Regulatory Change Tops List of Risk Concerns for Companies

New Risk Survey from North Carolina State University ERM Initiative and Protiviti Finds Regulatory Change Tops List of Risk Concerns for Companies  Across Multiple Industries

 Board members and senior executives’ concerns about strategic risks show largest year-over-year increase, according to study

 Changes in the regulatory environment and heightened scrutiny by regulators rank at or near the top of risk concerns among corporate leaders regardless of industry, according to Executive Perspectives on Top Risks for 2014 www.protiviti.com/TopRisks, a just-released survey report by global consulting firm Protiviti (www.protiviti.com) and the Enterprise Risk Management (ERM) Initiative at North Carolina State University’s Poole College of Management www.erm.ncsu.edu.

“The pressures created by regulators, plus the potential for major adjustments in light of regulatory change, are understandably tremendous concerns and present substantial risk. Having to comply with new regulatory requirements can dramatically affect the profitability and growth of an organization,” said Dr. Mark Beasley, Deloitte Professor of ERM and director of the ERM Initiative at NC State University. “Even organizations in industries that are less heavily regulated can feel the indirect effects of new and changing regulations, especially those affecting all types of organizations, on profitability and growth.”

This marks the second year in which Protiviti and the NC State ERM Initiative conducted their study to identify the top risks on the horizon that are driving risk conversations in boardrooms and C-suites. Respondents rated the potential impact of each of 22 risks considered in the survey on a scale of one to 10, with 10 being the highest impact. Despite a slight decrease in its rating year-over-year, regulatory change and heightened scrutiny again ranked as the top risk with a rating of 6.4 on the 10-point scale in the current survey. Notably, financial services organizations and those in the healthcare and life sciences industry group rated this risk substantially higher than the average from other industries, with scores of 7.3 and 8.2 respectively.

Regulatory Change Tops List Of Risk Concerns For Companies

Most executives rated the business environment as risky, although improving relative to 2013. The 2014 scores for a majority of risks assessed in the study are lower than their respective scores in the prior year, suggesting a slight improvement in the risk environment. Interestingly, board members appear to view the business environment as more risky than does management. By contrast, CEOs seem to have the most optimistic views about the risk environment.

“One possible reason for directors perceiving the business environment as riskier than management does is that the risks with the highest ratings were primarily strategic in nature and many directors tend to focus more on strategic rather than operational issues,” said Jim DeLoach, a managing director with Protiviti. “With respect to CEOs, they tend to focus heavily on the strength of markets. The global economy was showing signs of improvement during the survey period, which could have had a positive influence on the participating CEOs, resulting in a lower assessment of macroeconomic and strategic risks.”

The Top Ten Risks

According to the 374 survey respondents, who included board directors, C-suite executives and other top management from companies across a range of industries, the top 10 risks that present the greatest concerns this year are:

1)      Regulatory changes and heightened regulatory scrutiny

2)      Economic conditions restricting growth

3)      Uncertainty surrounding political leadership affecting U.S. and international markets

4)      Challenges related to succession-planning and talent acquisition/retention

5)      The ability to grow organically through customer acquisition

6)      Cyber threats that have the potential to disrupt core operations significantly

7)      Resistance to change restricting necessary adjustments to the business model and core operations

8)      Privacy/identity management and information security/system protection

9)      Anticipated volatility in global financial markets and currencies

10)   Uncertainty surrounding costs of complying with healthcare reform legislation

The survey was conducted in the fourth quarter of 2013. Respondents represent both U.S.-based and non-U.S. organizations and public and private companies. The report also breaks out survey results by size of company, position and industry, and offers implications of the survey results for organizations and suggestions of how to respond to these top risks.

“Managing uncertainty across a multitude of business issues continues to be a challenge that companies struggle with,” said Patrick Scott, Protiviti executive vice president, global industry programs. “It’s critical that organizations continue to prioritize risk management strategies to ensure that they are prepared to address emerging issues. These survey results should serve as a catalyst for an updated assessment of risks within organizations.”

Resources Available: Webinar, Video, Infographic, Podcast and Benchmarking Tool

The report from Protiviti and NC State Poole College’s ERM Initiative, Executive Perspectives on Top Risks for 2014, along with an infographic and a video of key survey results, is available for complimentary download at www.protiviti.com/TopRisks and www.erm.ncsu.edu. A podcast featuring DeLoach and Beasley discussing the major findings from the study is available at: www.protiviti.com/podcast.

Additionally, Scott, DeLoach and Beasley will host a one-hour webinar to discuss the survey findings on February 11 at 10:00 a.m. PST. To register for the free webinar, please visit http://www.protiviti.com/webinars. CPE credit will be provided to qualifying participants.

Executives can also compare their views about risks that are likely to affect their organizations in 2014 to the survey findings online using Protiviti’s Benchmarking Tool, available at www.protiviti.com/TopRisks.

About Protiviti

Protiviti (www.protiviti.com) is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit. Through its network of more than 70 offices in over 20 countries, Protiviti has served more than 35 percent of FORTUNE 1000® and FORTUNE Global 500® companies. The firm also works with smaller, growing companies, including those looking to go public, as well as with government agencies.

Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

About the North Carolina State University ERM Initiative

The Enterprise Risk Management (ERM) Initiative in the NC State University Poole College of Management provides thought leadership about ERM practices and their integration with strategy and corporate governance. Faculty in the ERM Initiative frequently work with boards of directors and senior management teams, helping them to link ERM to strategy and governance, host executive workshops and educational training sessions, and to issue research and thought papers on practical approaches to implementing more effective risk oversight techniques (www.erm.ncsu.edu).

REGULATORY CHANGE infographic

New Risk Survey from North Carolina State University ERM Initiative and Protiviti Finds Regulatory Change Tops List of Risk Concerns for Companies  Across Multiple Industries

 Board members and senior executives’ concerns about strategic risks show largest year-over-year increase, according to study

 Changes in the regulatory environment and heightened scrutiny by regulators rank at or near the top of risk concerns among corporate leaders regardless of industry, according to Executive Perspectives on Top Risks for 2014 www.protiviti.com/TopRisks, a just-released survey report by global consulting firm Protiviti (www.protiviti.com) and the Enterprise Risk Management (ERM) Initiative at North Carolina State University’s Poole College of Management www.erm.ncsu.edu.

“The pressures created by regulators, plus the potential for major adjustments in light of regulatory change, are understandably tremendous concerns and present substantial risk. Having to comply with new regulatory requirements can dramatically affect the profitability and growth of an organization,” said Dr. Mark Beasley, Deloitte Professor of ERM and director of the ERM Initiative at NC State University. “Even organizations in industries that are less heavily regulated can feel the indirect effects of new and changing regulations, especially those affecting all types of organizations, on profitability and growth.”

This marks the second year in which Protiviti and the NC State ERM Initiative conducted their study to identify the top risks on the horizon that are driving risk conversations in boardrooms and C-suites. Respondents rated the potential impact of each of 22 risks considered in the survey on a scale of one to 10, with 10 being the highest impact. Despite a slight decrease in its rating year-over-year, regulatory change and heightened scrutiny again ranked as the top risk with a rating of 6.4 on the 10-point scale in the current survey. Notably, financial services organizations and those in the healthcare and life sciences industry group rated this risk substantially higher than the average from other industries, with scores of 7.3 and 8.2 respectively.

Regulatory Change Tops List Of Risk Concerns For Companies

Most executives rated the business environment as risky, although improving relative to 2013. The 2014 scores for a majority of risks assessed in the study are lower than their respective scores in the prior year, suggesting a slight improvement in the risk environment. Interestingly, board members appear to view the business environment as more risky than does management. By contrast, CEOs seem to have the most optimistic views about the risk environment.

“One possible reason for directors perceiving the business environment as riskier than management does is that the risks with the highest ratings were primarily strategic in nature and many directors tend to focus more on strategic rather than operational issues,” said Jim DeLoach, a managing director with Protiviti. “With respect to CEOs, they tend to focus heavily on the strength of markets. The global economy was showing signs of improvement during the survey period, which could have had a positive influence on the participating CEOs, resulting in a lower assessment of macroeconomic and strategic risks.”

The Top Ten Risks

According to the 374 survey respondents, who included board directors, C-suite executives and other top management from companies across a range of industries, the top 10 risks that present the greatest concerns this year are:

1)      Regulatory changes and heightened regulatory scrutiny

2)      Economic conditions restricting growth

3)      Uncertainty surrounding political leadership affecting U.S. and international markets

4)      Challenges related to succession-planning and talent acquisition/retention

5)      The ability to grow organically through customer acquisition

6)      Cyber threats that have the potential to disrupt core operations significantly

7)      Resistance to change restricting necessary adjustments to the business model and core operations

8)      Privacy/identity management and information security/system protection

9)      Anticipated volatility in global financial markets and currencies

10)   Uncertainty surrounding costs of complying with healthcare reform legislation

The survey was conducted in the fourth quarter of 2013. Respondents represent both U.S.-based and non-U.S. organizations and public and private companies. The report also breaks out survey results by size of company, position and industry, and offers implications of the survey results for organizations and suggestions of how to respond to these top risks.

“Managing uncertainty across a multitude of business issues continues to be a challenge that companies struggle with,” said Patrick Scott, Protiviti executive vice president, global industry programs. “It’s critical that organizations continue to prioritize risk management strategies to ensure that they are prepared to address emerging issues. These survey results should serve as a catalyst for an updated assessment of risks within organizations.”

Resources Available: Webinar, Video, Infographic, Podcast and Benchmarking Tool

The report from Protiviti and NC State Poole College’s ERM Initiative, Executive Perspectives on Top Risks for 2014, along with an infographic and a video of key survey results, is available for complimentary download at www.protiviti.com/TopRisks and www.erm.ncsu.edu. A podcast featuring DeLoach and Beasley discussing the major findings from the study is available at: www.protiviti.com/podcast.

Additionally, Scott, DeLoach and Beasley will host a one-hour webinar to discuss the survey findings on February 11 at 10:00 a.m. PST. To register for the free webinar, please visit http://www.protiviti.com/webinars. CPE credit will be provided to qualifying participants.

Executives can also compare their views about risks that are likely to affect their organizations in 2014 to the survey findings online using Protiviti’s Benchmarking Tool, available at www.protiviti.com/TopRisks.

About Protiviti

Protiviti (www.protiviti.com) is a global consulting firm that helps companies solve problems in finance, technology, operations, governance, risk and internal audit. Through its network of more than 70 offices in over 20 countries, Protiviti has served more than 35 percent of FORTUNE 1000® and FORTUNE Global 500® companies. The firm also works with smaller, growing companies, including those looking to go public, as well as with government agencies.

Protiviti is a wholly owned subsidiary of Robert Half (NYSE: RHI). Founded in 1948, Robert Half is a member of the S&P 500 index.

About the North Carolina State University ERM Initiative

The Enterprise Risk Management (ERM) Initiative in the NC State University Poole College of Management provides thought leadership about ERM practices and their integration with strategy and corporate governance. Faculty in the ERM Initiative frequently work with boards of directors and senior management teams, helping them to link ERM to strategy and governance, host executive workshops and educational training sessions, and to issue research and thought papers on practical approaches to implementing more effective risk oversight techniques (www.erm.ncsu.edu).

REGULATORY CHANGE infographic