Based on research by accounting firm KPMG, the Dutch ‘Financieel Dagblad’ reports that only one in three of the 25 largest stock exchange listed companies in the Netherlands saw the risk of a pandemic, at least according to the risk paragraph in their annual reports. It is symptomatic of the poor way in which big companies report on external risks and when they do it, they only occasionally link it with the longer term. These conclusions are in line with previous research we performed for all stock-listed companies in the Netherlands (see for example, https://lnkd.in/gmiPXfg (in Dutch)). We found that reporting on external risks and uncertainties is predominantly (very) brief, in general terms and rarely include explicit management and mitigations tactics and strategies. Detecting major disruptions is extra challenging as they often come from outside an industry and are, also for that reason, not on the company’s 'radar screen' for a long time. This raises questions whether external risks and uncertainties have a firm place on the agenda of Executive and Supervisory Boards. Because "you don't know what you don't know”, the conviction that the company and its Board has a full picture of all relevant risks and uncertainties can easily arise.
Given the major impact that external risks and uncertainties can have on the strategy and performance of a company, a structured approach is essential to (1) fully map them out, (2) closely monitor key risks and uncertainties continuously (even or especially when they are still small), and (3) manage them properly and in advance. Companies that do this thoroughly not only anticipate and prepare for possible adverse consequences, but also detect attractive opportunities that disruptions always entail at an early stage. Scenario planning and Future Mapping can play a central role in this external risk and uncertainty management. Contact us if you are interested in how we combine both methods in our strategic risk management approach.
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