Andrew Sloman, the National Leader of BDO’s Risk Advisory Team, discusses New Zealand business owners approach to risk, and how they can no longer afford to avoid proactively identifying risk and mitigation.
New Zealanders may be famous for our “number eight wire” approach, but it’s a risky attitude in an increasingly uncertain global business environment.
In our recently released BDO Global Risk Landscape Report, canvassing 500 business leaders across 44 countries, we found an overwhelming 87 per cent of respondents thought the world has become a riskier place.
But despite the rising tide of risk, I see regular evidence that suggests that New Zealand businesses still lag when it comes to taking a proactive stance on formally identifying and mitigating the risks they face.
We have a mindset in our business culture that, if a risk presents itself and we haven’t the controls in place to mitigate its effect, then somehow we’ll work our way through it anyway. We’re more likely to accept the risk happening and then try to deal with it, because culturally we’re “she’ll be right” Kiwis.
However, in an increasingly global trading environment, New Zealand businesses can no longer afford to avoid proactively identifying risk and mitigation.
We’re all so incredibly interconnected now in this globalised world, so New Zealand businesses need to pay attention to risks external to our borders, and not just those in their own backyard.
Our Global Risk Report questioned respondents on the biggest risks facing their operations now and in the future. Increasing competition, economic slowdown and business interruption were identified as the biggest threats facing global business overall – while geopolitical issues and factors like terrorism, cybercrime and technological disruption were identified as emerging risks.
The Brexit situation is a recent example of a geopolitical issue on the other side of the world filtering down to New Zealand, directly impacting our currency and the broader training environment. Brexit also illustrates a flip side to risk that businesses need to be aware of. Risk is not just about what can hurt you; it’s also about opportunity or failing to capitalise on an opportunity. Brexit is an opportunity because it changes the trading landscape for Britain, potentially moving it away from Europe and back to some of its more traditional partners. So the risk exists, for New Zealand business in particular, that we won’t capitalise on Brexit from a trade opportunity viewpoint.
The threat presented by another key global risk identified in the Report, technological change, also illustrates the flip sides of potential risk and reward. Technological change can manifest in many risks. It also presents the opportunity to disrupt industries and markets. In New Zealand, many of our companies are small to medium-sized enterprises and operate in traditional markets that are potential targets for disruption. If you’re passive in relation to technology and innovation, then you’re potentially exposed. But on the positive side, our smaller firms are typically more agile – meaning they’re potentially able to develop disruptive technologies themselves.
The Report outlined other risk areas New Zealand businesses need to be alert to, including environmental risk related to issues like water use and climate change, which, given the importance of our agricultural industry, need to be top of mind for many businesses.
The preponderance of small and medium-sized firms here also means we’re increasingly vulnerable to cybercrime. Because of the rapidly changing cyber security risk environment, I don’t think many business owners and employees are really aware of what a cybercrime threat might look like. When you test employees through methods like ethical hacking and email inducement, they’re often just not aware of what a cybercrime-type email looks like when it enters a business.
With the rise of recent legislation such as the Health and Safety at Work Act and the Anti-Money Laundering and Countering Financing of Terrorism Act, businesses need to be increasingly aware of the regulatory risks they face – both on home soil and in any other territories where they may be trading.
These two pieces of legislation require businesses to have risk frameworks in place. So why not use the opportunity, as you assess the risks faced in respect to those particular pieces of legislation, to use those frameworks to assess risk across the whole of business.
The world is changing rapidly and New Zealand businesses and directors need to have a framework in place so they can look ahead and read the risks of the business and determine what controls they have in place to mitigate them. We can’t just fly through fog without instruments.