Why are social-risk discussions so hard?

The risk landscape is ever changing and there will never be a dull moment for risk practitioners

Many organisations are striving to uplift the communities in which they operate through corporate social responsibility programmes.

South Africa recently experienced unrest in various parts of the country. The rationale on the ground is that most of this unrest was triggered by social challenges faced by the communities in question.  Just like a troublesome child, social risks are noticeable and their impact is felt beyond borders.

From a business point of view, why is it so hard to discuss social risks in the corridors?  Isn’t it time we reconsidered what is in our risk-management strategies and include social risks if we have not yet done so? Why should we be interested in overhauling these strategies? It is because socio-economic issues are likely to disrupt many organisations’ strategic and operational plans.

What is at stake?

The 8th edition of the Allianz Risk Barometer 2019 reports that 37 percent of the responses cited the “impact of business interruption (including supply change disruption) is the major risk for companies for the seventh year in a row”.

Although this could also be triggered by geopolitical tensions, some of the most frequent social issues relate to lack of service delivery. The events that lead to some protests as a result have without doubt interrupted some business operations.

According to the 5th edition of the Institute of Risk Management South Africa (IRMSA) Risk Report’s South African Risks 2019, the input from the subject matter experts in the report highlighted business interruption as one of the risks that “could remain unchanged over the next 18-month to five-year window”.  The picture might be gloomy, but it is also an opportunity in the area of managing risks.

Develop social-risk literacy

When we manage risks, we tend to focus on the traditional ones and shy away from discussing social risks. It is important to understand social risks and what triggers them.  Organisations tend to underestimate the impact of these risks to their businesses and their stakeholders. The consequences are evident in the lack of preparedness when business interruptions do occur. One of the common experiences is the service-delivery protests that sometimes turn violent – even when early warning signals are present.

Does Location Matter?

Do you remember the 4Ps of marketing (Product, Place, Price and Promotion)?  The location of the business matters. This is where the product is sold or services are provided to the customer. Thus when conducting a social risk assessment, one should reflect on scenarios that could impact on how the supply chain, customers, employees might be affected by protest action.

We ought to remember that some scenarios might cause a total shutdown in the affected locations. The International Organisation for Standardisation (ISO) 31000:2018 Risk Management Guideline offers some advice. In clause 5.4.1 – Understanding the organisation and its context, it states that “when designing the framework for managing risk, the organisation should examine and understand its external and internal context. Examining the organisation’s external context may include, but is not limited to:  the social, cultural, political, legal, regulatory, financial, technological, economic and environmental factors, whether international, national, regional or local”.

A recommended reading by Bekefi, Tamara, Beth Jenkins, and Beth Kytle. 2006: Social Risk as Strategic Risk: Corporate Social Responsibility Initiative, Working Paper No. 30 Cambridge, MA: John F Kennedy School of Government, Harvard University, states that “social risk is characterised by four components in combination: an issue, a stakeholder or group of stakeholders, a negative perception about the company, and the means to do damage.” 

The authors pose several questions including:

• Who (for example, business unit or departmental head) has the responsibility for tracking, raising and/or managing social issues? Is the process explicit or ad hoc?

• What organisational or cultural barriers, if any, does your company face in raising or managing social issues at the strategic level? For example, are social issues treated “differently” or “separately” from other business risks? Are there incentives for longer-term thinking?

Accept that social risks exist, but get on your marks

The likelihood of business disruption as a result of social risks might be hard to predict as we do not live in a risk-free world! For organisations that are tapping into the African Continental Free Trade Agreement, they have to accept that social risks will follow.

We saw attacks on South African businesses such as Shoprite and MTN in Nigeria as a retaliation of the xenophobic attacks in South Africa, which reminds us how social risks can escalate into geopolitical issues.

The good news is that risk appetite is still high for these organisations (and many others) to trade in African markets, although risk tolerance will always be debateable.

Get on your marks, revise or develop your risk-management strategy and think of those social risks that could derail your strategy. Then conduct a business impact analysis to evaluate the possible impact to your key business operations and activities. The important point here is to ensure that you have a recovery strategy.

John A. Shedd once said: “A ship is safe in harbour, but that’s not what ships are for.”  Therefore, we should avoid, reduce, transfer or accept that social risks exist. This will enable us to discuss these risks and take on questions like those found on the BBC World News’s HARDtalk programme!