Companies are facing ‘polycrisis’ of risk, reports Clyde & Co
Clyde & Co, a law firm that specialises in insurance, trade, and aviation, reports that 67 percent of leaders surveyed find the risk landscape significantly more complex than it was three years ago during the COVID-19 crisis.
Complicated and often contradictory global regulatory risks are major obstacles to corporate growth. The urgency to adopt Artificial Intelligence (AI) is driving a “gold rush” mentality around the disruptive technology.
Additionally, attracting and retaining talent, especially from overseas, has become increasingly difficult and costly.
Eva-Maria Barbosa, Partner, Clyde & Co said: “Organisations are having to deal with risks that were never on their radar in the past. An unpredictable economic environment with shorter and more volatile cycles is being fuelled by growing geopolitical tensions. In response, we are seeing a proliferation of sanctions and a greater regulatory burden which organisations must now navigate.”
“Add to this the growing impact of AI and the sheer number of risks could feel overwhelming for any business. With all of this to contend with, effective planning and risk prioritisation is becoming crucial, with more and more companies understanding the importance of consistent horizon scanning,” further added Barbosa.
According to Clyde & Co’s annual Corporate Risk Radar, a perfect storm of economic volatility, geopolitical upheaval, and the disruptive force of AI has driven the corporate threat level to its highest in 12 years.
This survey, conducted with research consultancy Winmark Global, involved C-suite decision-makers, in-house legal teams, and General Counsel. It found that escalating threats on multiple fronts are creating a ‘polycrisis’ of risk, significantly impacting corporate decision-making and costing up to 5 percent of corporate revenues. More than a quarter of respondents indicated that risk perception was hindering ‘bold decision making’.
Economic risks such as inflation, interest rates, and currency volatility remain the number one threat according to business leaders. People challenges, including attracting and retaining talent, upskilling, management, and succession planning, are also major concerns.
Divergent and often contradictory regulations, particularly concerning AI, have made regulatory compliance the joint second biggest issue, up 9 percent from 2023. Ongoing regional conflicts and political uncertainties have surged geopolitical risks by 11 percent ranking them fourth.
Carolena Gordon, Senior Partner, Clyde & Co commented: “This year’s report shows that the business of doing business has become more unpredictable than ever. Most of us have now come to terms with the fact that there is no longer such a thing as ‘normal’ and that a different mindset is needed when assessing and responding to risk.”
Gordon continued: “Navigating risk is not just a defensive play but a crucial enabler of commercial opportunity and global economic activity. It is encouraging to see that, despite the headwinds, businesses are increasingly taking a proactive approach to risk management.”
The report also highlights that market disruption, including AI, is now the risk leaders feel least prepared for, surpassing climate change, geopolitical, and societal risks.
General Counsel were the least optimistic about their readiness to deal with market disruption, reflecting their closer proximity to these risks. Scenario planning and risk horizon scanning have become much larger parts of executives’ roles.
The growing tension between boards and executive risk management is evident, with some boards relying too heavily on executives to identify and present risks.
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