Regulation leads list of top 10 risks for 2014

BY KEN TYSIAC

Regulatory changes and scrutiny are the risks business leaders are most concerned about for 2014, according to a new survey conducted by N.C. State University’s Enterprise Risk Management Initiative and consultant Protiviti.

“It’s a message for policymakers,” said Jim DeLoach, CPA, a Protiviti managing director. “… The bottom line is, it does have a cost in that it does affect business and it does affect decision-making around hiring and investing.”

The survey, now in its second year, took responses from 370 executives and board members about the risks that concerned them most.

Although regulatory concerns decreased a bit from the previous year (to 6.4 from 6.8 on a scale of 1 to 10), they were the top concern for four of the six industry groups in the global survey, and especially worrisome for respondents in the financial services and health care sectors.

Economic conditions were the No. 2 risk, but they experienced a significant decrease in concern level to 5.7 from 6.5 in 2013.
 
“The percentage year-over-year growth is not as robust as executives had gotten used to [before the financial crisis],” DeLoach said.

Just one of the top 10 risks saw an increase in concern level, indicating an overall business environment that’s perceived to be slightly less risky than a year ago. The top 10 risks are as follows:

1. Regulatory changes and heightened regulatory scrutiny may affect the manner in which our products or services will be produced or delivered. Score (out of 10): 6.4, down from 6.8 in 2013.

2. Economic conditions in markets we currently serve will significantly restrict growth opportunities for our organization. Score: 5.7, down from 6.5 in 2013.

3. Uncertainty surrounding political leadership in national and international markets will limit growth opportunities. Score: 5.6, down from 6.0 in 2013.

4. Succession challenges and the ability to attract and retain top talent may limit our ability to achieve operational targets. Score: 5.5, representing no change from 2013.

5. Organic growth through customer acquisition and/or enhancement presents a significant challenge. Score: 5.3, down from 5.5 in 2013.

6. Cyberthreats have the potential to significantly disrupt core operations for our organization. Score: 5.3, down from 5.4 in 2013.

7. Resistance to change will restrict our organization from making necessary adjustments to the business model and core operations. Score: 5.3, up from 5.2 in 2013.

8. Ensuring privacy/identity management and information security/system protection will require significant resources for us. Score: 5.2, down from 5.4 in 2013.

9. Anticipated volatility in global financial markets and currencies will create challenging issues for our organization to address. Score: 5.1, down from 5.4 in 2013.

10. Uncertainty surrounding costs of complying with health care reform legislation will limit growth opportunities for our organization. Score: 5.0. (Unranked in 2013).

DeLoach said he expects succession challenges to remain a concern for companies as the workforce ages and organizations adjust their human resources processes to the U.S. generational differences.

The survey results suggest three key actions are necessary for businesses to succeed in the current risk environment, DeLoach said:

  • Periodically evaluate changes in the business environment. “Organizations need to … ensure that their strategies and business plans are aligned accordingly,” DeLoach said.
  • Have a process in place to identify emerging risks. Scenario analysis may be a part of this process. “No one can predict the future, therefore a single-point view of the future is a fool’s errand,” DeLoach said. “You have to recognize that there are potential alternative futures that you’re going to be operating under, and you need to plan accordingly so you have flexibility and exit strategies built in.”
  • Make sure management and the board agree on what risks are most significant. “That’s what should command the dialogue within the board room,” DeLoach said.


Although the level of concern for most of the top 10 risks declined compared with 2013, some other risks showed increases. These included lack of access to capital and the rapid speed of disruptive technological innovations.

“There are potentially risks in that second 10 that could become more significant moving forward,” DeLoach said. 

Ken Tysiac ( ktysiac@aicpa.org ) is a JofA senior editor.

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