NZ directors more aware of risk, focus on cyber security and reputation

Friday 5th February 2016

Directors of New Zealand companies are increasingly aware of risk, with more focus on online threats while reputation remains important, according to a survey from the Institute of Directors and risk management firm Marsh.

The survey of 526 institute members found 58.9 percent of directors said their board's involvement in insurance and risk management had increased over the past 12 months, and 74.5 percent thought their board was reviewing risk more than they were two years ago.

Some 56 percent of those surveyed said increased scrutiny was due to greater perceived risks in the current business environment.

Perception of external organisational risks showed cyber risks had become more significant to directors - cyber security ranked second as a key external risk, having not ranked at all when the survey was first conducted in 2013.

"The recent Ashley Madison data breach and the attack on Sony in the US prove that these risks are real," the report said. "Cyber risk does not have borders and does not discriminate. Whether it is a business, from SMEs to large corporates, or a government department, all have felt the wrath of cyber attacks."

Technology was also marked a key internal risk, with business disruption following an IT issue like software failure topping the list of internal risk issues, as in 2013. Loss of data, data corruption of failure of systems or website security ranked third, though 90.6 percent of directors were confident they could handle a major IT disruption.

Reputation was the top ranked external organisational risk, consistent with the 2013 survey. On an individual level, reputational risk as an individual was the biggest concern, with 61.3 percent of respondents rating that risk as high. Being held personally liable for a legislative breach was also ranked highly by 39.2 percent, and loss of personal assets if called to account was rated high by 38.1 percent.

"An individual’s reputation is still considered to be paramount," said Marsh executive director Steve Walsh. "I do find this result surprising, especially in light of the incoming health and safety changes. The failure of directors to conform to the new legislation could see directors face huge penalties. As a director myself, I’m taking this very seriously.”

Changes in health and safety regulation were cited as a risk by those surveyed, as both an internal risk and a factor which has created more board involvement in reviewing risk. Increasing corporate governance requirements was the top emerging risk issue. With other legislation, including the Financial Advisers Act and the Privacy Act, under review, the report said it expects this to be a topic that will stay a key focus for directors and boards in the future.

Financial risks fell from third place to fifth as an external risk, which indicates directors are feeling more confident about the economic environment, the report said.

"This is commensurate with overall New Zealand business confidence, which rose to a six-month high in November, signalling a pick-up in the economy," it said. "90.2% of our respondents said that they had procedures in place to manage financial risks, which also demonstrates confidence around the handling of this risk".

BusinessDesk.co.nz

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