Canadian Businesses Lack Financial Means to Take Risks

OTTAWA, Dec. 19, 2014 /CNW/ - While aversion to risk is commonly cited as one of the biggest obstacles to Canadian innovation, a new Conference Board of Canada report examining the risk tolerance of Canadian businesses finds that financial capacity is a significant barrier to taking  risks.

The report, Innovation And Canadian Business Survey, 2014: What's Risk Got to Do With It?, shows that most companies' willingness to take risk matches their ability to absorb financial losses associated with failure.

"Our study found that the majority of Canadian businesses are willing to take risks—the problem is that they have limited financial means to absorb potential losses," said Michael Grant, Research Director, The Conference Board of Canada.

Over 70 per cent of Canadian businesses are realists and their risk tolerance is in line with their financial capacity. Only about 15 per cent of businesses have both the willingness and financial capacity to take significant risks and absorb the losses associated with these risks.

By comparison, about 10 per cent of Canadian businesses are truly risk averse in that their financial capacity exceeds their willingness to take risks. Around another 5 per cent of companies could be considered "wishful thinkers" because their risk tolerance exceeds their capacity to absorb losses.

"Rather than assume all Canadian businesses are risk averse or that Canadians should fund businesses with greater risk appetites, to improve Canada's innovation performance we need to increase the number of Canadian businesses who are willing to take significant risks and have the financial capacity to do so," said Grant.

Realists should aim to grow their businesses so that they can take on more risk as they expand. "Wishful thinkers" need to either expand their businesses so that it matches their risk tolerance or get outside parties to fund their ambitions. Meanwhile, by making, changes to leadership, management, or corporate culture, risk-averse businesses could better position themselves to take more chances.

The national survey was conducted by The Conference Board of Canada's Centre for Business Innovation in May and June of 2014, and received over 1,102 responses. Launched in 2012, the Centre for Business Innovation is a five-year initiative designed to help bring about major improvements in firm-level business innovation in Canada.

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SOURCE: Conference Board of Canada