As board meetings across industries pick up the pace for 2022, what are the critical risks that directors and executives should be making time to consider this year?
The governance and risk environment that directors and executives are operating in remains as challenging as ever. We are truly living in ‘VUCA’ times – the outlook is volatile, uncertain, complex and ambiguous.
But amidst the challenges in the environment, for directors and leaders who are well prepared, sound enterprise risk management provides a strong framework for identifying the key challenges on the horizon and, critically, the opportunities for staying ahead.
The recent World Economic Forum publication, The Global Risks Report 2022, takes a timely look across the globe at the key risks and risk perceptions leaders foresee in 2022 and beyond. It is critical reading for directors and executives who have a long-term strategic view.
Dozens of risks are identified in the report. But for high-impact organisations in Australia operating in highly regulated industries, such as aged care homes, what are the critical risks and opportunities that directors and executives should be scheduling time to consider in their upcoming governing body meetings?
We have considered five.
1. Staffing and Talent
If the first few months are a guide, then finding, attracting and maintaining quality staff will be a constant challenge in 2022.
COVID-19 has upended aspects of the economy, and labour markets are unsettled.
COVID-19-settings within Australia and for overseas entrants will continue to evolve, leading to ongoing uncertainty for workers. As we become more accustomed to living with the virus, we will become more accustomed to workers being impacted and unavailable at short notice. For organisations in high-impact service-based sectors, such as aged care, this is particularly challenging.
Evidence regarding the so-called ‘great resignation’ is varied. In some places, the impact of the last few years has caused swathes of people to resign and to try new careers, or to live in different places, as they have taken time to reassess fundamental aspects of their lives. In other places, the flexibility that employers have afforded to employees, which looks here to stay in many places, has been embraced by workers. Employers need to find ways to use this to their advantage.
Amidst this upheaval of labour in the last two years, skills shortages have emerged. The aged care sector is under significant staffing pressures. And there is a dearth of skills necessary in technology-related roles across all sectors.
The ‘war for talent’ is real, but for proactive organisations there is opportunity. Organisations in high-impact environments typically have an opportunity to articulate and promote a strong employee value proposition centred around a company’s purpose, supported by a commitment to ongoing employee development, focused on both competencies and capabilities.
2. Health and Wellbeing
All workers have been impacted by COVID-19, but people in jurisdictions that have experienced the heaviest lockdowns have been impacted most significantly.
In the Global Risks Report 2022, mental health deterioration is fourth on the list of risks that have worsened the most since the start of the COVID-19 crisis.
Workers in high-impact organisations such as aged care have often been on a challenging front-line. These industries have and will continue to feel the weight of impacts to individual health and wellbeing, perhaps greater than others.
In the aged care sector, CompliSpace’s Aged Care Workforce Report 2021 found that an astonishing 40 per cent of aged care employees, or 110,000 workers, plan to leave the sector within the next three years. Alarmingly, 58 per cent ranked “stress” in their top three reasons for leaving the industry.
For leaders in the aged care sector, the levels of change and uncertainty coupled with ongoing staffing shortages have made it an incredibly challenging time to operate. The demands are significant.
Directors and officers carry personal liabilities in relation to the health and safety of their workforces. Leaders need to be making time to assess the health and wellbeing impacts on their workforces and to consider how they invest time and resources into supporting the overall health and safety of their teams. Given the importance and demands of their roles, it is increasingly recommended that board members be included in the provision of such training and resources.
An increasing number of organisations are challenging rigid leave and support frameworks of the past, with more tailored and flexible supports for their workers: additional leave to support wellbeing, blocks of time free of meetings and distraction and providing enhanced clarity and transparency around company and team goals.
It is always important to commit to support mechanisms for all staff and appropriate training for leaders, so that they know how to identify risks in their teams and to provide the right support or guidance, as needed.
3. Cyber-resilience
The Global Risks Report 2022 finds that Australian executives consider the top business risk for the next two years will be a failure of cybersecurity measures. Cybersecurity threats are growing – in 2020, malware and ransomware attacks increased by 358 per cent and 435 per cent respectively.
In response to the COVID-19 pandemic, organisations have invested more in their digitisation plans, to accommodate both workers and customers. A consequence of this is a heightened risk of cybersecurity breaches, including data breaches and privacy breaches.
Some high-impact and highly regulated sectors are most at risk, including the aged care sector, given the extent of personal information that they hold and the relative immaturity of cyber-resilience across these sectors.
In early 2021, the Australian Cyber Security Centre (ACSC) reported that cyber security incidents relating to the Australian healthcare sector increased by 85 per cent in 2020. The health sector reported the highest number of cybercrime incidents to the ACSC in 2020 outside of government and individuals.
In April 2021, UnitingCare Queensland, which provides aged care, disability supports, health care and crisis response services, fell victim to a significant cyber incident by one of the most notorious cyber ransom gangs in the world. Some of the organisation’s digital and technology systems were left inaccessible.
The threats are real, and it is best for governing bodies to acknowledge this and plan now. It is critical that organisations invest in training and education for staff, conduct drills, run internal testing, deploy anti-ransomware technology, and encourage good online behaviour. An investment of time and resources in these efforts will significantly mitigate the consequences of these cyber-attacks, which are bound to occur.
4. Environmental, Social and Governance (ESG)
Directors and leaders often place the most attention on immediate or short-term risks. However, organisations are now under increasing pressure to plan and manage for longer-term environmental, social and governance (ESG) risks.
The pressure is coming from investors, regulators, shareholders, customers and employees.
ESG risks encompass all non-financial topics that are not typically captured by traditional financial reporting.
Organisations that fail to plan for and manage ESG risks will not only increase their exposure to environmental threats, but also higher costs of capital, more difficulty attracting and retaining top talent and push-back from clients and other stakeholders.
In The Global Risks Report 2022, the list of the decade’s top 10 most severe global risks is dominated, predictably, by environmental (five) and societal (three) risks.
In a submission to the Aged Care Royal Commission in 2020, a boutique Australian fund manager, Ethical Partners, along with the Australasian Centre for Corporate Responsibility, said that it believes that companies that treat the world and people in a better way will do better than the broader market in the long run. A representative of the fund said that it will not own any of the listed aged care stocks until there are major changes across the sector including greater regulatory oversight, minimum staffing, qualifications and training.
"These are things the royal commission has called out, but we agree with this as well, to manage the risk of human rights violations to allow us to be able to place hand on heart and say we believe there is no financial or moral risk in these stocks," she said.
Governing bodies need to make time to discuss these risks and opportunities. High-impact organisations have an opportunity to lead on many of these issues and to add to their organisations’ compelling value propositions. For example, in relation to environmental risks, what is the organisation’s position regarding carbon offsets and waste and pollution management? In relation to social risks, what steps are they taking to manage health and safety and to engage with the communities within which they operate? And in relation to governance risks, are they taking the necessary steps to ensure adequate levels of governing body diversity, transparency and reporting?
5. Regulatory Change and Compliance
The pace of regulatory change for high-impact organisations is frantic. Amidst the uncertain and challenging environment that organisations are operating in, keeping up with the level of regulatory and compliance change is complex, challenging and risky in itself.
For most organisations, understanding the changes is not core business, and implementing the necessary operational changes can be resource intensive and complex.
Between 2005 and 2019, the sheer increase in regulatory restrictions in delegated legislation was immense, increasing three-fold across all industries.
In aged care, over the last few years, there has been a substantial increase in the complexity of the compliance regulations that govern residential aged care homes.
On 1 July 2019 the Accreditation Standards were replaced with the more complex Aged Care Quality Standards. In so doing, a two-page fact sheet and short Guide setting out four Standards and 44 expected outcomes were replaced with a 197-page Guide setting out 8 Standards, 42 requirements, and more than 600 examples of actions and evidence that providers must follow to ensure compliance. On 1 March 2021 the Royal Commission into Aged Care Quality and Safety published its Final Report in eight volumes containing 148 recommendations.
The new compliance requirements flowing from this will be immense for years to come and costly, if not done well. For multi-tenanted providers, particularly those operating in multiple jurisdictions, the differences in Commonwealth and State-based requirements adds an additional layer of challenge and complexity.
It is critical that these organisations are providing up-to-date, compliant and transparent resources to support all stakeholders.
Conclusion
As governing bodies and executives spend precious time planning for the year ahead, there are simple, practical steps they can take which will help turn these risks into opportunities:
- openly discuss and explore risks
- allocate sufficient time at governing body meetings
- regularly assess the likelihood and impact of these risks and workshop mitigation strategies.
The saying goes that “change creates opportunity”. As the world continues to respond and adapt to a post-COVID era, change will continue to be a constant. But therein lies the opportunity. Directors and leaders who know and acknowledge this and allocate sufficient time and resources to considering the risks and opportunities like those identified above, will put themselves ahead of their peers.
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