Towers Perrin Study Shows Business Leaders Appeared Confident in Ability to Manage Risk as Credit Crisis Loomed

Business Wire, March 13, 2008

Study Sheds Light on Attitudes Toward Risk/Opportunity at Critical Juncture

STAMFORD, Conn. -- Just as the current credit crisis and related economic issues began to emerge in the third quarter of last year, senior executives felt very confident about their ability to manage risk and opportunity, according to a newly released Towers Perrin study conducted at the time, in conjunction with the Economist Intelligence Unit. Given the current economic downturn, the study is a striking snapshot of attitudes among senior executive officers and chief financial officers at a decisive moment.

"The findings and timing of this study -- especially in the context of the problems in today's credit markets and within the broader economy -- underscore the challenges business leaders face in managing risk and opportunity," said Mark V. Mactas, Towers Perrin's chairman and chief executive officer. "With the benefit of hindsight we can say that many organizations underestimated risks or completely missed emerging risks, and that the levels of optimism and confidence the study revealed in the third quarter of 2007, when economic times were relatively good, were not justified."

While companies are roughly equally divided in whether they believe they are risk averse versus risk aggressive, the study shows that nine out of 10 executives believe they are as good as or better than their industry peers in managing risk and opportunity. The banking industry is the most confident about managing operational and strategic risk, and second only to the insurance industry about managing financial risk.

"The most telling lesson of the study is that business leaders must maintain a consistent approach to risk and opportunity management through the inevitable shifts in business and economic cycles," says Mactas. "This doesn't mean rigid processes and compliance programs. It does mean a dynamic, long-term and tailored approach that pays attention to risks when times are good and to opportunities when times are bad, and that maintains a balance between seizing opportunity and managing risk every day. The ultimate goal of business, after all, is to thrive, not just to comply."

Among the 1,452 respondents to the global Web study were CEOs, CFOs, board members, presidents, managing directors and other senior executives of midsize and large companies across a range of industries, including insurance, banking, energy, health care, manufacturing, technology, retail, entertainment and professional services.

The study sought to learn what senior business managers consider the greatest threats to the achievement of their business goals, the most significant opportunities, and how confident they are in their ability to manage the risks and exploit the opportunities.

Participating executives were asked to rate each of 27 issues separately as to the extent they saw the issue as both a risk and an opportunity. For example, supply chain is a risk when disrupted and an opportunity to gain a competitive advantage when managed effectively.

The 27 issues were divided into four categories:

* Strategic issues, including business model, strategy and execution

* Financial issues, including cost of capital, interest rates and credit

* Operational issues, including business processes and infrastructure

* People/workforce issues, including skills, attraction and engagement.

In addition to the high degree of overall executive confidence, the study's other insights included the following:

CEO vs. CFO

There are significant differences not only in how CEOs and CFOs view business forces as risks and opportunities, but also in how well they believe these risks and opportunities are being managed. In addition, they generally see the issues relevant to the other executive's area of expertise as the riskiest. For CEOs, for example, the top two risks are financial -- cost of labor and credit risk. For, CFOs the two most important risks are strategic -- customers and business development.

CEOs are far more confident about managing opportunities in the strategic (21 percentage point difference) and operational (17 percentage point difference) areas than CFOs, but less confident than CFOs in managing financial opportunities. But in all areas of managing risk, CFOs are more confident than CEOs, including wide margins in the financial (28 percentage point difference) and strategic (18 percentage point difference) areas.

"This diversity of perspectives between CEOs and CFOs can actually be seen as quite healthy and should be exploited to ensure the organization has the necessary balance between risk and opportunity," said Mactas.

People/Workforce Issues

Among the four business issue categories, people/workforce issues are seen as representing both the greatest risk to the achievement of business goals ( four percentage points more than financial issues) as well as affording the greatest opportunity (tied with strategic issues) for enabling business success. Specifically, the degree of employee engagement is seen as the leading overall people/workforce risk factor and the number two opportunity factor (behind only skills and experience). On a short-term basis, engagement ranks ahead of skills and experience as both a risk factor (nine percentage point difference) and an opportunity driver (12 percentage point difference).