4 minute read 23 Oct 2019
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How Trust by Design is the new CEO imperative

By

Nitin Bhatt

EY Global Advisory Risk Transformation Leader & India Technology Sector Leader

Digital trust evangelist. Diversity & Inclusiveness champion. Classic rock buff.

4 minute read 23 Oct 2019
Related topics Risk Trust by design Advisory

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In an age of digital transformation, CEOs are helping their companies take risks that enable innovation, speed and new value-creation.

CEOs today have an unenviable job. In addition to architecting strategies to make their companies future-ready – while responding to today’s extreme technology disruptions – they are having to deal with increasing cost pressures, changing customer expectations and geopolitical turmoil. The ability to balance this duality of purpose – making the business more competitive while keeping it out of trouble – is indeed critical to gaining competitive advantage in an age of digital transformation.

EY teams approach to risk management, Trust by Design (TxD), suggests a practical approach to achieving this balance. Instead of just viewing risk through a loss-prevention lens, it offers upside, downside and outside perspectives on risk. In doing so, it helps enable an upfront infusion of risk-thinking into strategic and operational processes, as opposed to bolt-on initiatives that are typically reactive and remedial in nature. This proactive and deliberate approach to designing risk-strategy has the potential to support greater stakeholder confidence and trust.

The TxD approach also aligns with the views of leaders in the recent EY CEO Imperative Study. CEOs, boards and investors from around the world participated in this study and shared their thoughts on global challenges that would impact organizations over the next 5 to 10 years.

Among the various global challenges, leaders rated technology induced job loss as one of the major risks to the global economy and business growth. Income inequality, ethics of AI, cybersecurity and climate change together made it to the top-five list. The survey also provided insights into how organizations are dealing with various upside, downside and outside risks.

Upside risks

CEOs believe that addressing the above global challenges is value-additive to their companies: it can improve their competitive positioning and help attract new or different investors. Creating long-term conditions for business to flourish is also a frequently-cited growth opportunity. Furthermore, CEOs of companies with revenues over US$20b state that aligning their business models and services to help address the above challenges is the top growth opportunity and is tied to attracting the best talent.

Downside risks

Leaders believe a lack of engagement in addressing these challenges could severely impact growth opportunities for their organizations, especially as empowered stakeholders are prepared to reward those who lead in solving problems and punish those who do not. Cybersecurity, for instance, is a widely accepted mission-critical risk that has grave business-continuity implications. Organizational architectures that are built for resilience to security, privacy and other critical risks enhance stakeholder trust significantly. The report suggests several additional downside risks can also impact trust, such as customer alienation or loss of sales, distraction from core business and ethics of AI.

Outside risks

Amongst the top global challenges capable of inflicting outside risks, climate change, income inequality and geopolitical instability are worrying leaders the most. Specifically, the fight against climate change and social injustice is at the top of their agendas. The good news, however, is that the majority of investors are in favor of long-term investments to address these challenges, even if their near-term performance diminishes.

The way forward

Trust is an increasingly important currency for which there is a significant market premium. Historically, CEOs delegated risk management responsibilities to executives who were focused on preventing things from going wrong in areas such as compliance management, fraud prevention and quality assurance. While these issues are still important, leading CEOs have expanded their risk-horizon: they are also helping their companies take risks that are necessary to meet the overall strategic objectives and enhance stakeholder trust. Further, instead of treating Risk as a bolt-on shield that protects downside exposures, CEOs are actively looking to take risks that enable innovation, speed and new value-creation.

The CEO Imperatives Study also points to a shift towards long-term value creation and a movement away from short-term financial reporting. This resonates with the recent commitment made by 181 US CEOs to lead their companies for the benefit of all stakeholders, including their customers, employees, suppliers, communities and of course, shareholders.

Considerations for activating Trust by Design

  1. Have you considered aligning your corporate purpose and strategy to address the top challenges identified by CEOs in this study, namely cybersecurity, technology-induced job losses, ethics of AI, income inequality and climate change?
  2. Does your organization take into consideration upside, downside and outside risks when developing its strategic blueprint? How frequently do you test your strategy for resilience?
  3. Is your risk function an intrinsic part of your organization’s strategic planning and decision-making process? To what extent do you leverage risk to benefit from the upside of disruption?
  4. How effectively do you leverage risk intelligence to gather foresights, make better decisions, and increase internal and external agility?
  5. How do you ensure that trust is infused in the design of your strategy, processes and systems? Do your executive-level KPIs and reward mechanisms include “trust” related parameters? 

Summary

The Risk function is no longer about loss-prevention or intercepting initiatives before they go wrong. EY teams new approach to risk management, Trust by Design, is a proactive and deliberate approach that offers upside, downside and outside risk perspectives. This has the potential to help enable greater stakeholder confidence and to build trust.

About this article

By

Nitin Bhatt

EY Global Advisory Risk Transformation Leader & India Technology Sector Leader

Digital trust evangelist. Diversity & Inclusiveness champion. Classic rock buff.

Related topics Risk Trust by design Advisory