U.S. business leaders are as concerned as their European counterparts over a talent and skills shortage, despite record unemployment levels across much of the U.S.
The talent risk was number two in a survey conducted by Lloyd’s in compiling its 2011 Lloyd’s Risk Index. The potential loss of customers was number one in both Europe and the U.S.
The Economist Intelligence Unit carried out the survey, which polled 500 C-Suite and board level executives in North America, Europe, Asia and elsewhere to assess corporate risk priorities and attitudes around the world.
The lack of talent and skills rose from 22nd place – out of 40 – in the 2009 Index to number two in 2011, a rise Lloyd’s said was “potentially driven by demographic, competition and productivity pressures.”
Forty-five percent of respondents in North America rated talent as a high or very high priority over the next year, compared to 42 percent of those in Europe.
“We have gone from a credit crunch to a talent crunch, despite the unemployment picture,” said Richard Ward, chief executive of Lloyd’s. “CEOs feel they are lacking people with specific skills, but they are also concerned about having leaders and managers who can help them navigate the difficult global business environment. Extraordinary conditions require exceptional leaders.”
“The findings show that talent is now firmly part of the risk lexicon – high levels of unemployment have boosted the quantity of candidates, but employers are still wrestling with the quality. Our own Global Talent Index echoed these concerns and highlighted two factors underscoring this risk: population demographics and skills gaps,” said Kevin Kelly, CEO of Heidrick & Struggles, the leadership advisory firm.
The heightened concern about finding the right people for the right job – and then keeping them – was an area in which business leaders often feel that they are “insufficiently prepared,” Lloyd’s found. As a result “boosting talent retention” was cited in the survey “as one of the most effective risk management actions taken by management over the last three years, highlighting just how keen businesses are to retain the staff they have.”
The survey revealed a significant change from the initial one, published in 2009 at the height of the global credit crisis. The previous survey cited the liquidity crisis; cost and availability of credit, currency fluctuations and insolvency as the main worried for business leaders. “In all regions of the world, across all sectors, business leaders now perceive the world as an inherently riskier place,” said Hank Watkins, president of Lloyd’s America.
In contrast to losing customers and finding and retaining competent employees, a majority of business leaders indicated that they felt “more than adequately prepared for 48 out of the 50 risks in the index.” This perception of the “preparedness gap” shows a marked improvement over 2009, when leaders said they were not adequately prepared for eight of the 40 listed risks.
The number one concern – losing customers – is possibly the result of the austerity measures in many Western and developed countries, along with the lingering global recession. Business leaders are cognizant that attracting and retaining customers is their best hedge against economic turmoil.
Potential damage to a company’s brand or products, i.e. reputational risk, rose to number three on the index, from number 9 in 2009. Lloyd’s cited a “series of high-profile corporate disasters, such as the BP oil spill, and greater awareness that damage to a company’s reputation and brand can have severe economic impacts” as the probable reason.
The insurance industry has taken note of this risk. In recent months, Aon (with Zurich), Willis and Chartis have come out with policies that address the exposures of reputational risk and offer risk management services to help corporations keep their reputations intact.
In announcing a $100 million program in cooperation with Zurich recently, Aon’s CEO, Greg Case, underscored the serious nature of reputational risk. “Eighty percent of Aon’s business clients will suffer an event that will cause them to lose more than twenty percent of their value every five years,” he said. The figure was also cited by Lloyd’s.
Survey respondents were distributed across Europe (35 percent), North America (27 percent) and Asia-Pacific (27 percent), with the rest of the world comprising about 10 percent.
One rather surprising finding showed that cyber risks were ranked at number 12 for malicious attacks, and number 19 for “non-malicious” attacks. Lloyd’s described the finding as “relatively low given the frequency and potential impact of the risk.” However North American respondents placed the risk of malicious attacks as one of the top five.
Research published at the start of 2011 estimated global cyber crime is now costing businesses $114 billion a year, $96 billion of it in the U.S. alone, according to the Symantec.