Asia Emerging Risks Report

Transcription

1 CORPORATE INTEGRITY PRACTICE AUDIT DIRECTOR ROUNDTABLE Asia Emerging Risks Report Q2 2012

2 A FRAMEWORK FOR MEMBER CONVERSATIONS The mission of The Corporate Executive Board Company is to create revolutionary economic advantage for leaders of the world s great enterprises by enabling them to act with unparalleled intelligence and confidence. We lift their performance at key decision points and career moments by delivering insight drawn from the most powerful global executive and professional network. When we bring leaders together, it is crucial that our discussions neither restrict competition nor improperly share inside information. All other conversations are welcomed and encouraged. We look forward to the continued and robust sharing of insights by member executives and professionals at The Corporate Executive Board Company events. COPIES AND COPYRIGHT As always, members are welcome to an unlimited number of copies of the materials contained within this handout. Furthermore, members may copy any graphic herein for their own internal purpose. The Corporate Executive Board Company requests only that members retain the copyright mark on all pages produced. Please contact your Member Support Center at or for any help we may provide. The pages herein are the property of The Corporate Executive Board Company. Beyond the membership, no copyrighted materials of The Corporate Executive Board Company may be reproduced without prior approval. LEGAL CAVEAT The Corporate Executive Board Company has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and The Corporate Executive Board Company cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, The Corporate Executive Board Company is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by The Corporate Executive Board Company or its sources, or b) reliance upon any recommendation made by The Corporate Executive Board Company.

3 EMERGING RISKS IN ASIA 1 Economic Slowdown: Despite the high growth rates enjoyed by Asian economies, executives in Asia see an economic slowdown as the biggest looming risk. Organizations typically react to an economic slowdown by focusing on cost cutting, paying particular attention to selling, general, and administrative (SG&A) costs. Instead, CEB research shows that organizations should: Focus on reducing the cost of goods sold (COGS) while protecting investments in key growth bets, Embrace risks or threats that emerge during slowdowns that the company is better suited to manage than competitors, and Pay heed to the increased tendency for employee fraud and misconduct. 2 Compensation Insufficient : CEB research shows that staff in Asia are much more likely to leave their current organizations than their counterparts in other countries. By highlighting compensation as the biggest risk, executives in Asia indicate this as the biggest driver of the inability to retain talent. In reality, compensation is not the only reason for dissatisfaction among employees and their eventual departure. Our research shows that several other elements of the employee value proposition (EVP), such as respect, work life balance, and future career opportunity, are also important influencers of employee satisfaction. Companies should craft their EVPs to take into account the factors considered important by the labor market, look to deliver on these other elements of the EVP as well, and not overemphasize compensation. 3 Staff Bench Strength Risk: Bench strength is a challenge in Asia, not only because of lower intent from employees to stay in their current jobs, but also because of the lower tenures and levels of experience of leaders in general. The best companies build their leadership bench in Asia by: Stabilizing leadership through better engagement, Strengthening leadership capabilities in the competencies that matter, and Enabling stronger leadership by providing powerful support systems without building costly leadership development bureaucracies. 4 Strategy Execution Risk: Companies have high growth expectations from Asia, but executives see strategy execution as one of the biggest risks in Asia. Current levels of economic uncertainty, high inflation, and commodity price volatility are all likely playing a role in hampering strategy execution efforts. Our research shows that strategic missteps have the greatest impact on shareholder value. Audit must step up its coverage of key strategic risks by: Auditing the documentation of company objectives and strategy, Evaluating the effectiveness of strategy communication, and Assessing the level of motivation and accountability for achieving goals. 3

4 EMERGING RISKS IN ASIA FOR THE NEXT 12 MONTHS Top 15 Emerging Risks in Asia for the Next 12 Months Very Rapid Velocity Rapid Velocity High Slow Velocity Compensation Insufficient Economic Slowdown Size of bubble represents the overall risk score. 1 Probability Score Foreign Currency Risk Inflation Price War Strategy Execution Staff Bench Strength Risk Engagement Risk New Market Entrants Pricing Risk Regulatory Risk Competitor Innovation Extreme Commodity or Energy Price Volatility Senior Management Turnover Risk Low Minor Impact Score Very Serious n = 370 executives. 1 Overall Risk Score = (Weighted 2 Average Score of Impact + Weighted Average Score of Velocity + Weighted Average Score of Likelihood) x Percentage of Respondents Selecting the Risk. 2 Weights range from 1 to 3 for each of the parameters: impact, likelihood, and velocity. 4

5 EMERGING RISKS IN ASIA BY COUNTRY Top 10 Country-Wise Emerging Risks in Asia By Overall Risk Score Rank China Hong Kong India Singapore Rest of Southeast Asia 1 1 Economic Slowdown Compensation Insufficient Economic Slowdown Economic Slowdown Compensation Insufficient 2 Staff Bench Strength Risk Economic Slowdown Inflation Staff Bench Strength Risk Staff Bench Strength Risk 3 Strategy Execution Staff Bench Strength Risk Foreign Currency Risk Compensation Insufficient Price War 4 Price War Strategy Execution Compensation Insufficient Regulatory Risk Extreme Commodity or Energy Price Volatility 5 Compensation Insufficient Compliance Risk Price War Strategy Execution Economic Slowdown 6 Inflation Engagement Risk Staff Bench Strength Risk Price War Strategy Execution 7 Competitor Innovation Senior Management Turnover Risk Strategy Execution Competitor Innovation Competitor Innovation 8 Engagement Risk Competitor Innovation Extreme Commodity or Energy Price Volatility Compliance Risk 9 Extreme Commodity or Energy Price Volatility Extreme Commodity or Energy Price Volatility Competitor Innovation Engagement Risk Engagement Risk 10 Regulatory Risk Supply Chain Risk 1 Rest of Southeast Asia includes Indonesia, Malaysia, and the Philippines. 5

6 DISCONNECT IN RISK PERCEPTIONS BETWEEN AUDIT AND BUSINESS Top 10 Emerging Risks by Finance and Audit Versus Rest of the Organization By Overall Risk Score Risk Finance and Audit Rank Rest of the Organization Rank Economic Slowdown 1 1 Foreign Currency Risk 2 - Strategy Execution 3 5 Other Risks Highlighted by the Rest of the Organization Price War: Rank 4 Competitor Innovation: Rank 6 Engagement Risk: Rank 8 : Rank 10 Regulatory Risk 4 - Extreme Commodity or Energy Price Volatility 5 9 Staff Bench Strength Risk 6 3 Inflation 7 7 Compliance Risk 8 - Compensation Insufficient 9 2 Liquidity/Credit Crunch 10-6

7 Despite the threat of strategy risks, the typical audit department continues to spend the majority of its time on traditional assurance activities covering financial and compliance risks. INCORPORATE NONTRADITIONAL ASSURANCE ACTIVITIES Balance of Audit Activities in a Given Year Traditional Assurance to Nontraditional Assurance 60% 29% 10% 1% 0% 100% Traditional 80% Traditional 20% Nontraditional 50% Traditional 50% Nontraditional 20% Traditional 80% Nontraditional n = 77. We need to shift our focus so that 80% of our work is strategically focused, while 20% should focus on the more traditional audit engagements around financial, compliance and operational risks. Chief Audit Executive Financial Services Industry By having a strategic focus we won t be providing less assurance, but more. This concept is not mutually exclusive from providing core objectives and assurance. Head of Internal Audit Leisure Industry I know in my bones this is the direction Internal Audit has to move in order to advance our profession. VP and Chief Audit Executive Consumer Services Industry 7

8 ASIA EMERGING RISKS SURVEY The Asia Emerging Risks Survey The Q Asia Emerging Risks Survey, designed by CEB s Audit Director Roundtable, captures and analyzes senior executives opinions on emerging business risks in Asia and provides actionable insights into identifying and mitigating these risks. Survey Methodology The survey asks executives to identify the top five risks in Asia and provide an estimate of probability, impact, and velocity for each of these risks. In addition, the survey also asked executives to provide leading indicators and mitigation strategies adopted to navigate these risks. We organized each of the emerging risks into specific risk categories, such as macroeconomic, financial, operational etc. The Appendix contains the list of risk categories and definitions of individual risks in each of these categories. Key Highlights of the Report Risk insights from more than 300 senior executives in Audit, Finance, HR, IT, Legal, Marketing, Sales, and Strategy at Asia s leading companies Analysis of top 10 emerging risks in key Asian markets, with an estimate of their impact, probability, and velocity Peer-suggested risk indicators and mitigation strategies for emerging risks Request for Ongoing Participation Click here to register for the Q Asia Emerging Risks survey. 8

9 CORPORATE INTEGRITY PRACTICE AUDIT DIRECTOR ROUNDTABLE