Businesses confront intensifying economic, geopolitical, and AI-driven risks in 2024, according to Clyde & Co.’s Risk Radar report.
The risk landscape for businesses continues to evolve at a dizzying pace, driven by economic volatility, the accelerating impact of AI, and persistent geopolitical turbulence, according to Clyde & Co.’s 2024 Corporate Risk Radar report.
The analysis, based on insights from 225 general counsel, C-Suite executives, and CEOs worldwide, sheds light on the confluence of heightened risks across multiple fronts and reveals how business leaders are taking decisive action to adapt.
Economic and Geopolitical Risks Intensify
Economic threats have emerged as the most pressing concern for business leaders, with an overwhelming 82% of respondents citing inflation, rising interest rates, and currency volatility as critical risks, the report notes.
Geopolitical risk has also risen at an alarming rate, climbing from seventh place just three years ago to fourth place in the latest survey. Fueled by ongoing conflicts such as the war in Ukraine and the looming uncertainty of elections in key markets, geopolitical instability threatens to disrupt already fragile global supply chains, according to the report. Over half the world’s population is set to head to the polls this year, creating a climate of uncertainty for businesses operating across borders.
“We are in a time of political upheaval, we’ve got general elections all around the world this year, we’ve got hostile actors seeking to influence and disrupt these elections,” one surveyed UK government CFO said. “It feels like a much more dangerous and difficult place to be doing business than it has ever been.”
Compounding these challenges, regulatory and compliance obligations have surged to tie for second place among the top risks facing organizations. The complexity of global regulations has become more daunting than ever, with 58% of respondents highlighting this issue, a nine percentage point increase from the previous year. Moreover, 43% of business leaders now label the increasing global regulations and enforcement as growing threats to their operations.
AI Drives Market Disruption and Operational Challenges
The rapid proliferation of AI is driving significant market disruption and operational challenges for businesses in 2024, Clyde & Co. found. Market disruption risks have increased by nine percentage points, as AI presents both potential competitive advantages and major challenges. Companies are feeling the urgency to exploit new revenue streams and maximize AI’s productivity and customer service potential, but many lack the knowledge, skills, and training to do so effectively, the report noted.
The AI landscape has created a “gold rush” atmosphere, with “fear of missing out” (FOMO) driving decision-making. However, leaders must balance the imperative to harness AI’s potential with the necessary caution to avoid pitfalls and hazards of rash decisions, Clyde & Co. cautioned. AI governance, job displacement, cybersecurity, and regulatory uncertainty across jurisdictions are among the key challenges organizations face.
Operational challenges have also sharply escalated in 2024 due to the need to rapidly integrate AI while avoiding hasty decisions. Legal and tech teams are revising internal AI governance procedures to align with external frameworks, while commercial leaders grapple with regulatory uncertainty around new AI-enabled products, services, and business models. The varying approaches to AI regulation across the U.S., EU, and UK further complicate the landscape, the report noted.
Navigating the Perfect Storm of Risks
As the risk landscape continues to evolve, it’s becoming more hazardous and complex than ever before. In fact, 67% of business leaders say the risk environment is now “many times more complex” than it was just two to three years ago. Amidst this volatility, over two-thirds (68%) say risk horizon scanning — searching out the next black swan — is now a more important part of their role than ever.
The intensifying risk climate is taking a toll on decision-making and the bottom line, according to the report. A quarter of respondents believe “risk perception is impacting bold decision-making,” as potential rewards become insufficient to justify the risks involved. This inhibition is estimated to be costing companies 5% of revenues.
To combat these escalating challenges, organizations are adopting a more proactive approach to risk management and increasing cross-functional collaboration, Clyde & Co. found. Successful companies are implementing forward-looking strategies to anticipate risks, drive adaptability, and enable well-judged risk-taking.
As part of this proactive stance, businesses are conducting in-depth risk assessments, developing comprehensive exit strategies for high-risk areas, and leveraging GRC (governance, risk management, and compliance) technology to manage growing regulatory complexity, per the report.
To access the full report, visit the Clyde & Co. website. &
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