Boardroom Risk: Don’t Miss the Obvious

The shocking fall of construction giant Carillion from a major player in the UK’s construction market to liquidation was a shock for many, but what has come to light is that perhaps it shouldn’t have been. There have been many to lay the blame at the government’s feet for continuing to give Carillion contracts despite three profit warnings, but a high turnover of C-suite staff indicates that the problems centred around the boardroom.

Our Autumn 2017 Risk and Confidence survey shows that many business leaders are underestimating the importance of boardroom risks. Only 8% of business leaders were concerned about corporate and compliance risk and a mere 6% were concerned about supply chain risk, showing that they are falling down the boardroom agenda. Our survey results showed a particular lack of regard within the Construction industry, where over half of all business leaders believed boardroom risks would remain the same.

One possible reason for this is that business leaders are distracted by headline grabbing risks; with well-publicised cyber-attacks such as WannaCry and Petya and dramatic political events like Brexit and the results of last year’s snap election distracting companies from internal threats. Such headlines might explain why political risk is the current top risk for those businesses we asked and why 48% of companies believe cyber risk will become their top concern by Spring 2018.

Whilst political and cyber risks aren’t to be underestimated, Carillion’s liquidation should act as a lesson to other businesses about the importance of paying attention to boardroom risk. Distracted by headlines that relentlessly press political concerns or scaremonger over cyber-attacks, businesses are failing to look after the underlying risks which challenge companies every day.

Risks that businesses need to be paying attention to are:

• Regulation and reputational risk: New and growing exposures in the UK and internationally such as Corporate Manslaughter laws and GDPR has led to 31% of multinationals we asked for our Survey to believe that regulation and reputational risk are set to increase.

   

• Supply chain risk: Including supplier failure, supplier conduct or quality. With many companies looking to expand into new regions to continue their topline growth their supply chain exposure will also increase.

   

• Corporate risk: Defined as risk of fraud, corruption, poor governance, weak compliance and pension exposure. Considering these risks are in the hands of businesses it is even more important that these controllable variables are looked after.

With the head of the industry’s watchdog now calling for more scrutiny of top accounting firms after Carillion’s collapse, the pressure is now on.

Craig Bennett, Head of Casualty