Our global survey of C-level executives and directors highlights the influence of COVID-19, people and culture issues, the economy, and digital transformation on the near-term risk landscape.
In the following table, we rank our survey’s highest-rated risk themes in order of priority to provide a context for understanding the most critical uncertainties companies face over the next 12 months. Key takeaways follow.
Pandemic-related concerns continue to linger in the near term.
New variants of the coronavirus and the inability to vaccinate enough people in some countries or provide sufficient doses of vaccines to other countries have prolonged the pandemic, hamstringing recovery efforts and dampening economic growth sentiments. The root cause for two of the top five risks overall for 2022 are pandemic-related and involve leadership concerns about government policies significantly impacting business performance and pandemic-imposed market conditions continuing to affect consumer behavior and demand for products and services.
Near-term priorities appear to be shifting.
Many of the same risks remain top of mind this year as last year; however, the way executives are prioritizing risks is changing. Three risks in the top 10 for 2021 do not appear among the top 10 risks for 2022 — concerns pertaining to regulatory matters, competition with “born digital” companies and data privacy now place 12th, 15th and 21st, respectively. Risks new to the top 10 list for 2022 center around talent challenges, including concerns about anticipated increases in labor costs, the inability to utilize sufficiently advanced data analytics and “big data,” and adjusting to shifts in perspectives and expectations relating to diversity, equity and inclusion, which were rated 23rd, 11th and 16th in last year’s survey, respectively.
People and culture are at the top of the agenda.
The number two risk overall for 2022 pertains to succession challenges and the ability to attract, retain and develop top talent in a tightening market. Company culture also remains a priority. Resistance to change represents the seventh-rated risk overall for 2022, which is concerning in an environment of disruptive change. Talented people and culture are related, as the latter attracts the former and, effectively led, the best and brightest workers engender innovative cultures fit for purpose in the digital age. Important themes related to people and culture include:
- Rising labor costs is the sixth-ranked risk for 2022.
- DEI has elevated in importance.
- The future of work is a priority now.
- Most ESG issues rate highly, particularly with respect to the "S".
The economy continues to have a near-term impact.
Concerns related to overall economic issues in domestic and international markets remain in the top five risks for 2022. The economic impact, including concerns about inflation, continue to represent significant challenges for leaders in many industries. Uncertainties associated with central bank policies around interest rates, the effects of slow-to-recover supply chains on the economic rebound from pandemic lows, the hamstringing effects of coronavirus variants on the economy, escalating fuel, food and other costs, and a slowdown in the Chinese economy are factors contributing to these concerns.
Cyber risk remains a top risk.
The rush to “go virtual” in all aspects of operations may have inadvertently created unknown security weaknesses, particularly on the human perimeter. Cybersecurity has been a top risk for a long time, and it continues to be top of mind as nation-states, cybercriminals and others evolve new attack strategies.
Social media and supply chain risks increased the most year-over-year.
The risk increasing the most year-over-year in terms of severity pertains to social media developments and rapidly emerging platform technological innovations significantly impacting operations, customer interactions, regulatory compliance and brand management. Closely behind is the impact of supply chain congestion and disruption, moving this risk from 30th last year to 16th this year.
Overall, executives view 2022 as slightly less risky than 2021.
In response to our survey’s question about the overall riskiness of the environment, the respondents’ collective response is interesting. It suggests that board members and executives perceive the risk environment for 2022 as somewhat less risky than they did when looking forward to 2021, but still slightly higher than pre-pandemic conditions two years ago in anticipation of 2020.
Dialogue and engagement are needed.
Consistent with prior years, the survey for 2022 found differing perspectives among directors and C-suite executives on risks’ magnitude and severity. Of particular interest is the dramatic increase in overall risk concerns of CEOs relative to board members and other C-level executives. This increase in CEO risk expectations is likely the result of how quickly business conditions and market expectations are changing, as well as how CEOs may be feeling the pressure associated with these market dynamics more acutely than others. Directors should make it a priority to understand their CEO’s point of view on the risk landscape as well as stress the need for dialogue and engagement among the organization’s key stakeholders in periodic risk assessments.
As leaders look forward, the message is that talent, succession and culture issues and economic concerns abound as companies continue to cope with different forms of disruption.
For more about the top risks for 2022, read the article here.
(Board Perspectives — Issue 147)