Comment: Why we must talk about risk now

Comment: Why we must talk about risk now

By John Ludlow

17th October 2018

The C‐​suite needs to pay more attention — and the business risk hub can help.

These are interesting times for businesspeople: exciting, worrying and unpredictable. Companies have unprecedented opportunities, but also face risks that we do not fully understand and did not even know about a few years ago. It makes for a heady mix; we need to be alert, inquisitive, agile, and open to change.

Technology has moved to a new level. Whereas in the past it merely enabled us to carry out existing processes more efficiently, the digital transformation of business models is now core to how we add value – how we reinvent our purpose, organise our enterprises, our networks, supply chains, the products and services we offer and how we relate to our customers and other stakeholders.

Overall it makes the world more prosperous, but it does not feel that way for those who fail to keep up with the pace. Airmic has recently held a number of events at which expert speakers discussed the impact of developments such as artificial intelligence, blockchain and quantum computing. There is a consensus that we need have no fear, but there will be losers as well as winners. The winners will be those organisations and individuals that acquire the necessary expertise, collaborate, embrace change and take a fresh look at positive risk management, ensuring success and resilience.

Against this background, the Raconteur risk hub provides a valuable shared platform for thousands of very senior businesspeople and risk managers to discuss the challenges and issues. It is a truism that many board members do not understand risk and what positive risk management can do for their businesses, whilst many risk managers do not understand and align to business drivers sufficiently to wield strategic influence within their organisations. Changing this culture is a top priority as far as we are concerned, and we are making good progress. I hope this hub will accelerate the process and enable us to talk the same language.

Data has to be at the heart of the discussion, because it makes positive risk management even more compelling, enabling us to develop our businesses in uncharted waters. Lessons from the past are still vital, but data from today (condition and performance data) and business intelligence about the likely future have become more pertinent.

Reputation can be an organisation’s most valuable asset, yet it is vulnerable as never before. A hacker working out of their bedroom can potentially cause as much economic damage as a tropical storm. A systems failure or a social media event that hits an unprepared business can leave a reputation in tatters.

Last year Airmic commissioned Cass Business School to ask the question, ‘How are organisations transforming their business models to ensure resilience, value and growth in the digital age?’ Although the resulting report – Roads to Revolution –is fundamentally optimistic, it warns that organisations cannot continue to operate and manage risk as they have in the past and expect to sustain their success. To quote the report: “Board members need to understand that organisational resilience alone is insufficient in the digital age.” Regular reviews of stakeholder purpose and continuous business model reinvention are necessary for the future success and sustainability of an organisation.

The report also points out that good governance has become even more important, and that legacy corporate governance principles on their own are inadequate for organisations faced with digital transformation. Oversight of Principal Risks must be enhanced by building the capability to manage emerging risks.

These changing financial profiles and vulnerabilities of our companies also demand a fresh look at corporate insurance. Insurers are struggling to adapt to the fact that most companies’ really valuable assets these days are intangible. Reputation, supply chains and data‐​related events are much more difficult to cover than physical assets such as property. Because of the uncertainty involved and the potentially huge exposures, the premiums asked are often more than companies are willing to pay. At the same time companies are more leveraged and have shorter lifespans than ever before, creating tension between short‐​term cash flow and long‐​term sustainability needs.

The solution, in my view, is to make insurance an integral part of a company’s risk management, which in turn must focus on helping to achieve corporate objectives. When combined with modernised products and services, this will make insurance strategically relevant and valued. To put it another way, the old barriers between risk and business leadership are an outdated obstruction: they must integrate.

Board members and indeed all employees need to be risk‐​savvy, and risk managers need to be more strategic, business‐​focused and collaborative. They must understand what drives their organisations and their colleagues. To be fair, that is already more and more the case.

I believe the Raconteur risk hub can help us to make further advances.

John Ludlow is CEO of Airmic, the association for all those who work in risk.

Visit: Road to Revolution