Regulatory Risk Ranked Top Threat to Business Performance

NEW YORK, Aug. 2 /PRNewswire/ -- Despite an easing of the stress stemming from the financial crisis, business organizations still face recurring and new threats, according to the third annual Ernst & Young Business Risk report.  This year, executives rank regulation and compliance as the top business risk, but others, such as risks related to talent management or to emerging markets, also strongly concern global executives as the presence of these risks grow.

In a series of in-depth interviews, Ernst & Young  asked more than 70 leading industry executives and analysts, across 14 industrial sectors worldwide, to identify and rank the top business risks for each sector for the next 12 months. They also provided input on the areas they see as being the new generation of critical business risks in years to come.

This year's survey reveals the most important business risks varied dramatically across sectors, regions and companies. Regulation and compliance regained the top spot across the majority of sectors, prompted by a general uncertainty in the market place driven by regulatory reform. Limited access to credit and the threat of continuing weak economic performance in certain regions of the world remain high on the list of potential concerns, ranking second and third, respectively.  

"Within our report, the majority of the risks identified fall into four distinct quadrants: financial, compliance, strategic and operational risks," says Gerry Dixon, Ernst & Young LLP's Global Risk Leader. "This highlights the importance of taking a broad, holistic view of risk issues, then focusing on the risks that matter most to your business – those that are present today and others just on the horizon."

Changing risk profiles

Effectively managing critical business risks requires an understanding of an organization's current risk profile. This will help companies determine where and how changes in the business environment will impact them today and in the future.

According to Norman Lonergan, Global Head of Advisory at Ernst & Young, "It is clear that across the sectors, organizations need to continue to scan the environment to identify emerging risk issues. The ability to anticipate threats, respond and continually adapt is as critical a part of the management process as it ever has been."

The most important business risks seen in this year's report concentrated in the areas of regulation and compliance, as many of these threats are related to the aftermath of the global financial crisis. However the fastest growing risk seen by survey participants is companies' ability to succeed in emerging markets, a factor that is cited as a strategic imperative for global growth.

Rising three spots in this year's survey is the war for talent, moving from seventh place in 2009 to fourth in 2010. Companies today face a number of threats linked to the management of human capital, from winning the war for global talent to functioning in the aftermath of personnel loss due to the economic downturn. Cost-cutting measures have resulted in employees taking on responsibilities for which they may have little training or direct experience. In the oil and gas, power and utilities and the automotive industries, executives perceive the aging work force as the biggest threat to companies as they are losing employees with critical skills to retirement.

Preparing for the new generation of risk

The report also looks at the top business risks that will have a strong presence in the near future.  Across all sectors, a number of innovation-related themes are evident, such as the internationalization of R&D activity.  As global companies seek to capitalize on the growth of emerging markets by drawing on an international talent pool, the ability to nurture a culture of innovation in diverse geographies will become increasingly important.  

For other industries, it is the challenges associated with innovation that is relatively constant. Within the life sciences sector, this issue rose in importance as technology continues to play a vital role in improving products and business models. Additionally, many of those surveyed cite risks associated with emerging technologies and the prospect of substantial tax increases as notable risks, presenting companies with a host of challenges that come with developing a flexible, adaptable business model.

"By focusing on the risks that weigh most heavily on the organization, both holistically and from an industry perspective, companies will be able to develop a cohesive integrated risk management process that will help sustain long-term business value," adds Dixon. "Companies must harness the vast resources they deploy to manage and identify the risks that exist across the enterprise - including internal audit, compliance, internal controls and operational risks. It is critical these areas work together to assist the organization in understanding and leveraging risks to create a strategic advantage."  

The full survey report is available at http://www.ey.com/GL/en/Services/Advisory/Business-Risk-Report-2010---Business-risks-across-sectors.

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Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. This news release has been issued by Ernst & Young LLP, a client-serving member firm of Ernst & Young Global Limited located in the US.

SOURCE Ernst & Young