In her interview with a fashion and lifestyle South African Magazine, The Gentleman Quarterly (GQ)1, a seasoned economist, and a broadcaster, Refilwe Moloto asks a rather poignant question when she inquired, how do you make yourself indispensable when the entire world’s broke? Moloto was asking this question as she was reflecting on her experience when she was still an investment professional during the 2008 world’s financial meltdown. Moloto’s question is closely linked to the question which risk professionals asks whenever they prepare their company’s risk management framework.
At the heart of a risk management process is a question, how do we prepare for risks that threatens our company’s strategic objectives and the realisation of its strategic intent? In answering these questions, management respond to risks that are internal and external and many a times risks identified are obvious. The risk register is however filled with risks that directly impact the company at an operational level.
A robust risk management process is an essential and a core element of sound governance.
The World Economic Forum (WEF) through its annual risk report2 identifies top 10 risks facing the world. Included in these risks are infectious diseases, water scarcity, climate action failure, funding of terrorism, weapons of mass destruction, to name but a few. This risk report names risks that, if not appropriately addressed, threaten to collapse companies. It is however interesting, but unsurprising to me that many companies risk managers do not consider and include some of the risks mentioned in this report. This, therefore, implies that companies are hardly prepared to respond to these risks should they emerge. They are often caught off-guard and they spend financial resources earmarked for other initiatives to respond to these risks that have just materialised.
The COVID 19 pandemic and Cape Town’s water scarcity (in a form of climate action failure) of 2017 are two of the risks that have always been mentioned in the risk report, but I am yet to see those risks featured on any company risk framework as detailed in their respective annual reports. Companies were never ready as those risks emerged, as all these corporates, save for large enterprises were all indispensable to these catastrophic events.
The Novel Corona Virus (COVID 19) brought about devastating impact from both a human and corporate perspective. Economies of the world were destabilised, and many companies went under as a result, with companies operating in the tourism, events and leisure industry being the ones severely hammered. In South Africa, companies like Greyhound went under, while Comair went through a voluntary business rescue proceeding, albeit to a successful saving of that business. People working in these industries lost their livelihood. Whether the government relief grants were effective in alleviating these catastrophes, remains a bone of contention.
The water scarcity crisis in cities like Cape Town and Makhanda is well documented. Water scarcity is a result of another risk which prominently featured in the global risk report in the form of climate risks. Climate related catastrophes are a leading agenda in political and business cycle with the Sustainable Development placing goal 3 – climate action as one of the strategic goals that governments and economies need to pay attention towards realising that ideal come 2030.
Whilst the United Nation in its recent update on SDG’s point out that the progress made in combating climate action has been disappointing; the effect of the pandemic has had a positive impact on carbon emission3. This point out to these two risks, i.e. of climate change and infectious disease being directly interlinked.
At the onset of these risks, companies were however not prepared in responding to the devastating impact brought about by these risks. Risk professionals as assurance providers and an extension to the accountancy profession play a vital role in safeguarding value. Due to the fact that risk professionals have not considered the risk report in preparing their companies risk framework and enterprise-wide risk management strategies, their entities were left exposed. It is therefore no longer adequate for risk assurance providers to have a linear perspective whenever the risk framework is prepared.
The sustainability of businesses will therefore depend on the capital invested in strengthening and capacitating risk and assurance departments within. I would venture to err that perhaps outsourcing this very important department would not be a wise move for companies’ executives. I have nothing against outsourcing this function as I acknowledge the value that service providers add whenever they are called to the task.
Risk professionals will need to integrate their thinking and mobilise external resources such as the risk report as produced by the World Economic Forum so as to deliver value that will ensure long – term business sustainably through value creation. We are indeed operating in a volatile and complex world where smart, integrated thinking will remain key for risk professionals in advancing the strategic interest of businesses and their many and often competing stakeholders.
COVID 19 is a curriculum for the profession from which we are forced to draw lessons in protecting our business from similar shocks. A key lesson here is that often a times there are flags which can potentially assist risk professionals in designing water – tight risk management processes.
The agility with which business can weather various storms will greatly depend on the strength of assurance providers within businesses and that will largely inform whether that business will remain a going concern whenever that catastrophe strike.
The unpleasant news is that COVID – 19 is not the last of the catastrophe that will collapse businesses and world systems, but many other risks as contained in the World Economic Forum Risk Report and similar resources. It is therefore incumbent on those charged with governance to interrogate the risk register whenever it is presented to them by challenging the company’s Chief Risk Officer and the Chief Audit Executive as to how have they considered the WEF Risk Report and similar resources in preparing the company’s risk report or risk management framework.
In conclusion, I reiterate that resilience of businesses will require risk professionals that are agile in responding to these global threats. Indeed, in the future a measure of long-term business sustainability will NOT only be through accounting ratios such as the liquidity of that business, but how risk professionals there employed consider other external sources.
Perhaps, an opportunity for the profession to cement its roles in being a defender of value going forward?
- 2020 October Edition of GQ Magazine – Simply A force
- 2021 World Economic Forum Risk Report
- Sustainable Development Goal 2020: Achieving SDGs in the wake of COVID – 19: Scenarios for Policy Makers
Dumisani Mahlangu holds a BCom Financial Accounting degree from the University of Stellenbosch, is a Senior Internal Auditor, an avid marathoner and conveniently defines himself as an audit activist.