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Welcome to 2020: New Risks Facing CEOs in Today’s Uncertain World

Business Evolution Pyramid - Corporate Sustainability

March 3, 2020

  

Patricia Cummings, Managing Partner of Industries, Chief Risk Officer, Philadelphia Co-Managing Partner, Citrin Cooperman

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Every CEO has to deal with risk. It is ultimately their responsibility to manage any and all potential risks and hazards to the business, whether internal or external.  There is certainly no shortage of issues that CEOs are expected to navigate – many of these are long-standing issues, and continue to pose major challenges – as well as opportunities.  However, as the new decade commences, there are a number of new and evolving risks that CEOs are facing; risks that they need to focus on and better understand as they lead their organizations in this very uncertain world.   

Environmental, social, and governance (ESG) should be a priority for every CEO, given the impact of social issues — including diversity, human rights and gender discrimination, and environmental concerns like climate change and sustainability — on a company’s reputation, hiring opportunities, and long-term financial performance. Not paying attention to ESG issues has the potential of negatively affecting a company including the potential for consumer boycotts, employee activism and walkouts, and recruiting challenges as companies compete for top-notch, socially-minded talent.  In today's rapidly changing business climate, attention to ESG issues is becoming critical to a company’s long-term competitive success and financial prosperity. 

Large and small-business CEOs are currently assessing the coronavirus or COVID-19 outbreak and if this outbreak will have an adverse impact on business and the potential impact of future health epidemics. This current public health epidemic originated in China, the world’s second largest economy.  Retailers have temporarily shut their doors of stores in and around the city of Wuhan, what is believed to be the epicenter of COVID-19 and other cities throughout China.  Factories in China that were closed due to the coronavirus are now re-opening; a positive development for global supply chains that depend on Chinese products and intermediate parts.  However, many factories in China are experiencing severe workforce shortages due to continued travel restrictions and quarantines in the country.  The CEOs of Fortune 500 companies like Apple and Tesla are monitoring the situation, as are the CEOs of many small businesses whose business models are built on selling goods that are imported from China.  It is still too early to predict exactly how severely the U.S. and global economies will be affected by COVID-19 but it is fair to say that current and future health epidemics have the potential of having a material adverse impact on a company’s business, operating results, and financial condition.  

Additionally, technology continues to cause significant disruption in the marketplace.  As we all know, a data breach is one of the greatest concerns for any organization.  The threat of a hack and the resulting effects on customer mistrust, impact on brand and reputation, and the potential for revenue loss represents a significant financial risk for CEO. However, the risk extends much wider than cybersecurity.  With the digital economy continuing to disrupt every industry, CEOs must continue to evaluate their current business models.  

Disruption by new business models presents a clear challenge for CEOs.  New technologies are having consequences on businesses; leaders must carefully monitor new technologies, first and second order consequences of these new technologies on their current business model, identify necessary actions and potential course corrections.  Blockbuster. Kodak. Nokia. Sears. MySpace. Borders. Radio Shack.  These represent just a handful of companies, many of which have gone out of business that suffered from innovation failure.  Companies can go away quickly so CEOs must stay ahead of the growing risks caused by technology disruption. 

One of the most critical roles of a CEO is managing risk and being prepared to react to serious threats and disruption.  Today’s environment of technological change and uncertainty is leading to different and perhaps greater types of risks.  The task can be daunting; but CEOs need to focus on challenging and changing risk matters and be confident in their risk management capabilities.  All companies, even those with sophisticated risk management models, are vulnerable.  CEOs should embrace risk management as one of their priority strategic responsibilities in order to ensure that they are positioning their organizationto manage changing and challenging internal and external risks.