Boards and Directors are charged with providing effective oversight of business risk. There are obvious areas of risk that Directors understand however here are six areas of risk that are less obvious but which have the impact to be just as damaging in the long term
Human Resource Risks
Businesses find this area increasingly challenging due to both legislative change and people’s actions. For example, Occupational Health & Safety regulations are becoming tougher in many countries and the penalties for non-compliance are becoming substantial. Although OH&S regulations are not generally a current issue of concern for Boards in the Caribbean, it is a trend that Directors need to be aware of. Talent attraction and retention is a growing risk and can be more difficult to manage when local government regulations dictate frequent turnover of foreign personnel . CEOs and senior executives and their performance and integrity are under the microscope. Stakeholders are pressuring businesses to explain why CEOs and senior executives continue to be rewarded handsomely when they fail to deliver.
A major risk area which many Boards under-estimate. Businesses failing to understand and adopt new technologies face competitive challenges and risk not being able to deliver to changing customer demands. Cyber-security and social networks increasingly make or break businesses. The power of Trip Advisor reviews and the impact they have on local tourism businesses is a great example of this, particularly when hoteliers do not engage on the platform to manage their online reputations.
Some business leaders still think short-term, particularly in the Caribbean where political relationships have kept many businesses viable for multiple generations. They cannot see that many of the world’s resources are under severe stress and could soon become a major constraint. Water is a huge risk area in many parts of the world. Coca Cola shut down plants in India recently due to a lack of water. Rare earth metal shortages threaten many industries in the technology sector. The world is using up resources at 150% of the rate they are being replaced. Those businesses relying on finite resources that eventually run out will simply go out of business – unless they have a sustainable alternative.
These reflect the responsibilities that Boards, Directors and senior executives have to all their stakeholders. However, many don’t understand the breadth of the stakeholder base they need to consider. It is much broader than staff, shareholders and supply chain participants and includes communities, agencies, activists, governments and customers. The recent action taken by a local activist group in relation to the dump in The Bahamas is a great example of this. In addition, there are many areas of legislative compliance and fiduciary duty that are part of this risk area.
Our research suggests the greatest risk for many businesses is a lack of understanding of the wants and needs of their customers. Sometimes customers don’t know what they want or need but they do know what is ‘missing’. If what’s ‘missing’ is addressed innovatively, it can deliver a competitive advantage in the market place. Unless a business identifies and delivers the right value propositions, those leading a business will be playing a high-risk game.
Future Fitness Risks
This is the most under-estimated risk area for the majority of businesses we have worked with in the Caribbean. Many tend to be slow to change, have cultural and hierarchical rigidities, and rely on traditional ways of thinking and implementing. Unless business leaders know what’s coming over the horizon they can be easily blindsided by smarter business leaders who have a well-informed view of how things may play out in future years. Kodak ignored the digital camera boom and paid the price. Few businesses include foresight in strategic planning in order to improve their ‘future-fitness’ in a world facing rapidly changing demographics, geo-political power shifts, new business models, changing regulatory environments, increasing resource use efficiency and changing wants and needs of customers.
What does this mean for business?
Managing risk means being very well-informed about what may change the playing field for businesses in future. It’s about managing long term risks and most companies don’t understand the broader range of risks that businesses face and how to develop strategies so they can thrive longer term. This requires visionary leadership at both the Board and Senior Executive levels.