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Chief risks in 2012

IF YOU thought 2011 was tough, wait until you get a load of 2012. That is the bleak message coming from business risk consultancy Control Risks.

According to its annual review and forecast of business risk for the year ahead, international business faces intensifying volatility in 2012, driven by political instability, economic uncertainty, social protest and increasing scrutiny of corporate practices.

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 and 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 even intensify. Global economic travails will continue to exacerbate the disparities in wealth, opportunity and political influence that provoked protests worldwide in 2011. In particular, rising income inequality – in both developed countries such as the US and emerging markets such as China – has emerged as a point of significant social tension.

Social media – instrumental in demonstrations ranging 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 online attacks,” said Fenning.

“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.”

The combination of economic uncertainty and social protest presents companies with a range of potential security, political and operational risks.

These include 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. Among these are 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. And yet other threats include fiscal pressures and increased labour unrest stemming from trade unions battling wage and benefit cuts, and low-income workers – especially in emerging markets – pressing for better conditions, labour rights and personal dignity.

 

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