Preparing report viewer - please wait…

Global Risks Meeting Report

Global Risks
Meeting Report
New York, 6-7 April 2011

World Economic Forum

For more information on the Risk Response Network,
please visit www.weforum.org/rrn

Executive Summary

\s*(.*?)\s*!', "$1", $content); ?>

The World Economic Forum’s Risk Response Network (RRN) was launched in Davos in January 2011 to bring together the world’s experts in managing risk from all sectors of society. Just three months later, the inaugural Global Risks Meeting in New York on 6 and 7 April gathered over 80 decision-makers and experts to figure out ways to better manage, respond to, prepare for and capture opportunities associated to global risks.

Thought and practice leaders from government, the private sector and international organizations met in formal sessions to discuss:

  • The catastrophe in Japan, its implications for the country and the world
  • How to build organizational resilience in a world of increasing complexity and interconnectivity
  • Global risks such as US-China relations, cyberwarfare, sovereign risk and cracks in the international monetary system
  • Currency scenarios and the future of the international monetary system
  • Cyberspace and network risk
  • Supply chain and transport risk
  • The management of reputational risk

In addition, the Meeting served to build a foundation of Community, Interaction, Insight and Impact under the Risk Response Network, to workshop the vision and mission of the RRN’s Risk Officers Community as well as to develop a strategy for the Network’s emerging Leading Practices Exchange.

Issues and trends that recurred through the Meeting included:

Natural disasters – Events in Japan were front of mind following the March 2011 earthquake and subsequent tsunami. Organizational and government risk management efforts have focused on crisis management and scenario planning, but the number, severity and unpredictability of recent crises means they should also focus on building capacity that can react in the moment, quickly assess a situation and develop appropriate actions.

Supply chain and transport risk – The catastrophe in Japan has and continues to affect a number of supply chains, with ripple effects in Asia, Europe and the United States. As trade and travel depend upon the secure and reliable operation of interconnected transport and supply chain systems, building a network of decision-makers to improve response mechanisms before and after major disruptions is crucial.

Resource scarcity – The availability of natural resources is perhaps the most significant influence on world markets, economies and development. Competition for access to resources will be the cause of geopolitical conflicts, trade issues and aggressive corporate action. Forging partnerships between different stakeholders is important in effectively addressing resource constraints.

Cyberspace – A series of technology-driven shock waves have reinforced the rapidly emerging risk landscape in the area of cyberspace and network risk, including the WikiLeaks furore, Stuxnet virus and events in North Africa and the Middle East. The interconnected and pervasive nature of information technology necessitates a common understanding of these systemic risks and new mitigation strategies that coalesce public and private sector collaboration in new and meaningful ways.

The Meeting served to underline the validity of the Risk Response Network concept, to formalize the Risk Officers Community and to establish a strategic programme for the Network as 2011 unfolds.

This report presents summaries of the sessions that took place during the Global Risks Meeting, exploring ways in which the World Economic Forum’s Members and constituents can shape a more secure, innovative and resilient future.

Community Engagement

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • The Risk Response Network (RRN) is aimed at helping the world increase its resilience to risks.
  • The RRN is not seeking to replicate existing efforts to mitigate risks, but rather to interconnect all those efforts.
  • The RRN draws decision-makers and experts from all sectors not only to better understand key risks in depth and in context, but also to respond to them proactively and collaboratively in times of crisis.

 

 

Synopsis

“This is an historical time in the development of the World Economic Forum,” said the Forum’s Founder and Executive Chairman, Klaus Schwab at the opening of the Global Risks Meeting. “We wanted to start something to help the world increase its risk resilience and so I would like to thank you for helping to form the Risk Response Network.”

The focus of the two-day meeting, which brought together over 80 risks experts from the public and private sectors, was on engaging participants to structure the Risk Response Network so that its Members can work together to most effectively respond to risks.

Six months ago, the Forum identified the need to interconnect existing risk mitigation efforts. By drawing together decision-makers and experts from all sectors to collaborate through the same platform, their collective response to risks can be more concerted, comprehensive and ultimately more effective.

The RRN includes the Risk Officers Community, risk specialists from top corporations, governments and international regulating bodies; Global Agenda Councils, comprised of over 1,000 experts on over 70 issues; the Forum’s network of top universities and private sector content providers; and other Forum Members, communities and partners.

The Risk Officers Community exemplifies the spirit of the World Economic Forum. First, it is a Community based on trust and propelled by interaction among its Members. Rather than physical meetings, the Community will primarily develop through digital interaction. Here, with the World Economic Forum, Members will develop the optimal online platform to capture and share the insights they generate.

One part of this online interaction will be the Leading Practices Exchange, a platform where Members can share experiences and develop best responses to large-scale risks. The Exchange also seeks to facilitate ongoing discussion and knowledge sharing, as well as develop risk analytic tools and trend monitoring.

Briefing by

Klaus Schwab, Founder and Executive Chairman, World Economic Forum

Catastrophic Consequences

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Despite the devastation in Japan following the 11 March earthquake and tsunami, Japan was prepared for the disaster; drills and real-time alert systems work.
  • The Japanese government is taking all measures to restrict the flow of radioactivity from the Fukushima nuclear plant and will examine its existing nuclear power policies once the situation is under control.
  • Emotional rebuilding must accompany the rebuilding of infrastructure and the economy.
  • Lessons learned from the recent disaster in Japan include the need for transparency and clear, scientific communication.
  • The Risk Response Network can assist in closing the communications gap by putting networks and processes in place in advance of a catastrophe.

Synopsis

Japan is a country that experiences earthquakes relatively often. Thus, the population has been trained in earthquake preparedness: alert systems have been put in place via cell phones and sirens that instruct people to evacuate homes, stop trains, get off elevators and head for high ground.

The 1995 Kobe earthquake showed that Japan’s elevated highways needed strengthening; they were subsequently reinforced with carbon fibres and steel. During the recent earthquake, no elevated roads suffered structural damage. The 1960 Chilean earthquake and ensuing tsunami that hit Hawaii and then Japan prompted the creation of a tsunami warning system that provides alerts and relevant information to national authorities in the Pacific Basin.

Initial reports estimated the earthquake on 11 March 2011 would reach 8.0 on the Richter scale, the type that occurs in Japan every 100-150 years. Instead, the earthquake that struck reached a magnitude of 9 − an event that occurs every 1,000-1,500 years in Japan − so the guidelines offered were inadequate for the catastrophe. However, people still followed existing emergency response systems. For example, older students collected younger students to take them to higher ground, saving many lives. The lesson here is that drills and real-time alert systems work.

Only 1 of the 5 power plant sites in the disaster-affected area failed. The four other systems automatically shut down, having been designed to withstand such disasters. The Japanese government is taking all measures to restrict the flow of radioactivity in the air and water seeping from the Fukushima nuclear plant; nuclear power experts and government authorities are involved in managing the situation. Once the nuclear reactor cools, the government will review all measures taken in reaction to the crisis to determine whether its responses were effective and what could have been done better. The Japanese government has also decided to examine its existing nuclear power policies, an important decision since nuclear energy supplies 25-30% of the country’s electricity. Other countries might curtail their nuclear policies as a consequence of the disaster.

Estimates suggest that reconstruction after the earthquake and tsunami will amount to 5% of Japan’s GDP and industrial production will fall by 3%, affecting the country’s automobile and electronic sectors in particular. One measure that could help future relief efforts seems simple yet effective: establishing an inventory of available relief equipment. The inventory would identify the country or company that could provide equipment, aircraft, ships and other assistance, enhancing recovery efforts.

Risk has traditionally focused on statistics and probabilities, not on emotions. More attention should be paid to the trauma experienced during crises. Mental care and healing systems should be developed to address the emotional impact of disasters on communities. Emotional rebuilding must accompany the rebuilding of infrastructure and the economy.

In our interconnected world, effective risk management includes the need to outline how events are linked. The frequency and distance of events must also be considered: investing in risk management is more likely when catastrophic events are still present in the minds of people or when they occur close to home; lessons can be learned from others’ experiences.

An important aspect to keep in mind about risks is that scientific communication is essential. Better scientific literacy is needed, including information on the actual risks and accurate ways of quantifying the danger. A coherent vehicle for public communication is lacking; certain sources of information are not trusted while others are ambiguous. This communications gap can be enhanced by putting networks and processes in place in advance of the catastrophe. In this area in particular, the World Economic Forum’s Risk Response Network can provide significant assistance.

 

 

Discussion Leaders

David Benson, Vice-Chairman, Risk and Regulatory Affairs, Nomura International, United Kingdom

Ichiro Fujisaki, Ambassador Extraordinary and Plenipotentiary of Japan to the United States of America

Yoshimitsu Kaji, Director, Global Communications, Office of the Prime Minister, Japan

Satoru Nishikawa, Director, Regional Planning, Ministry of Land, Infrastructure, Transport and Tourism, Japan; Global Agenda Council on Catastrophic Risks

Facilitator

W. Lee Howell, Managing Director, Centre for Global Events, World Economic Forum

Risk and Resilience

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Companies and institutions need to build a culture of risk awareness long before a disaster hits.
  • Social media is an important tool for providing real-time data to respond to crises.
  • Organizations should be prepared for different scenarios and be able to identify trigger points.

 

 

 

Synopsis

Although today’s business models are more decentralized than ever before, companies should focus on ensuring that their risk management approaches are in line with their strategic missions, building a culture of risk awareness and defining levels of risk tolerance.

Financial risks require a re-evaluation of how business is conducted. The companies that survived the 2008 financial crisis are those that were prepared and had more effective mechanisms in place to deal with risk.

A significant part of risk management is the increased pace of interconnectedness and the need to receive real-time data to enable decision-makers to make real-time analysis and decisions. This area is ripe for better public-private sector collaboration. In addition, social media has an increasing role to play in providing this real-time information and improving responses to crises.

Text messaging, for example, has become a useful tool for collecting donations and sharing information following the disasters in Haiti and Japan. While social media can mobilize for the public good and create volunteer communities and space for innovation, it can also pose a threat if not managed correctly (e.g., radio broadcasting in Rwanda in 1994 was used to mobilize people to kill their neighbours).

On the issue of building organizational risk resilience, it is important to distinguish between structural risk (for example along the value chain) and dynamic resilience (such as preparing one’s organization to anticipate future scenarios). The risk management perspective is less about predicting the future and more about getting ready for different scenarios, including worse-case scenarios. It is also about identifying the trigger points at the start of a scenario. Given the diversity of corporations, every company has to find its own way to identify these trigger points. One example is to tap the experience of retired employees who have been through different business cycles and are more familiar with potential risks and their impact.

While it is hard to predict future disasters, companies need to balance lessons learned from previous crises with the notion of building resilience that will provide better insulation to a variety of future shocks.

 

 

Discussion Leaders

Georg Klein, Chief Risk and Internal Control Officer, Siemens, Germany

Robert Kopech, Vice-President and Group Chief Risk Officer, World Bank Group, Washington DC

Axel P. Lehmann, Member, Group Executive Committee and Group Chief Risk Officer, Zurich Financial Services, Switzerland; Global Agenda Council on Systemic Financial Risk

Robert C. Orr, Assistant Secretary-General for Policy Planning, United Nations, New York; Global Agenda Council on Institutional Governance Systems

Facilitator

Michael Useem, Professor of Management and Director, Center for Leadership and Change Management, The Wharton School, University of Pennsylvania, USA; Global Agenda Council on Catastrophic Risks

Community Matters

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • The Risk Officers Community agreed to broadly think about risks and benefit from the group’s diversity.
  • The goals of the Community include sharing leading practices, contributing to building resilience to risks and more actively contributing to responding to short-term events or crises.
  • The Community could develop early warning signals to help the Risk Response Network respond to interrelated risks.
  • Project teams will be formed and outcomes shared with the Risk Response Network as a whole.

 

Synopsis

The strength of the Risk Response Network (RRN) lies in its diversity. It is a space where decision-makers and experts from the public and private sectors as well as multiple industries can share insights on risks that by nature are interconnected. Diversity allows for out-of-the-box thinking, not only on the “known unknowns” but also the “unknown unknowns”. Diversity could be boosted by injecting the voice of young people.

While there is a desire to think about risks broadly, Members of the Risk Officers Community felt it is worth doing deeper dives to add “granularity” while bringing in the expertise where necessary to have informed discussions and capture opportunities. However, the RRN does not seek to engage in industry-specific issues, which would be better dealt with, for example, by the Forum’s Industry Governors.

Another potential value of the RRN is to act as an early warning signal, mobilizing the Risk Officers Community to explore and then better prepare for and respond to interrelated risks. A sharing mechanism would also enable the Community to exchange knowledge on leading risk responses; case studies would allow the Community to move beyond the general, to specific ways to apply learnings both within and across industries and sectors. Crucial to this process is developing a common taxonomy of risk to identify outcomes that can be applied to policy and strategic development.

Both the early warning signal and sharing best practices require a technical element, which the World Economic Forum is exploring within the RRN. For example, the Leading Practices Exchange is a virtual platform being designed and developed for the Community to share experiences and develop even more effective tools to mitigate risks in the future.

While much of the engagement among the Members of the Risk Officers Community will take place on a digital platform, they will meet at least once a year. Additional optional in person meetings are envisioned at the Annual Meeting of the New Champions in September 2011 in China as well as at regional events to strengthen the Community and RRN and generate insights on particular topics.

Beyond the RRN’s initiatives, external communities – such as the Forum of Young Global Leaders or working groups from partner organizations – can be engaged to work on projects and report back to the RRN.

Ultimately, the RRN will need to have impact to live up to its name. While the RRN is not mandated to plug the risk response gap in the world, it is aspiring to “move the needle a bit” by making a contribution to risk mitigation on selected issues.

Facilitator

Kevin Steinberg, Chief Operating Officer, World Economic Forum USA and Head, Risk Response Network

The Implications of Resource Scarcity

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Big events over the past 20 years have shaped resource scarcity, including the spread of capitalism, recessions, crop production for biodiesel, the rise of China, increased per capita consumption and the prevalence of cheap technology.
  • Key linkages in the scarcity of various resources include geopolitics, climate change, urbanization, waste and technology.
  • Resource scarcity could manifest itself in the future in an increase in prices and conflict, in greater migration to cities and in additional environmental controls.
  • The future’s megatrends will influence regional trends; a global perspective on resource scarcity is essential and that perspective can be supported by local and regional examples and analysis.
  • Healthcare, knowledge and political will are also critical issues that pertain to resource scarcity.

Synopsis

Our world is becoming increasingly resource scarce. The demands for food, water, land, energy and minerals are increasing.

Events over the past 20 years that have shaped resource scarcity include the spread of capitalism (for instance, after the fall of the Berlin wall); recessions, often triggered by geopolitical shocks (such as the instability of oil policies and prices, revolutions, invasions); the growth of crops for biodiesel rather than for food; the rise of China and its appetite for resources; increases in raw material prices, including the rising price of oil; the increased per capita consumption of finite resources; and the substantial manufacture of cheap technology, since, for example, flatscreen TVs, smartphones and electronics use large quantities of scarce minerals.

Important linkages in the scarcity of various resources include geopolitics, climate change, urbanization, waste and technology. These links and the relationships between the various issues related to resource scarcity must be considered to a greater extent as the tendency is to see these concepts in isolation or as a long list of unconnected factors. The type and strength of the relationships between the issues, although hard to grasp, are important to addressing resource constraints effectively.

Resource scarcity could manifest itself in the future in an increase in prices and conflict, in greater migration to cities and in additional environmental controls. The growing demand for food, water and energy could well cause greater competition for access to these basic necessities and increased disputes, even as technology generates productivity gains and new policy options.

Human capital is an important component of resource scarcity, as human ingenuity is a catalyst for solving problems and inventing technology, and yet more and more people are moving to metropolitan areas, where people consume more energy, food and water per capita. Cities have become the engines of economic growth, but their power needs to be harnessed to solve the resource problems they create. Greater environmental controls are needed in a more populous, waste-producing world, but at the same time they may constrain innovation or essential extraction. Thus, the issues are interconnected, such that demographics, technology, the environment and economic growth must be examined collectively.

Participants in this session came to the broad consensus that greater focus is needed on resource scarcity at the global rather than local level because the future’s big-picture megatrends will influence regional trends. The large trends to 2030 will drive systems change, even if action is taken at the national level or more regionally according to specific interests. Coming full circle, the global perspective impacts regional developments and at the same time is supported by local and regional examples and analysis.

Healthcare, knowledge and political will are also critical resources that should not be forgotten in discussions pertaining to resource scarcity. The protection against illness is a scarce resource, as is knowledge when it fails to reach those in need of the facts and information. Withheld knowledge or “secrets” should no longer be possible. In an increasingly interactive world where actions that occur in one place have ripple effects on people elsewhere, information should not be constrained to a particular area, or restricted by politics or special interests.

Discussion Leaders

Felipe Duarte, Undersecretary of Transport of Mexico

Peter Ho Hak Ean, Senior Adviser, Centre for Strategic Futures, Office of the Prime Minister, Singapore

Jock Mendoza-Wilson, Director, International and Investor Relations, System Capital Management, Ukraine

Narayanan Rajagopalan, Partner and Chief Risk Officer, Abraaj Capital, United Arab Emirates

Mark A. Stevens, Senior Vice-President, Fluor Enterprises, USA

Richard G. Walker, Senior Vice-President and Chief Strategy Officer, IHS, USA

Facilitator

Angela Wilkinson, Director, Futures Programmes, Smith School of Enterprise and the Environment (SSEE), United Kingdom; Global Agenda Council on Climate Change

Global Risks

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Issues keeping Risk experts awake at night include US-China relations, cyberwarfare, sovereign risk and cracks in the international monetary system.
  • The current G-Zero world is one in which no single country or bloc of countries has the political and economic leverage to drive a truly international agenda.
  • In a volatile, fast-changing world, governments and companies need to respond better, especially as adversaries are innovating faster.
  • The Risk Response Network could help address systemic risks and redesign policy that reflects the needs of companies to balance the costs and benefits of zero risk.

 

Synopsis

The world is changing fast; many companies, governments and institutions are not good at responding quickly to such change. The issue of how to think about risk and change in this age of volatility is in many ways the core question business, politics, technology and society must address. Risk is real time in nature and thus there is an urgent, fundamental need to take a different approach to addressing it, especially when adversaries are innovating faster than governments and many other institutions.

While the events in the Middle East and Japan currently dominate the headlines, the future of US-China relations is the bigger geopolitical story to follow; the risk that the Chinese model of growth fail will have significant implications throughout China and the world.

Other noteworthy issues to keep people awake at night are public debt and sovereign risk, failures in the international monetary system, demographics, a backlash against globalization, cyberwarfare, and food, energy and natural resources security.

To meet these challenges, global institutions need to cooperate better. Currently, strong global leadership is lacking and there is severe disagreement among G20 members on many of these issues, which are often seen as zero-sum games rather than positive-sum games. In effect, we are living in a G-Zero world where no single country or bloc of countries has the political and economic leverage to drive a truly international agenda.

The Risk Response Network could help address systemic risks that are not sufficiently recognized and help redesign policy that reflects the needs of companies to balance the costs and benefits of zero risk. It could also address regulation in risk management, which in many companies is seen as excessive and counterproductive.

While organizations do invest in crisis management and envision different risk scenarios, they should also consider focusing on building more robust systems that can react in the moment, quickly assess a situation and develop appropriate actions.

 

 

Discussion Leaders

Ian Bremmer, President, Eurasia Group, USA; Young Global Leader; Global Agenda Council on Geopolitical Risk

Scott Gilbert, Chief Risk and Compliance Officer, Marsh & McLennan Companies (MMC), USA

Vivek Kundra, Chief Information Officer, Office of Management and Budget, USA; Young Global Leader

Nouriel Roubini, Chairman, Roubini Global Economics, USA; Global Agenda Council on Fiscal Crises

Facilitator

Chrystia Freeland, Global Editor-at-Large, Thomson Reuters, USA

Currency Scenarios

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Many events in the international financial system over the past five years were not anticipated, including the level of commodity volatility, the fragility of the entire system, sharp correlations in the supply chain, the significant build-up of reserves in emerging markets and the scope of the financial crisis.
  • The recent financial instability has demonstrated a lack of effective global governance.
  • The existing international monetary system will likely survive but will become less relevant and more politicized.
  • Whether the dollar will remain the world’s reserve currency is also uncertain.

 

Synopsis

Participants in this session were asked to reflect on the main events that occurred over the last 5-6 years that they did not anticipate or think could happen. Responses included the unexpected level of commodity volatility brought on by a variety of factors, but by Asian demand in particular; the extreme fragility of the entire financial system, in essence its almost total collapse, and people’s widespread loss of confidence in the system; the manifestation of acute linkages in the supply chain, which caused difficulty in dealing with risks and contagion in the system; the significant and rapid accumulation of reserves in emerging markets; and the extent to which the financial crisis spread, reaching the Gulf Cooperation Council countries and even the Islamic banking system, demonstrating how closely interconnected all financial systems really are.

Looking forward to the next 20 years, participants agreed that the recent financial instability has demonstrated a clear lack of effective global governance. Whether more effective global governance will ensue from the crisis, however, remains an open question. In any case, national economies will continue to interact with each other and, according to one view, the ways they interact, and the instruments and policies they choose, are more important than any particular structure or body. In addition, as the global economy and the international monetary system become ever more connected and open through a “hugely networked set of pipes”, enormous change is likely, the results of which will be extremes that cannot be understood or controlled, creating an even greater perception of deficiency in global governance. Can a world of nation states manage this situation? That is one of the main questions.

The existing international monetary system will likely survive but will become less relevant and more politicized. Its drivers will be uncertainty and instability, and most participants seemed to agree that solutions will not be institutionally driven but politically based. Nevertheless, bodies such as the International Monetary Fund (IMF) and development banks need structure to operate according to a set of rules, and policy-makers need a system to adopt and coordinate policies, so international institutions are needed and will subsist.

On the question of a future international reserve currency, participants disagreed on whether the dollar would maintain its lead position. Despite its weakening, the dollar’s share of foreign reserves held steady in 2010, ending at approximately 60% according to the IMF. One opinion held that some sort of hybrid international reserve currency may surface but it seems likely that national currencies will continue to play an important role.

One participant commented that the reserve currency of the international monetary system is simply an instrument that does not drive everything. According to that view, a multipolar reserve currency is possible as there is room for more than just one reserve currency. Nevertheless, for the time being, there is less risk in using the American dollar and maintaining it as the reserve currency of choice because of the liquidity of the system. Not only are the Chinese accumulating dollars but the US currency is still the main vehicle for international commerce.

Despite this viewpoint, discussion revolved around whether the rise of China would drive the international economy away from a single reserve currency to multiple reserve currencies that would include the yuan (although for this to happen the Chinese currency would need to be convertible). Debate also touched upon whether the euro would survive the current uncertainties surrounding it, keeping in mind that key political forces are driving the European currency.

Firestarters

Mario I. Blejer, Vice-Chairman, Banco Hipotecario, Argentina; Global Agenda Council on the International Monetary System

Sir Jonathan Stephen Cunliffe, Head, International Economic Affairs, Europe and G8 Sherpa, Office of the Prime Minister, United Kingdom

Discussion Leaders

David Benson, Vice-Chairman, Risk and Regulatory Affairs, Nomura International, United Kingdom

Juanito Limandibrata, Head, Office of Risk Management, Asian Development Bank, Manila

Kingsley Moghalu, Deputy Governor, Financial System Stability, Central Bank of Nigeria, Nigeria

Facilitator

David Kennedy, Director, Institute for Global Law and Policy, Harvard Law School, USA; Global Agenda Council on Institutional Governance Systems

Cyberspace Risk

\s*(.*?)\s*!', "$1", $content); ?>

 

Key Points

  • Cyberspace risks are global, yet there is fragmentation over cybergovernance and regulation.
  • People from all sectors and at all levels need to be educated about cyberrisks and security.
  • 90% of data available today was created in the past two years, but there are gaps in how to protect, use, monetize and control this information.
  • The four megatrends of big data, cloud computing, pervasive devices and the personalization of IT converge into a gigatrend, ushering humanity from the Information Age to the Intelligence Age.
  • New forms of anonymity and privacy are emerging.

Synopsis

Cyberrisks are quick to emerge and quick to spread. They are interconnected with other global risks and their implications therefore are manifold and far-reaching. This is certainly an understatement when the effects of recent technology-driven shock waves like the Stuxnet virus and the events in the Middle East and North Africa are considered. These events redefine our understanding of being connected, highlight the trade-offs and call for an increasing need to be prepared.

Participants agreed that people from all sectors and levels need to be better educated about cyberrisks. The interconnected and pervasive nature of technology makes it imperative for the world to develop a shared understanding and “common literacy” of cyberrisks in order to mitigate them. The public and private sectors must collaborate to effectively govern the cyberspace as well as identify and mitigate cyberrisks, and understand how they interconnect with other global risks.

The private sector sees government’s regulatory role as limited, owing to the innovative character of technology. Yet, regulation is needed to provide a level playing field. Companies that take the initiative to set up protective measures can find themselves at a competitive disadvantage, at least in the short term until the playing field shifts.

The public sector depends on the private sector for data it collects about its customers. Access to such data could help identify looming interconnected risks so appropriate measures can be taken. The risks associated with data are many, including attribution, privacy, digital footprints, governance and regulation. During the discussion, participants raised the following questions:

  • How can data be kept confidential when there is increased cyberspace surveillance by bad actors?
  • Is there a growing backlash against companies collecting data for business development?
  • Who is responsible for open data?

Participants appeared to agree that protecting data is too difficult given the number of “holes”. Some suggested that there is an opportunity for increased anonymity or new forms of privacy; youth are increasingly adept at changing their online identities, while adults increasingly segregate their corporate and personal identities.

Another upshot of increased information sharing is transparency. One participant noted that the Internet led to the greater accountability of politicians in India following several corruption scandals. Technology and virtual communities facilitated the revolts in Tunisia and Egypt, as well as in other Arab countries. Yet it is uncertain how the new leadership and young population will use technology for building and running the state.

Takeaways

Participants were polled on several topics with the following cloud computing results:

  • Individualism, less hierarchy, more information, and privacy, trust and communication will grow in importance.
  • Information is uncontrollable and protection limited.
  • Relationships and policy-making are becoming more perception-driven.
  • Governments must adapt to a new playing field, which they may try to control but cannot.
  • Global governance frameworks on who controls data, where it resides and who has access to it are lacking.

The Risk Response Network can develop the right kind of literacy on these issues by mapping out the risks in the networked ecosystem with senior leaders from the industry and government and exploring domains for action and the tools for addressing them.

Firestarter

Scott L. Malcomson, Foreign Editor, The New York Times Magazine, USA; Global Agenda Council on the International Legal System

Facilitator

Phillip J. Harrington, Executive Vice-President, Risk and Chief Administrative Officer, CA Technologies, USA

Supply Chain Dependencies

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Global supply chains are complex and prone to numerous vulnerabilities.
  • The tendency is to underpredict how vulnerable systems are.
  • Risk is a shared responsibility that must be addressed at different points in the supply chain.
  • Better cooperation between governments and industries is needed to address risk.

 

 

Synopsis

Given the interconnectedness of today’s world, examining risks to global supply chains, logistics and transportation is one of the main focuses of the Risk Response Network as well as of a number of the World Economic Forum’s Global Agenda Councils.

The tendency is to underpredict how vulnerable systems are, especially when they are functioning well or taken by surprise, such as when volcanic ash closed much of the European air space in 2010, almost causing an international supply chain breakdown. What can be done to make systems more resilient? What areas of vulnerability are not getting enough attention?

Whether in transportation or cybersystems, weaknesses exist in how to communicate to the public that risk is a shared responsibility. A massive paradigm shift that takes into account a robust bottom-up approach is needed, especially with regard to first responders to a disaster.

Another vulnerability to global systems are the obstacles presented when countries have different laws and regulations governing supply chains and trade; regulators often think nationally, not globally. The challenge is to ensure that governments and regions apply consistent standards so that supply chains run more smoothly and industries can invest without too much cost to customers. While larger companies have the capacity to monitor an entire supply chain or network, often SMEs have no control, especially when there is a disruption. Other risks that can undermine supply chains are not just catastrophic events but also non-state actors such as terrorists and organized crime.

After meeting in break-out groups, participants highlighted a number of issues that can reduce risk and vulnerabilities. They include:

  • Better coordination and cooperation between the private sector, governments and other actors
  • The quantification of risks
  • A centralized information depository for transportation in the wake of a crisis
  • The need for more integrated and local risk management capabilities
  • Proper pricing

Participants agreed that a shift from surfacing the issues to diagnosis and action is necessary. As today’s supply chains and networks are complex and multidirectional, sub-systems must be in place to better respond to vulnerabilities.

Firestarters

Douglas A. Smith, Assistant Secretary, Private Sector, US Department of Homeland Security, USA

Hari Thind, Director, Global Customs and Security, TNT, Netherlands

Discussion Leader

Steven R. Culp, Managing Director, Risk Management, Accenture, United Kingdom

Facilitator

Herman Leonard, Professor of Public Management, Harvard Kennedy School, Harvard University, USA; Global Agenda Council on Catastrophic Risks

Leading Practices Exchange

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • As one of a number of projects within the Risk Response Network, the Leading Practices Exchange aims to be an interactive repository and network of information and ideas on managing, mitigating and responding to global risks.
  • Members of the Risk Officers Community welcomed the idea of the Exchange, but clarification of the Community’s mission and vision is needed before the tools are defined going forward.
  • After input from the Risks Officers Community, the Exchange is expected to be launched at the Annual Meeting of the New Champions in September 2011.

 

Synopsis

A leading practice is a “superior method” or innovative practice that contributes to the improved performance of an organization, usually recognized as “best” by other peer organizations. It implies accumulating and applying knowledge about what is working and not working in different situations and contexts, including lessons learned, feedback and analysis.

The Leading Practices Exchange is being set up to provide a platform for decision-makers to share best practices related to how their organizations proactively manage a broad range of risks. The initiative seeks to leverage risk experts’ knowledge in risk-preparedness and risk-mitigation techniques to increase organizational resiliency and contribute to new thinking in global risk management. As an online platform, the Exchange’s goal is to link all risk initiatives in a virtual space, offering access to meetings and in-person activities and acting as a basis for the creation and curation of a library of knowledge.

Why is the Leading Practices Exchange needed? Because addressing risks in isolation can lead to systemic weakness. By sharing leading practices, the Risk Officers Community and Risk Response Network at large can close the knowledge-action gap between what is known about risks and what is being implemented, thus making organizations and systems more resilient and able to response to a broad range of risks.

Overall, Members of the Risk Officers Community welcomed the idea of the Exchange, although some cautioned that clarification of the mission and vision is needed before defining the tools going forward. Without reinventing the wheel, as a number of online risk communities and platforms already exist, the Exchange should be structured to provide a mechanism to link different risks and offer the Community shared knowledge, experience and information.

Many stressed that the information should be tangible, practical and principled, and available in real time; contributions should also be co-produced, bottom-up and self-generated, and some moderating mechanism is needed. Case studies should not only illustrate best practices and what has worked well, but also examples of activities that have not worked well. In addition, the Exchange should have the ability to link governments and the private sector and suggest how best practices could work in a crisis. Other areas to be explored include early response mechanisms, weak signals, and risk and resilience strategies.

Following virtual collaboration, workshops, steering committee discussions and feedback on the charter of the Risk Officers Community, the Leading Practices Exchange is expected to be launched at the Annual Meeting of the New Champions in Dalian, People’s Republic of China, on 14-16 September 2011.

 

Facilitator

Michael Useem, Professor of Management and Director, Center for Leadership and Change Management, The Wharton School, University of Pennsylvania, USA; Global Agenda Council on Catastrophic Risks

Reputational Risk

\s*(.*?)\s*!', "$1", $content); ?>

Key Points

  • Reputation is one of the most important corporate commodities, but it is difficult to protect.
  • The media landscape has undergone radical change with the introduction of new media, social media and company-owned media.
  • Technology is both the source of reputational risk and the way to manage it.

 

 

 

 

Synopsis

A global survey of senior risk managers by the Economist Intelligence Unit found that reputation is one of the most important corporate assets, and also one of the most difficult to protect. A trusted company is often given the benefit of the doubt when a negative story surfaces, whereas a company that is perceived with mistrust is not.

Reputational risk could be defined as the difference between who one is and who one wants others to believe one is. The extent to which those two realities can be aligned is the basis of minimizing reputational risk. Organizational culture is at the root of that alignment – it is the hardwiring, values, practices, behaviour and responses that it communicates to the public at large. This culture must be well entrenched as public perception cannot be realigned when in a crisis situation.

It is also possible for a country to manage its reputation. For example, when Chinese premier Wen Jiabao visited a region hit by a massive earthquake in April 2010, he used social media to get his message out, ushering in a completely new way for Chinese leaders to communicate with the public. Authorities in Japan have “done well, but not the equivalent of China” following the 11 March earthquake and tsunami.

Trust is enhanced by experts within an organization speaking on issues that have arisen in the media. Leaving all external communications to the CEO alone is outdated; the chief executive should open the communication channel and then make way for internal experts to speak to the public intelligibly and authoritatively. Independent, academic, expert opinion would then corroborate the company’s position.

The media landscape has changed fundamentally with the proliferation of new media (Wikipedia), social media (Twitter, Facebook, YouTube) and company-owned media (such as BP’s 24/7 channel on YouTube dedicated to updates on the Deepwater Horizon oil spill). Technology is a major source of reputational threat as well as a means to manage the threat. It is essential for organizations to embrace new technologies that can monitor the Web, observe where threats are emerging and respond accordingly. In a post-WikiLeaks world, there is no reason to labour under helplessness as many technology tools can be used to counter negative coverage.

One participant noted that many organizations are good at talking about the technical dimension of communication and reputation, but discussion about “emotional” communication across communities, cultures and languages is also needed. Is there a way to do that consistently and effectively? One answer lies with the CEO and senior management. For example, Walmart reportedly allowed its employees in areas affected by Hurricane Katrina to talk about what they were doing to help, such as distributing clothes to victims, thus ensuring the corporate message received a positive response.

Discussion Leaders

Richard W. Edelman, President and Chief Executive Officer, Edelman, USA

Michael Fertik, Founder and Chief Executive Officer, Reputation.com, USA; Technology Pioneer; Global Agenda Council on Internet Security

Gail Fosler, President, The GailFosler Group, USA

Facilitator

Adrian Monck, Managing Director, Head of Communications and Media, World Economic Forum

The Risk Response Network

The World Economic Forum’s new Risk Response Network is focused on enabling global decision-makers to better understand, prepare for, respond to and capture opportunities related to the world’s most difficult, complex, and systemic risks.

Video Link with the Office of the Prime Minister of Japan

Yukio Edano, Chief Cabinet Secretary, Cabinet Office of Japan

Global Risks Meeting

Over 80 decision-makers and experts participated in the Risk Response Network’s inaugural Global Risks Meeting in New York, 6-7 April. The founding members endorsed the Network’s mission and underscored its value in bringing together leaders from all sectors and industries so that – for the first time – global risks could be addressed holistically and collaboratively.