recalculated to tackle a
completely different set of concerns. Which risks is your company least prepared for?
FUTURE RISK
How the top three have changed year on year
“New conditions require new approaches,”
warned former US Treasury Secretary 2019 2020 2021
Lawrence Summers in a Washington Post
Organizations that plan for and op-ed. “Now, the primary risk to the US 28%
economy is overheating — and inflation.” 28%
manage risk will be the winners Business interruption
13%
in a post-COVID economy, no Conversely, risks that have lost some of
matter what the future holds their urgency in recent years can easily make 30%
a dramatic and sudden comeback. The Ever Capital/ funding 22%
Given accident at the Suez Canal and the 15%
continuing semiconductor shortage of 2021
will likely catapult supply chain and business 33%
Computer crime/
interruption issues up a few notches in hacking/viruses 34%
internal risk mapping. A growing number 20%
of successful ransomware attacks against
34%
governments and multinational groups may Damage to reputation/
brand value
27%
also add some extra urgency to tackling 35%
Nobody can predict exactly what business potential longer-term implications, that is optimistic about future opportunities, cyber risks.
environment will be left behind after the C-suites across all industries are wary of any particularly around government support. 30%
pandemic – but it is certain that risks faced more big risks hovering on the horizon. Ricky Cheng, head of Risk Advisory at Economic slowdown/
slow recovery 37%
by companies will continue to evolve. “We remain positive and will need to BDO Hong Kong, explains that risk and 41%
TURNING RISK INTO OPPORTUNITY continue making quick decisions,” says a uncertainty go hand in hand and a good
COVID-19 represented an extreme case of spokesperson for Radisson Hotel Group. risk management strategy accepts this. 29%
economic disruption, and our survey shows Leaders must keep in mind the impressive “We cannot underestimate the power of the “The post-COVID economy is still full of Environmental 27%
that it has brought major risks to the top of displays of agility and flexibility that public and private sector coming together economic uncertainties,” says Cheng. “Some 19%
C-suite agendas. businesses have shown during the pandemic. to help to rebuild the hospitality industry. organizations may be thinking of expanding
Such change inevitably creates macro We are already seeing positive signs with the their business during this initial stage of 23%
Failure to innovate/
Four in ten respondents listed the risk of opportunities, alongside macro risks. 22%
Digital Green Certificate proposed by the recovery – but management should be meet customer needs
30%
a slow economic recovery among their European Commission which is a major step mindful of over-optimistic planning.
main worries. Increased competition and In Europe, for example, governments are towards recovery”. 23%
macroeconomic developments were cited using recovery money to address old issues “There is still a long way to go before the Geopolitical 26%
by around one third. This represents a that have hampered productivity and job Similar strategies to turn risk into economy returns to its pre-COVID level. 25%
significant increase on 2020, when the creation in the region for decades. opportunity are happening worldwide. In Businesses can manage this by always
same cross-section of respondents were Asia, whole sectors like retail, education having a reservation strategy – then they 18%
interviewed just as the pandemic was Spain, which will receive $140 billion until and healthcare are going through a process can take an optimistic stance when making Increasing competition 19%
spreading across the world. 2026, has listed among its priorities the of automation that has been accelerated business decisions”. 35%
production of connected and electric by COVID-19. In South America, traditional
On the other side of the coin, the risks that cars, the digitalization of the tourism retailers have invested heavily to pump Agile, robust risk management is essential 12%
Macroeconomic
worried business leaders two years ago look industry and the boosting of research on up their online sales channels and counter for companies doing business today. Risks developments 14%
less frightening today. Access to funding, artificial intelligence. Italy intends to use its an army of start-up challengers. Brazilian are not static, and most fade in and out of 30%
computer hacking and business interruption $205-billion investment to implement badly company Via Varejo’s pioneering sales focus year on year – yet rarely disappear
14%
all dropped considerably in our ranking. needed reforms in areas like the tax system, service means consumers can now altogether. Identifying the most urgent risks,
People 8%
judiciary and anti-trust laws. purchase a fridge via WhatsApp, while without losing sight of those that could create
13%
It is not surprising, as governments and Chile’s Cenconsud saw online sales increase new challenges in the future, is a laborious
businesses turn their attention from the “We need to transform our economies as fourfold after adapting its digital business to task, but its benefits match the necessary 12%
immediate impact of COVID-19 and to the structural changes speed up around us,” pandemic-driven trends. investments in talent and technology. Regulatory risk 13%
said Christine Lagarde, head of the European 12%
Central Bank, during a conference in May TWO SIDES OF THE SAME COIN The pandemic has taught us companies that
2021. “We must redirect activity towards make a sustained effort in identifying and 7%
Management should the green and digital sectors as quickly Risk and opportunity can switch places, fast. managing risks are better prepared to face such Supply chain 9%
be mindful of over- as possible, which will help raise Europe’s In the United States, the slow economic unusual situations than their risk-averse, or 5%
optimistic planning growth potential.” recovery that is worrying business leaders is even risk-ignoring, counterparts. Companies
quickly giving way to economic growth. As that can truly say they embrace risk will be well 7%
Technological changes/
RICKY CHENG, Even the hospitality sector, which struggled a result, contingency plans implemented to prepared for the challenges of the future, no development 14%
BDO HONG KONG more than many during the pandemic, help companies tread water during a sluggish matter how catastrophic they may be. 7%26 GLOBAL RISK LANDSCAPE 2021
DEMOGRAPHICS
AND METHODOLOGY
Company location Annual turnover
20% 20% 20% 20% 20%
$100m - $501m - $1bn - $5bn -
$500m $1bn $5bn $10bn $10bn +
Number of employees
21% 20% 20% 20% 19%
20% 10% 20% 20% 10% 10% 10%
US Central UK Mainland Africa Middle APAC
or Latin Europe East 10,000+ 5,001- 2,501- 1,001- 500-
America 10,000 5,000 2,500 1,000
Organization’s primary industry Job title or nearest equivalent
Financial services 10% Chief Chief Chief Chief
executive financial information technology
Technology, media and telecom 10% officer officer officer officer
Renewables 9% 20% 15% 15% 15%
Healthcare 9%
Leisure and hospitality 9%
Real estate and construction 8%
Retail and wholesale 8%
Power and utilities 7%
Family business 6%
Manufacturing 6%
Oil and gas 6%
Private equity 6%
Professional services 6%
Risk appetite
Chief
10% 44% 34% 12% Other risk Managing
c-suite officer director
10% 10% 15%
Risk Risk Risk taking Risk
averse minimising when necessary welcoming Numbers may not add up to 100% due to roundingService provision within the international BDO network of independent member firms (‘the BDO network’) is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium. Each of BDO International Limited (the governing entity of the BDO network), Brussels Worldwide Services BVBA and the member firms is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the member firms of the BDO network. BDO is the brand name for the BDO network and for each of the BDO member firms.
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