Nine tenths of senior executives in Hong Kong recognise the value of risk management to their company however only two thirds build it into their planning decisions, finds a joint survey by KPMG and the Hong Kong Institute of Chartered Secretaries (HKICS).
The report titled – Risk Management – Looking at the new normal in Hong Kong surveyed 279 Hong Kong-based senior executives, assessing their awareness and preparedness to manage and oversee risks in the rapidly changing business environment.
Despite risk management being seen as a high priority among the companies surveyed, only 66 percent of respondents build it into their strategic planning decisions often or continuously, the survey finds. Just 36 percent had a fully developed, approved and implemented risk appetite statement. Additionally, 29 percent had no formal process to aggregate the overall risk exposure facing the business. However, the study also shows that boards in the region are stepping up and increasingly challenging management on risk issues, with nearly eight tenths of respondents indicating they plan to invest more in this area.
Jyoti Vazirani, Principal, Risk Consulting, KPMG China, says: “We have observed that companies in the region are continuing to invest more to develop their risk management and corporate governance. Board directors and senior executives are increasingly thinking about risks facing their organisations. Whether the intention is to avoid reputational scandals, deal with a challenging market in the region, manage investor expectations or simply comply with new regulations, the message is clear: risk management is finding its way to the top of the executive agenda, and it is here to stay.”
Executives are increasingly recognising the challenge of managing external uncertainties faced by their businesses. Economic environment, regulatory changes, as well as growth and innovation are viewed as the region’s top risks, driving the fact that businesses need to be prepared for unexpected threats and opportunities. Almost three quarters claimed they increased investment in risk management over the last three years, and 79 percent anticipated a further increase in the next three years, the survey finds.
Maurice Ngai, President, HKICS, says: “We are increasingly seeing investors challenging boards with questions on their strategies and how they plan to execute these. This heightened shareholder scrutiny and investor activism is causing boards to deepen their engagement with the business and expand beyond their ‘traditional’ oversight role.”
The survey also highlights issues about internal audit (IA). The new Hong Kong Corporate Governance Code requires, on a comply-or-explain basis, that companies set up an IA function. However, only 43 percent of respondents believe they have an IA function whose audits can be clearly linked back to the top risks facing the organisation. Furthermore, 15 percent of organisations do not have an IA function in place.
A well-developed IA function can provide an organisation with an opportunity to tighten its controls, reduce risk, identify potential inefficiencies and reduce cost, the report notes.
Vazirani adds: “The updated Corporate Governance Code and Corporate Governance Report for listed companies in Hong Kong is a significant step in bringing risk governance in line with more mature global markets. This new code places the board as a pivotal component of an effective risk governance framework and enhances its accountability with regard to risk management. Companies should therefore include discussions of risk, and oversight of the management of those risks, as a boardroom agenda item.”
While 90 percent of respondents said boards discuss risks for key decisions, only 43 percent have this as a standing boardroom agenda item. The survey finds that companies that have risk as a boardroom agenda item, compared to those which do not, consider themselves nine times more likely to have effective structures, roles and responsibilities to manage risk. They are more risk-aware and over five times more likely to identify emerging risks, also twice as likely to consider risk in business decisions.
For those do not have risk on their boardroom agenda, board’s weak understanding of risk issues (58 percent) and failing to see the value created by risk management (46 percent) are identified as key hurdles.
Maurice says: “The board is being given increased oversight responsibilities, and management is increasingly responsible for implementing risk management practices to reduce the negative outcomes and uncertainties caused by risk to the strategic objectives of listed issuers. Boards will therefore increasingly be calling upon the services of the company secretary for the practical and effective implementation of risk management practices, processes and procedures.”
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About the survey
KPMG China and the Hong Kong Institute of Chartered Secretaries (HKICS) conducted a survey of Hong Kong-based senior management, focusing on risk management in the Hong Kong and China market. With new corporate governance requirements for companies listed or looking to list in Hong Kong, the intention was to capture what the ‘new normal’ for risk management looks like in the region. This survey gathered data from 279 respondents from across a range of industries.
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 155 countries and have 155,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG China has 16 offices in Beijing, Chengdu, Chongqing, Foshan, Fuzhou, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Tianjin, Xiamen, Hong Kong SAR and Macau SAR, with around 9,000 people.
KPMG China refers to the member firms of KPMG International in Mainland China, Hong Kong SAR and Macau SAR.
About the Hong Kong Institute of Chartered Secretaries
The Hong Kong Institute of Chartered Secretaries (HKICS) is an independent professional body dedicated to the promotion of its members’ role in the formulation and effective implementation of good governance policies as well as the development of the profession of Chartered Secretary in Hong Kong and throughout mainland China.
HKICS was first established in 1949 as an association of Hong Kong members of the Institute of Chartered Secretaries and Administrators (ICSA) of London. It became a branch of ICSA in 1990 before gaining local status in 1994.
HKICS is a founder member of the Corporate Secretaries International Association (CSIA) which was established in March 2010 in Geneva, Switzerland to give a global voice to corporate secretaries and governance professionals.
Today, HKICS has over 5,800 members and 3,200 students.