risk management: Facing risks: what CEOs need to keep in mind

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With the outbreak of the COVID-19 pandemic, uncertainties surrounding businesses have further heightened, leaving India Inc. no choice but to adapt to the “new” normal. From onboarding the workforce to a virtual or hybrid work environment to rebuilding business models, today’s business leaders are being driven to transform, achieve growth and build a sustainable future. As they continue to manage the impact of the pandemic, CEOs in India are facing operational, regulatory and reputational risks and are taking the following steps to mitigate them.

Flexibility to overcome operational risks

Operational risks emerge primarily from supply chain concerns, which stem from two factors: global supply chain disruptions and the ever-present pandemic. Companies had to review their supply chains and logistics to optimize and reduce its length.

If a long supply chain or concentration of supply is threatened, this disrupts the entire production process. More recently, global automakers have expressed concern over the shortage of chip production, which has impacted auto manufacturing. Dependence on chip supply from a certain organization or geographic region is one of the reasons for this shortage. Therefore, from a long-term perspective, companies will need to consider diversifying their supply to reduce these operational risks. In fact, the findings of the KPMG 2021 India CEO Outlook,-Towards a digitally driven and purpose-led recovery indicated that at 32%, operational risk is highest for the manufacturing sector.

Flexibility in the workplace has become a top priority, more than ever. Businesses in India realize that people are at the heart of organizational success and strive to protect the workforce. According to the KPMG 2021 India CEO Outlook, 56% of CEOs in India said they would consider shared office spaces to allow employees to work more flexibly. Additionally, 28% are looking to reduce their organization’s physical footprint and 42% are considering having their employees work remotely.

Measures such as the reduction of physical office space, the development of solutions and processes enabling remote working, an emphasis on employee well-being and human resources (HR) policies that align with this “new normal” are redefining how companies will develop their business models in the future.

Stability to understand regulatory risks

A stable political regime is important to avoid regulatory risk. Being able to anticipate problems can ensure that policy response is rapid. A positive policy approach will also help improve the country’s Ease of Doing Business (EoDB) index.

Take the example of companies in the financial services sector. All the measures taken by the Reserve Bank of India (RBI) or by the government in terms of reducing the stress on the companies, helps to reduce the huge non-performing assets (NPA) and support the companies in the sector. Creating policy interventions where not everything has to go to the Indian Insolvency and Bankruptcy Board is also beneficial.

While it is important to create political certainty and a regulatory environment suitable for the current situation, it must be developed in a way that provides enough flexibility to deal with any future disruptions we may witness.

Open communication

Any company that has invested to keep pace with the expectations of its stakeholders places greater emphasis on the environment, social and governance (ESG). As the largest stakeholders who support the business financially, gaining investor confidence is important from a business continuity perspective.

Today, a company’s risk assessment is done in the context of social media activism, which if not proactively managed by companies could lead to increased risks of reputation for organizations. While such activism is spreading like wildfire, it not only impacts brand reputation, but also investor sentiment, posing a risk to business continuity. Damage to an organization’s social reputation could lead investors to believe that it is not the right organization to support.

According to the KPMG report, 50% of CEOs in India said they find it difficult to articulate a compelling ESG story while communicating with the company. The risk here is not that something goes wrong, but that business leaders are unable to communicate effectively with external stakeholders. Failure to communicate in itself is the greatest risk!

A new risk management program

As we get back to work in the post-COVID-19 world, one thing is clear: the CEO business risk assessment agenda is undergoing a significant shift. Armed with a strategy based on flexibility, stability and communication, they will devote much more time to risk assessment, to help run their organizations better and stronger on the other side.

(The author is Office Managing Partner, North, KPMG in India)

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