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The Actuary The magazine of the Institute & Faculty of Actuaries

Political and social unrest increasing risk to businesses

The firm's annual review and forecast Risk Map 2012, rates political and security risk in 173 countries.

In a summary, Control Risks said: "Many governments appear ill-equipped to manage severe economic challenges in 2012. Global growth prospects remain hostage to debt and political crises in the European Union and the US, and fast-growing emerging markets are not immune to potential recession.

"High, volatile food and fuel prices meanwhile, will continue to aggravate social and economic tensions - especially in developing countries. The global wave of social protest that erupted in 2011 is unlikely to subside, and may intensify. Global economic travails will continue to exacerbate the disparities in wealth, opportunity and political influence that provoked social protest worldwide in 2011.

"In particular, rising income inequality - in both developed countries such as the US and emerging markets like China - has emerged as a point of significant social tension. Social media - instrumental in demonstrations from the Arab spring to Occupy Wall Street - will continue to grow and mature as a platform for social and political action, including for targeting companies."

Richard Fenning, CEO of Control Risks, said: "The criticism of both states and markets by people across the world is posing the first major challenge to globalisation in the 21st century.

"Companies will need to distinguish between malicious and hostile acts versus popular expressions of legitimate protest against authentic inequalities. This requires a greater understanding and interaction with stakeholders beyond shareholders, from local communities to governments; grasping the intense scrutiny they face through social media and its ‘game changing powers'; and the potential for cyber-security and online attacks.

"The one indisputable lesson from 2011 is that planning for low-probability but high-impact events must be part of any strategic forecast. Organisations must develop ever more robust strategies to assess and mitigate exposure to changing security, political, social, operational and reputational risks."

Control Risks warned of:

  • The growing significance of cyber and information security threats, arising from both criminal and ‘hacktivist' groups, as well as the security and integrity challenges presented by pervasive online social media, which include data theft, fraud and reputational damage
  • Rising prospects of government intervention in business through changes in regulation, tax policy or contracts, driven by mounting public hostility towards companies and investors as well as fiscal pressures
  • Increased labour unrest stemming from trade unions battling wage and benefit cuts, as well as low income workers - especially in emerging markets - pressing for better conditions, labour rights and personal dignity

In response to these issues, it said companies should focus attention on:

  • Greater monitoring of the evolving public sphere, including through social media to provide a real-time barometer of public sentiment, as well as potential early warning of political, reputational or security threat
  • Being more accountable to local communities and governments, as well as shareholders, customers and employees, through listening closely to their needs and concerns
  • Recognising that there are no easy solutions to systemic problems. The problems of global capitalism are more complex than merely higher wages or more benefits. They are also about personal dignity, fairness and legitimacy. These issues demand steady, long-term engagement, rather than a short-termist approach.

Source: Postonline