|
Along with market regulators, the entire financial services industry is rethinking risk management in the hope of rebuilding trust and preventing the next systemic failure.
"I hope that once we come out of this crisis the financial markets will become more reasonable and be driven by longer-term objectives and not just short-term models."
Léo Apotheker
Co-CEO
SAP AG, Germany
This has raised serious questions about the adequacy of risk management in business in general. In addition to new regulations, policies and procedures, many organisations will require different kind of information about risk, as well as new cultures supported by new incentives that help employees stay focused on the long term.
The risks associated with many of today's large-scale, long-term trends are difficult to identify and assess because they are unprecedented and unregulated. The argument for action is often a modern version of Pascal's wager-the potential risks and benefits are too great for businesses to bet against these models having some truth. At the company level, however, it is difficult to weigh these scenarios, however well-informed, against the known costs and benefits of investing in compliance with existing regulations.
To address risks that may seem unknown or unknowable, organisations need to develop individual systematic approaches to scenario planning, which will inform the identification, assessment and management of global risks. One thing this will require is the reallocation of resources to get better data because huge gaps in the information required to manage risks remain. In many cases, information is not flowing fast enough or from the right sources.
Last year's Global CEO Survey found that CEOs did not feel they had the information necessary to understand fully the risks in business networks, such as those created by outsourcing and other external supply relationships.
Ralph Norris, CEO of Commonwealth Bank of Australia, speaks on how Australian banks avoided some problems of the current financial crisis through having learned difficult lessons during the 80s and 90s.
In this year's survey, 53 percent of CEOs said that information on risks is critical to the long-term success of their businesses, and almost all the rest believe it is important. However, only 23 percent believe they have comprehensive information about risks to their businesses. CEOs in every industry and country that we surveyed report the same problem.
The gap is widest where cross-border flows of capital, labour, goods, services and information spread risk beyond the control of any one business or nation.
Global and systemic risks may involve the entire range of external stakeholders, as well as competitors and the general public; therefore, these risks can only be managed collectively. Each stakeholder group has different motivations, exposures and resources, and the tension between collaboration and competition among these groups inhibits the flow of risk information among members of a business network.
|
