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Mitigating the Global Risks

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The world is at the verge of potentially facing a global governance failure due to the cascading effect produced by various risks related to businesses and governments. There are primarily 50 risks, divided in 5 categories, which the world can face in the next 10 years. These Risks categories are a) b) c) d) e) Economic Environmental Geopolitical Societal Technological

Economic Risks:
The major economic risk that threatens the world today is Chronic Fiscal Imbalances. The other risk that might have major impact is Major Systemic Financial Failure. Chronic Fiscal Imbalances: In the face of a worldwide economic slowdown, governments are finding it hard to balance their budgets. And after the failure of the austerity drive in Greece, governments worldwide have fallen back to Keynesian economics and are trying to tackle unemployment through public spending. This is largely a policy issue and there is very little that businesses can do to address the root cause. However, in order to sustain, it is imperative for businesses to mitigate, or, at the least, ensure that they minimize the impact of this risk. Major Systemic Financial Failure: Major systemic failures, like the one in 2008, are Black Swan events (low probability high impact events). It is almost impossible to single out one particular cause for major systemic financial failures. Usually, issues like corporate governance failure, regulatory failures and moral hazard work in tandem to cause such events.

Environmental Risks:
According to the WEF report, Rising Greenhouse Gas Emissions and Failure of Climate Change Adaptation are the major environmental risks that are threatening the world today. Rising Greenhouse Gas Emissions: Consensus is growing among scientists, policy makers, and business leaders that concerted action will be needed to address rising greenhouse gas (GHG) emissions. The discussion is now turning to the practical challenges of where and how emissions reductions can best be achieved, at what costs, and over what periods of time. Failure of Climate Change Adaptation: Adaptation to climate change has the potential to substantially reduce many of the adverse effects of climate change and enhance beneficial impacts though neither without cost nor without leaving residual damage. Processes and policies around climate risk the risk profile of a companys exposure to climate change are still evolving, but companies are addressing climate change in ways that cross over between traditional risk management and corporate sustainability efforts.

Geopolitical and Societal Risks:

Unfortunately, there is a widespread tendency among many businesses to be well prepared only for the last event that has occurred not the next one coming around the corner. Denial is an all too common strategy, and there is a natural tendency not to react until the catastrophe is unavoidable. Two such dominant issues which surfaced recently were the Arab Spring and the Occupy Movements across the world. Capitalism which can act as an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth, is now widely perceived to be prospering at the expense of the broader community. Business and society have been pitted against each other for too long. That is in part because economists have legitimized the idea that to provide societal benefits, companies must temper their economic success. Today we are living in a globalized world and businesses are linked to each other like they never before. The civil societys risks can have an adverse effect on Business around the world if they are not dealt with sincere efforts at the soonest. Recently we have seen protests aroused in many Arab countries as well as Western countries. In India also, Team Anna and others are protesting against rampant corruption in government agencies and institutions. All these protests have made it difficult for governments to ignore the risks. Couple of governments, in Syria and Egypt, has felt in recent past and this has raised the alarm for other countries as well. Recent Indian Government data on FDI shows that foreign investors have lost their faith in India. Most Economists and Businessmen think that the sole purpose of business is to maximize profits at any cost. They keep on exploiting limited precious natural resources without sharing their profits with the locals. Businesses need to understand that they cannot survive for long if they dont work for the lower strata of the society. Instead of serving only rich and higher strata of the society, they need to come up with some ingenious and innovative ideas that can serve a large section of the society. In that way they can win the trust and goodwill of the society. Tatas, in India, is doing exactly the same.

Technological Risks:
In this Information age, people have become more and more dependent on technology to carry out most of their tasks. Technology has become pervasive not only on personal and business level, but also in the macro-economic environment. Businesses today are heavily relying on automated systems interconnected through networks to store, manipulate and share their data. The interdependency of various systems may lead to a critical system failure if it is attacked by a malignant force such as cyber attacks. There are three types of cyber attacks namely sabotage, espionage and subversion; which can cause varying level of damage to critical infrastructure like electricity, water, transport, and information. Currently there are five billion devices or things connected and remotely accessible through the internet, from cars, kitchen ovens and office copiers, to electrical grids, hospital beds, agricultural irrigation systems and water station pumps.

Recommendations to tackle economic and financial risks:

It seems that the most efficient way of hedging against this risk would be buying protection through default swaps on government debt. Organizations, particularly those in the financial services industry, can do well to form and implement stringent corporate governance policies. Businesses can hedge against tail- risks, such as the credit freeze following Lehman Brothers Holdings Inc.s collapse, by wagering against bonds trading near face value or credit-swap indexes priced close to par. This is because these swaps offer asymmetric returns without much downside.

Recommendation to tackle environmental risks:

The Global Environmental Management Initiative (GEMI) is a non-profit organization of leading companies dedicated to fostering environmental, health and safety excellence and corporate citizenship worldwide. Such initiatives boost the fight against environment degradation by making use of collaborative efforts. Businesses can reduce greenhouse gas emissions by increasing energy efficiency in the short term, implementing proven emission-reducing technologies in the near and medium term, and developing breakthrough, game-changing technologies for the long term. Integrate climate-change risks or opportunities into overall business strategies and have oversight at the board or senior management level for carbon-emission efforts. Implement emission-reduction targets and make progress toward meeting those targets.

Recommendations to tackle Geo-political risks:

Decision-makers need to devote more attention and resources to defining the policies, norms, regulations and institutions through which we manage them. When stakeholders recognize the importance of having others adhere to safeguards to protect their own interests, incentives are designed to entice everyone in the system to cooperate. A need to find a balance that enables jurisdictions to learn from each others mistakes on a controlled scale a balance that facilitates learning from trial and error but avoids a situation in which one error could be catastrophic. Communication and collaboration are critical in the development of safeguards to ensure that knowledge is captured and shared with the global community.

Recommendations to tackle Societal Risks:

The solution lies in the principle of Shared Value advocated by none other than Michael Porter himself, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges. Businesses must reconnect company success with social progress. Dialogue, adjustment and collaboration between NGOs and Businesses are not luxury but necessity. So Businesses can collaborate with local government and NGOs to help the locals and make profit as well. Also measurable results can often be achieved faster through business-NGO partnerships, as long as they are designed and executed properly. They can run awareness programs among locals to increase their brand value and awareness. The number of International NGOs has already grown 500 times within a span of just 20 years to 50000. NGOs need to do transparent reporting and should have appropriate grievance mechanisms in place for the Business NGO partnership to work properly. Through the collaborative efforts of its members, NGOs can promote a worldwide business ethic for environmental, health and safety management and sustainable development through example and leadership.

Recommendations to tackle information security risks:

Central Sponsor for Information Assurance (CSIA) is a unit within the UK Government's Cabinet Office. It works with partners across government and the private sector, as well as its international counterparts, to help maintain a reliable, secure and resilient national information infrastructure. Such types of frameworks can help in reducing technological risks faced by companies and governments. Providing proper training and education to the employees of the organization regarding the potential loopholes that may cause critical system failures. This can be achieved by training them about poor password protection, failure to update protection software, failure to scan files, inappropriate on-the-job web surfing and file downloading, and social engineering (techniques used to manipulate people into performing actions or divulging confidential information). In this way, virus attacks can be reduced to a certain extent. Reducing unsafe communication channels such as Instant Messaging and design and implementation of more secure applications and infrastructures. Following various compliance standards such as FISMA, Gramm-Leach-Bliley, HIPAA, Sarbanes-Oxley, COBIT, and ISO 17799:2000 Government can make security audits compulsory in all the organizations. These security audits can be performed thoroughly on operating systems, databases, third party components, network access, user authentication systems, and physical environment.