Global Risks Are Intensifying: Here Is What Boards Should Know

In partnership with North Carolina State University’s ERM Initiative, Protiviti conducted a global survey to capture insights from more than 1,100 C-level executives and directors across multiple industries regarding the most important uncertainties across a spectrum of macroeconomic, strategic, and operational risks. The survey was conducted online between September and October 2023 to capture the risks on the minds of business leaders over the next 10 years. Below, the highest rated risk themes, shown in order of priority, reveal the most critical uncertainties companies face looking forward to 2034.

1. Organizations may not be sufficiently prepared to manage cyber threats, including ransomware, that could disrupt core operations or damage the brand.
2. An organization’s ability to attract and retain top talent, manage shifts in labor expectations, and address succession challenges may limit its ability to achieve operational targets.
3. Adoption of digital technologies may require new skills that are in short supply, requiring significant effort to upskill and reskill existing employees.
4. The rapid speed of disruptive innovation enabled by new and emerging technologies or other market forces may outpace the organization’s ability to compete without significant changes to the business model.
5. Regulatory changes and scrutiny may intensify, noticeably affecting the way processes are designed and products or services are produced or delivered.
6. Third-party risks arising from reliance on outsourcing and strategic partnership arrangements may prevent meeting organizational targets or impact brand image.
7. Economic conditions in the company’s markets may significantly restrict growth opportunities.
8. Existing operations and legacy information technology (IT) infrastructure may not be able to meet performance expectations as well as “born digital” competitors or those investing heavily in technology for competitive advantage.
9. Anticipated increases in labor costs may affect the ability to meet profitability targets.
10. An inability to utilize data analytics and “Big Data” may prevent achieving market intelligence and increasing productivity and efficiencies.

Survey respondents rated nine of the above top risks higher for 2034 than they did when looking out a decade in last year’s survey. The persistence and elevated significance of these risks, the continued occurrence of unexpected events, and the specter of intensifying geopolitical tensions create a nuanced view of the future. The survey revealed several of the following takeaways for boards.  

Cybersecurity is the most pressing risk issue. When combining near- and long-term views, cyber threats arguably stand out as the most significant risk issue for boards and C-suite leaders. It is likely that technologies such as artificial intelligence (AI), including generative AI, cloud, and the anticipated emergence of quantum computing and concerns about how organizations will secure their data and operations in a post-quantum world are raising significant security-related questions in the boardroom and C-suite. Increasing reliance on third parties and geopolitical tensions are also contributing to the cyber-threat landscape.

The rapid speed of disruptive innovation is on global leaders’ radar. Advances in AI, automation in all of its forms, quantum computing, and other technologies are driving waves of disruption that will impact business models and alter customer experiences. This risk ranked in the top five for four out of eight regions examined, with a fifth region noting a variant as a top risk: the ease of entrance of new competitors to the market.

People-related risks are also top of mind. Finding and keeping talent is the second highest-ranked long-term risk. Shortages of new skills in the market necessitate significant efforts to upskill and reskill existing employees. This is the third-ranked risk. Additionally, increases in labor costs are the ninth-ranked risk for 2034.

The inability to use rigorous data analytics creates significant pause for organizations focused on their long-term positioning. Finding ways to leverage insights from the volume of data available to organizations and arm decision-makers with a time advantage in disruptive markets is a priority. Organizations successful in deploying forward-looking lead indicators and integrated analytics are more likely to be anticipatory—and leaders know it.

Third-party risks rise in importance. As reliance on third-party relationships increases, cyber threats and regulatory compliance risks (e.g., data privacy regulations) come into play. Organizations must ensure that their third-party vendors, as well as vendors further downstream, are complying with current laws and regulations. These risks increased from fifteenth in last year’s 10-year outlook to sixth this year. The geopolitical climate impacts this risk with the West de-risking its reliance on China, and laws and regulations restricting business activities and operations in certain countries.

The threat of regulatory risk looms long-term. Intensifying regulatory changes and scrutiny increased relative to other risks. This issue is the fifth-ranked risk overall for 2034, up from ninth overall in last year’s 10-year outlook. This risk varies by industry as some are more heavily regulated, such as financial services and health care, and others are facing the likelihood of increased regulation, such as technology.

The economy and sustaining competitiveness complete the picture. Uncertain economic conditions, the limiting obstruction of aged technological architecture, and an inability to compete with “born digital” players are the remaining top 10 risks for 2034. Given the economic climate, the natural reaction for many leaders is to either put on hold or slow medium-term transformation, innovation, and modernization programs. However, for the short-to-medium term, companies might be best served by embracing technology to increase productivity in the face of the skilled labor shortages discussed above.

Sustainability risks have elevated. A growing focus on climate change and sustainability policies, regulations, and disclosure requirements moved from the 22nd-ranked risk looking out 10 years in 2023 to 13th this year. This risk is a top five risk in Europe and the Middle East. Typically associated with existential planetary threats, climate and sustainability-related risks are garnering more attention at a micro level by individual organizations compared to other risks they face. It is important that leadership teams in regions such as the United States, where some perceive environmental, social, and governance (ESG) matters as polarizing, not construe the regional view as a global perspective. This is particularly important for organizations operating in Europe.

Risk profiles are sensitive to geopolitical events. A pervasive uptick in respondents highlighting geopolitical and many other risks occurred in responses received during the last week of our survey period due to the outbreak of war in the Middle East. Geopolitical risk saw the third-largest elevation in ranking relative to other risks for the decade ahead compared to the prior year, behind cybersecurity and third-party risks. In our economically interdependent and geopolitically splintered world, fragmentation has manifested itself in recent years. Despotic leaders and emboldened terrorist organizations are asserting themselves all over the globe. If fragmentation continues, expect higher import prices, segmented markets, diminished access to technology and to both skilled and unskilled labor, and reduced global productivity. Multilateral cooperation in critical areas, such as climate change mitigation, may prove to be more difficult.

More disruptive times lie ahead. Six of the top 10 risks looking out 10 years are rated at the “Significant Impact” level (compared to three last year). The dynamic risk landscape and its elevated risk levels sustain the ongoing narrative that the 2020s are indeed a decade in which disruption will manifest itself in many ways. Evolving business models, rapid product innovation, changing customer value propositions, disintermediation of distribution channels, and new skill requirements have increased in importance. The question leaders in every organization must ask themselves is: Are we being disrupted and, if so, how, and when would we know?

Considering the risks discussed above, boards and C-suite executives can take the following steps:

• Take a portfolio view when overseeing emerging risks to address their interrelated nature.
• Resist the short-termism of focusing solely on today’s priorities and not taking the necessary steps to prepare for tomorrow’s realities.
• When focusing on overall risks, pay attention to regional variations (as disclosed in our survey) that may highlight potential blind spots.
• Take steps now to prepare for the future (e.g., What can be done now and over the next three to five years to prepare for longer-term risks?). Additionally, don’t equate long-term projections to truth; instead, look for opportunities to reshape the direction of key risks through actionable steps over the near and intermediate terms. 
• Ensure a robust dialogue in the C-suite and boardroom to formulate an enterprise-wide view of the risks a company faces.
• Scenario analysis, early warning systems, action triggers, decision prompts, response plans, and innovative cultures that facilitate acting on relevant market trends enable leaders to “reality test” their assumptions about markets and to be more decisive and agile in adjusting the strategy and business model.

Following these suggested action steps can help boards and C-suite executives better position their companies to be resilient in the face of the interconnected risk landscape of the decade to come.

Protiviti is a NACD partner, providing directors with critical and timely information, and perspectives. Protiviti is a financial supporter of the NACD.