Spotlight On Boardroom Risk 2024 I beazley

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Spotlight On Boardroom Risk 2024

Spotlight on

Boardroom Risk 2024

Businesses feel the heat as boardroom risk increases

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From business disruption to the persistent rise of employer risk, we offer insight into the concern of business leaders across the globe.

In this first, of a series of editions, we focus on how business leaders’ concerns and perceived preparedness for boardroom risks is evolving, particularly given that 42% of global executives believe they are currently operating in a high-risk environment, compared to 31% in 2023[i].

We consider how the risk landscape is changing – being intensified by the rise of generative artificial intelligence (AI) and the shifting expectations of Gen Z - and examine the need for risk management to build effective resilience against these challenges. As in today’s era of accelerating risk, a single misstep can have significant financial, legal and reputational consequences.

Bethany Greenwood, Group Head of Specialty Risks, discusses today’s boardroom risk landscape, and our research’s key findings.

Watch the video to find out more....

Key takeaways

For brokers

1. The nature of D&O claims is changing – stretching beyond the traditional realms of accounting errors in financial statements and missed revenue targets. Should a business respond poorly to a cyberattack or a third party business interruption such as the recent Crowdstrike incident1, or see increased costs when attempting to reduce their carbon footprint, it is increasingly likely that investors will seek compensation. With preparation key to resilience, educating businesses on the emerging directors’ & officers’ liability (D&O) threats and tailoring coverage appropriately is essential.

2. International regulatory patchwork – means businesses operating in multiple jurisdictions need comprehensive insurance solutions to support their unique local risks in each market. As key threats become increasingly global by nature, tailored cover that matches organisational and regional footprints and aligns to the threats they face is key. Business leaders should be aware of global programmes cover and understand the potential benefits of tailored policies.

3. Workforce woes – a broadening range of multifaceted and volatile employer risks are concerning business leaders. Today, they face threats posed from high-profile employment tribunals, the rise of AI recruitment software and concerns over bias, an increasingly polarised diversity, equity and inclusion (DEI) debate, new regulations and hybrid working and changing expectations of Gen Z. As a result, businesses need comprehensive employment practices liability (EPL) cover, combined with guidance on how best to navigate today’s employer challenges. Brokers can play an important role in helping executives to stay alert to the complex and evolving employer risk landscape.
For businesses

1. Interconnectivity creates long tentacles – when relying on third party suppliers, many businesses find themselves dangerously exposed to a host of external risks. A business’ supply chain can be impacted by a host of external events, often resulting in financial losses and reputational challenges. To protect operations and reassure investors, review existing relationships with suppliers and partner firms to understand weak links in the chain, and create contingency plans should the worst happen is essential.

2. Reputation risk shouldn’t be overlooked – how businesses respond to an issue, either specific to their own operations or more distant, can have a significant and lasting impact on their brand and reputation. With firms increasingly under pressure from activists to take a stance on political and social issues, it is important that firms don’t alienate sections of their customer base.

3. Regulation can be a catalyst and an inhibitor – contending with a growing regulatory burden, particularly in the environmental social and governance (ESG) and AI spaces is increasingly tough. New regulation can be hard to navigate, and regulators have been imposing stricter reporting requirements. Global businesses with operations in multiple jurisdictions, which may have opposing requirements, are most exposed. In a fast-moving regulatory environment, being prepared to quickly adapt to new legislation and directives is crucial.

Top findings from our Risk & Resilience boardroom risk research

Global business leaders told us

42%

believe they currently operate in a high risk environment (compared to 31% last year[i]) – and yet surprisingly 81% feel resilient[ii] to risk (down from 84% in 2023[i]).
23%

cited the employer risk as the biggest threat they face this year, higher than any other business risk – and up from 18% in 2022[iii].
26%

plan to review their hiring policies to boost diversity and inclusion in their workforce (down from 36% in 2023[i]).
23%

said they are planning on reconfiguring their business model to improve resilience in their business.
24%

predict ‘failure to comply with new ESG related requirements’ will be the biggest threat they face in 2025[iv], and 26% feel unprepared[v] to anticipate and respond to this risk.
20%

rank reputational damage and the risk of director’s or corporate decision damaging brand value as well as customer trust as their top business risk (up from 17% in 2023[i]), yet a quarter (25%) feel unprepared[v] to manage this risk (compared to 28% in 2023[i]).

From AI to stock market shocks – the boardroom risk landscape continues to shift

Technological change, turbocharged by artificial intelligence (AI), is creating offensive and defensive risks. Stock market volatility and political uncertainty has given some investors reason to pause as central bankers formulate their next move. Furthermore, regulatory risk continues to present challenges for firms trying to do the right thing in a world of asymmetric rules and frameworks across jurisdictions. In addition to this heightened risk landscape, business leaders face greater scrutiny from the public, regulators, and media.
What does this all mean for businesses and their D&O liability as they grapple with an increasing array of risks?

Many multinational firms are retrenching from a global footprint closer to home. Some are looking at onshoring supply chain materials, and others appear to have a blind spot when it comes to supply chain and reputational risk.
Today, we are seeing lawsuits brought for a much broader range of reasons whether that be related to cyber-attacks, employment-related or ESG issues. And D&O claims no longer arise just from mismanagement of financial performance, but by anything which can be said to be reducing the value of a brand.

The Role of Insurance

Entrepreneurs and business leaders could be forgiven for feeling a little overwhelmed. The range of risks which they need to consider and react to is broadening with alarming speed.

The risk landscape is also multifaceted, complex and interconnected. Action and inaction can both carry negative consequences.
Today, boardrooms need to recognise that with so many conflicting views and issues, every move they make could risk alienating a section of their stakeholder base. To compound the picture, the standard directors’ & officers’ liability (D&O) risks are still very much in play. Threats to executives posed by possible recession, bankruptcy and looming inflation are all present and, arguably heightened.

Insurance is seen as a way to retain or improve resilience with nearly one in four (24%) of business leaders, globally, planning to explore insurance options that include risk and crisis management. This reflects the breadth of risk and the depth of the insurance offering to which businesses are increasingly gravitating.
- Explore more

Perception vs Reality

Since 2021, we've tracked global executives' top boardroom risk concerns. Discover if their concerns became reality and the key events that shaped these risks over the past few years.

Key takeaways

For brokers

1. The nature of D&O claims is changing – stretching beyond the traditional realms of accounting errors in financial statements and missed revenue targets. Should a business respond poorly to a cyberattack or a third party business interruption such as the recent Crowdstrike incident1, or see increased costs when attempting to reduce their carbon footprint, it is increasingly likely that investors will seek compensation. With preparation key to resilience, educating businesses on the emerging directors’ & officers’ liability (D&O) threats and tailoring coverage appropriately is essential.

2. International regulatory patchwork – means businesses operating in multiple jurisdictions need comprehensive insurance solutions to support their unique local risks in each market. As key threats become increasingly global by nature, tailored cover that matches organisational and regional footprints and aligns to the threats they face is key. Business leaders should be aware of global programmes cover and understand the potential benefits of tailored policies.

3. Workforce woes – a broadening range of multifaceted and volatile employer risks are concerning business leaders. Today, they face threats posed from high-profile employment tribunals, the rise of AI recruitment software and concerns over bias, an increasingly polarised diversity, equity and inclusion (DEI) debate, new regulations and hybrid working and changing expectations of Gen Z. As a result, businesses need comprehensive employment practices liability (EPL) cover, combined with guidance on how best to navigate today’s employer challenges. Brokers can play an important role in helping executives to stay alert to the complex and evolving employer risk landscape.
For businesses

1. Interconnectivity creates long tentacles – when relying on third party suppliers, many businesses find themselves dangerously exposed to a host of external risks. A business’ supply chain can be impacted by a host of external events, often resulting in financial losses and reputational challenges. To protect operations and reassure investors, review existing relationships with suppliers and partner firms to understand weak links in the chain, and create contingency plans should the worst happen is essential.

2. Reputation risk shouldn’t be overlooked – how businesses respond to an issue, either specific to their own operations or more distant, can have a significant and lasting impact on their brand and reputation. With firms increasingly under pressure from activists to take a stance on political and social issues, it is important that firms don’t alienate sections of their customer base.

3. Regulation can be a catalyst and an inhibitor – contending with a growing regulatory burden, particularly in the environmental social and governance (ESG) and AI spaces is increasingly tough. New regulation can be hard to navigate, and regulators have been imposing stricter reporting requirements. Global businesses with operations in multiple jurisdictions, which may have opposing requirements, are most exposed. In a fast-moving regulatory environment, being prepared to quickly adapt to new legislation and directives is crucial.

Read on

Report top findings

Top findings from our Risk & Resilience boardroom risk research

Global business leaders told us

42%

believe they currently operate in a high risk environment (compared to 31% last year[i]) – and yet surprisingly 81% feel resilient[ii] to risk (down from 84% in 2023[i]).
23%

cited the employer risk as the biggest threat they face this year, higher than any other business risk – and up from 18% in 2022[iii].
26%

plan to review their hiring policies to boost diversity and inclusion in their workforce (down from 36% in 2023[i]).
23%

said they are planning on reconfiguring their business model to improve resilience in their business.
24%

predict ‘failure to comply with new ESG related requirements’ will be the biggest threat they face in 2025[iv], and 26% feel unprepared[v] to anticipate and respond to this risk.
20%

rank reputational damage and the risk of director’s or corporate decision damaging brand value as well as customer trust as their top business risk (up from 17% in 2023[i]), yet a quarter (25%) feel unprepared[v] to manage this risk (compared to 28% in 2023[i]).