The report, based on a global survey conducted by Forbes Insights on behalf of Deloitte Touche Tohmatsu, interviewed more than 300 respondents from Asia-Pacific (34 per cent), the Americas (33 per cent) and EMEA (33 per cent). Nearly all of the respondents were C-level executives, board members or specialised risk executives.
The findings represent a major shift from three years ago when reputational risk was ranked third among strategic risks after brand and economic trends. Today, in some industry sectors, reputation has even risen from outside the top five risk concerns to the top of the list. In the energy and resources sector, for example, reputation ranked only 11th on the list of strategic risks in 2010, but is number one today.
In fact, the only sector where reputation hasn’t risen as a significant risk factor since 2010 is financial services, where it was already the top concern following the financial crisis.
Nearly all companies surveyed (94 per cent) have changed their approach to strategic risk management over the past three years. This number is highest in Asia-Pacific, where the figure is 96 per cent.
In tandem with the rise of reputation risk as a concern is the rise of social media as “the biggest technology disrupter and threat to business models.” Nearly half of those surveyed listed social media above other technologies such as analytics, mobile applications, and cyber-attacks as a concern.
Perhaps surprisingly, companies identified data mining and analytics, normally seen as beneficial to a business, as the second most concerning technology threat. Together, the top five technology threats to the business were social media (47 per cent), data mining and analytics (44 per cent), mobile applications (40 per cent), cloud computing (38 per cent), and cyber-attacks (36 per cent).
Click for larger view
“The rise of reputation as the prime strategic risk is a natural reaction to recent high profile reputational crises, as well as the speed of digital and social media and the potential loss of control that accompanies it,” explained Henry Ristuccia, Deloitte global leader, governance, risk and compliance.
“The time it takes for damaging news to spread is quicker, it goes to a wider audience more easily, and the record of it is stored digitally for longer,” he said. “Even in an environment where economic conditions remain tough and technology threatens business models, this is why companies place reputation at the top of their strategic risk agenda.”
As a result, boards and senior executives are increasingly involved in strategic risk management. Two-thirds of companies surveyed said that their CEO, board or board risk committee now has oversight when it comes to managing strategic risk.
But the person a public relations firm or risk management consultancy should approach differs across geographies and industry sectors. In Asia-Pacific and the US, the CEO is primarily responsible for risk management in 31 per cent and 27 per cent of companies surveyed, respectively. But in Europe, the CEO leads risk management in only 9 per cent of companies surveyed, while board-level risk committees manage 28 per cent. .
Likewise, in the energy sector, only 10 per cent of CEOs are responsible, while in the technology sector CEOs are more hands-on with 33 per cent determining the strategic risk approach.
“No single preferred approach to owning strategic risk management is evident at present, except that it is now being handled at the CEO and board-level,” added Ristuccia. “What really matters though is the fact that strategic risk is being owned by the CEO and the board in the first place – the idea of strategic risk is now firmly established at the highest level.”
Overall, 61 per cent of companies believe their strategic risk programmes are performing at least adequately in supporting business strategy development and execution. However, only 13 per cent of companies rate their risk-management programmes as being five out of five in terms of supporting the development and execution of business strategy with the Americas and Asia-Pacific leading the way in confidence.
When asked which strategic assets they are investing in to counter perceived strategic risks, companies identified human capital (47 per cent), brand name and reputation (32 per cent), and customer capital (26 per cent) as key items.
“You have a human capital or a people capability risk if you do not have depth in your organisation,” says Jennifer Evans, chief risk officer of ANZ Banking Group in an interview reported in the study. “I think the truly differentiated organisations, are those that can deal with strategic risk issues, whether they exist now or in the future, with talented people who are clearly on the innovative curve. If you have enough depth in the organisation, you can manage your environment. But if you’ve got a key person dependency, then you’ve got human capital risk.”