The world is continuing to change – and change rapidly, with social matters arguably more important than ever to strategic and operational management and the way we deal with risk and uncertainty.
Social considerations are wide ranging and affect all aspects of business – for example, how social effects are taken into account when making investments, how organisations support the mental health of their staff, and how companies manage their tax affairs and pension pots.
Social implications are inherent in a number of challenges highlighted in the IRM Risk Predictions for 2018, and in November 2017 The Economist published an article on how “bosses are under increasing pressure to take stances on social issues”, stating that ‘executives who would rather concentrate on commerce are finding it ever harder to avoid politics, in America and beyond’.
Whilst each organisation has a unique set of circumstances, there are common interlinked factors when it comes to social risk.
Social instability as a global risk
The World Economic Forum’s Global Risks Report 2018 shows that profound social instability lies at the heart of global risk interconnections:
While organisations may have mapped more traditional business risks, they should perhaps look closely at whether they also track social risks and their potential impact.
Changes to political and social norms
Various bodies including the World Economic Forum have highlighted the changing social landscape as an issue for businesses. While anticipating political and social change and what it may mean for an organisation can be hard for boards and executives, it is important.
Scenario analysis is a useful way to think through what changes to politics and social norms could mean. For example, the UK Financial Reporting Council has proposed a revised UK corporate governance code which focuses on issues such as long-term success and sustainability and addresses public trust, asking that companies ‘undertake effective engagement with wider stakeholders, to improve trust and achieve mutual benefit, and to have regard to wider society’.
Also, polling in 2017 for the International Trade Union Confederation indicated that globally many people fear for their jobs, and 85 per cent of the world’s workforce wants the rules of the global economy to be rewritten to promote growth and share prosperity.
Social risks of digitisation
The fourth industrial revolution of digitisation is pressing ahead, bringing with it significant opportunities to advance societies and organisations. However, it requires careful thought to get it right.
Digitisation is not just changing how people work, it is changing how they are employed, and presents many social concerns and uncertainties. Technology in itself isn’t causing concern, and it is not just the ‘Uberisation’ of parts of the economy that worries people. It is more that technology, including AI and other advancements, can facilitate big changes in jobs, and indeed, remove people from jobs.
Risk managers also need to consider how new legislation impacts the digitisation of their business, as well as assessing risks such as increasing cyberattacks and social reactions to lost or stolen data.
Protect and grow your reputation
Today’s world of social media provides tremendous opportunities but also the chance for customers and observers to express negative opinions online, instantly reaching people across the world.
As well as handling cases where individual grievances are shared online, companies need to consider how the public may react to new investments and opportunities.
Policies may also come under scrutiny and be portrayed negatively in the media. Consider the case of the housebuilder Taylor Wimpey, which last year became embroiled in a negative social issue for (legally) doubling the cost of ground rent every 10 years for some customers. This reportedly led to it making big payouts to buyers.
Business resilience and crisis management
Problems happen, whether caused by internal actions or events beyond your control. When looking at business resilience and crisis planning, companies should consider whether their training covers how to consider the social impacts of actions they decide to take. Also, do they have a system in place to use social media in the right way in a crisis?
There’s the potential for putting positive social plans in place too, for example having an agreement in place with authorities for facilities to be used as temporary shelters for the local community, in the case of a flood or other such event.
The role for risk managers
The social side of risk has never been higher on the agenda for all organisations. So can (and should) risk managers take on the role of helping leaders and executives to understand the social elements of business risk?
Whoever takes the lead overall, as a simple first step risk managers can consider whether their organisation’s risk management system (including its risk appetite, prioritisation and scenario analysis) incorporates social considerations. If not, or if it’s a bit woolly, this may be the time to consider it more fully.
Stitching all social aspects of risk into a risk framework, and using good risk tools and techniques, helps boards make socially-informed and risk-informed decisions. Managing the social side of risk is good business.
Gareth Byatt is a risk expert based in Sydney, Australia. The views are his own and do not represent the official position of IRM.