Risk goes on board in high places of business

Disruption a key challenge for directorsRisk goes on board- Simon Arcus

Venkat Raman – 

The rising risk in doing business has become a major issue at the top echelons of business in New Zealand with directors spending more time managing stakes today than ever before, a new study has revealed.

‘The Director Sentiment Survey’ conducted by the New Zealand Institute of Economic Research (NZIER) for the Institute of Directors has pointed out a number of factors that will not only influence the way in which companies are managed but also affect the performance of the national economy.

“Most directors (73%) are spending more time on risk than a year ago yet only half say they have the capacity to deal with increasing business complexity and 47% expect to face major disruption within the next two years,” the Survey said.

Conducted in October 2015, respondents accounted for 820 members of the Institute.

Key challenges

The ‘Director Sentiment Survey,’ which felt the pulse of the director community, said that technological and business disruption and the time spent on risk oversight are key challenges for directors.

According to Institute of Directors Chief Executive Simon Arcus, disruption is a certainty- not if but when- and that the realisation of directors of this inevitability is a good sign.

Focus areas

“Developing board and organisational capability are focus areas for directors to ensure that organisations are resilient. It is pleasing to see that 60% of boards agree that diversity is a key consideration and 62% regularly discuss composition for the future,” he said.

“Diversity of thought and experience brings a broad range of perspectives to the boardroom and increases the potential for successful and effective risk oversight,” he added.

The Survey found that directors were less optimistic this year about economic performance than they were last year but were still buoyant about business performance.

They see global growth, labour quality and red tape as the main barriers to business and economic performance. The results show 67% expect the performance of their company to improve, down from 71% in 2014, while 35% expect the New Zealand economy to improve, down from 47% in 2014, the Survey said.

Chinese influence

NZIER Chief Executive Laurence Kubiak said that there have been increasing concerns about the growth outlook of China, which is a key market for many Kiwi businesses.

“Nonetheless, directors were more positive about the New Zealand economy than businesses surveyed in NZIER’s latest Quarterly Survey of Business Opinion. More recent developments show an improvement in economic conditions, and that has likely improved directors’ confidence about the economy,” he said.

According to Mr Arcus, technological disruption has gained prominence as a business risk, and is a new entrant to the top ten risks.

Cyber risks

Despite that, just 27% of boards regularly discuss cyber risk and are confident about their company’s capacity to respond to an attack or incident, he said.

“Most businesses use or rely on technology to operate. cyber risk is a reality of our times – so the ability of boards to consider it as part of enterprise risk is critical in ensuring directors are confident about business resilience,” Mr Arcus said.

The Institute of Directors is pleased to see the improvement in health and safety leadership, with 60% saying that they have the capability to comply with the new legislation, up from 51% in 2014. Just 8% said that they were not ready.

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