Multinational corporations are facing increasingly diverse, complex and exotic risks, and may not have all the resources in place to manage them effectively, according to Aon's first Global Risk Management Survey.
More than half of the survey's respondents said they weren't prepared for the risk they rated as most worrisome - damage to reputation. "Executives now see reputation as a major source of competitive advantage," said Ruth Joplin, Aon Global Risk Consulting managing director. "While intangible, reputation is one of the most important corporate assets and one of the hardest to protect," she added. "The lack of preparedness reported for this and other key risks is both surprising and somewhat worrying."
Joplin says it should come as no surprise that business interruption was cited as the second key risk. "Preserving earnings power is clearly one of the top priorities of senior management," she said, "and there is a growing realization that the resulting loss of income following an event could pose a greater threat than the physical damage itself. While 70 percent of respondents reported being prepared, it is perhaps even more telling that 30 percent are not."
Survey responses suggest that third party liability risk concerns have arisen as a result of the encroachment of U.S.-style litigiousness into other geographies. "The 'compensation culture' is gaining a stronger global foothold," Joplin said.
Rounding out the top five risk concerns, based on the survey's results, are distribution or supply chain failure, and market environment. Lack of preparedness for these risks is reported at 37 percent and 65 percent, respectively. What does this mean? "There is clearly more work to be done," said Joplin. "Dealing with these and future risk trends will require innovative, forward-looking solutions."
Other top ten risk concerns rated by survey respondents are, in order, regulatory or legislative changes, failure to attract or retain staff, financial risk, physical damage, and mergers and acquisitions and disaster recovery plan failure are tied for tenth place.
Ranking Risk description
1 - Damage to reputation
2 - Business interruption
3 - Third party liability
4 - Distribution or supply chain failure
5 - Market environment
6 - Regulatory/legislative changes
7 - Failure to attract or retain staff
8 - Market risk (financial)
9 - Physical damage
10 - Merger/acquisition/restructuring
10 - Failure of disaster recovery plan
Joplin says that that the Americas represent the only region where technology failure and loss of data are cited as a major risk concern, while Europe uniquely cites mergers/acquisitions/restructuring and Asia/Pacific is highly concerned with weather/natural disasters. Risk managers in the Americas tend to rely heavily on senior management intuition and experience to identify major risks as compared to other regions that rely more on business unit registers.
The survey also indicates that corporate boards recognize the criticality of risk management and are engaged in the review of risk issues. Respondents reported identifying and understanding their risks is a top priority and many planned to take a more enterprise-wide approach to risk within the next two years. "By taking a more integrated, systematic approach to managing risk," Joplin said, "organizations can begin to actively start turning risk into opportunity."
Aon's Global Risk Management Survey 2007 was conducted in late 2006 and early 2007 by Aon Global Risk Consulting, and is based on responses from 320 organizations in 29 countries. The web-based survey, aimed at risk managers, CFOs, treasurers and others responsible for risk, addressed both qualitative and quantitative risk issues. Insight is provided by region, revenue and industry.
You can read more about the survey or request a copy of the complete survey.