C-Suite focuses on regulatory risk

Top executives and board members see regulatory changes, scrutiny as biggest concern for 2014; concern about economy lessens.

Top corporate executives and board members foresee regulatory changes and the prospect of increased scrutiny from regulators as their biggest risk this year, according to a survey conducted by consulting firm Protiviti and North Carolina State University's Enterprise Risk Management Initiative.

"Every way we sliced the data--whether it was by industry group, by executive position, by type and size of organization, looking at companies in the U.S. and companies operating outside the U.S.--regulatory risk was at the top in almost every case," said Jim DeLoach, a managing director at Protiviti. He noted that new regulations or the prospect of more regulation "creates uncertainty in the business environment and definitely has an impact on hiring and investing decisions."

Respondents rated risks on a scale of one to 10, with 10 designating risks with "extensive impact" over the next year. The survey considers risks rated 6 or higher as "significant." Respondents assessed the risks posed by regulatory changes and scrutiny at 6.4, making it the only risk identified as significant overall.

Executives from the financial services and health care and life sciences industries were more concerned about regulatory risk on average, rating it 7.3 and 8.2, respectively. DeLoach pointed out every industry faces different regulations, noting the Volcker rule and anti-money laundering rules taking shape for financial firms and the Affordable Care Act affecting the health care industry.

The remaining top five risks cited by the 374 C-Suite executives and board members surveyed were economic conditions restricting growth; uncertainty about political leadership, both in the U.S. and other countries; challenges regarding succession planning and hiring and retaining workers; the ability to grow organically by acquiring new customers; and cyberattacks.

While the top risks were the same as those identified in last year's survey, respondents assigned slightly lower weights to most risks than they did last year. The risks with the most decreased weights from 2013 to 2014 were those related to macroeconomic issues, while increased weights mostly dealt with strategic concerns, such as emerging competition, the ability to expand through acquisitions and disruptive innovation.

Large organizations, those with annual revenue of $10 billion or more, perceived the environment as riskier than smaller companies and ranked four risks as having significant impact. DeLoach attributed that to larger organizations' "broader reach, a global reach, more exposures in different regions in the world, [and] more reliance on developing markets."

Large companies were also more concerned about cyberthreats, ranking them as the second highest risk, while executives overall ranked them sixth.

Board members also perceived the environment to be more risky, ranking four risks as significant.

"Even within the executive ranks, when you look at the CEO, the CFO, the chief risk officer, there were different perspectives," DeLoach said. "Which tells you there are multiple perspectives that a company can access and make available in evaluating risk. The risk assessment process should tap into multiple perspectives when developing a point of view for the enterprise on what its most critical risks are."

For more:
- see the Protiviti-University of North Carolina survey
- see insurer Allianz' 2014 Risk Barometer
- see the World Economic Forum's 2014 report on Global Risks

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