Despite the uncertainties around Greece exiting the EU, UK business reveals is at its most expansionary in four years, with a rebound in risk appetite among chief financial officers (CFOs).
However, it is not clear to what extent this is reflected in FTSE plc boardrooms—or indeed, the extent to which they are prepared for new and varying manifestations of risk in a fast-changing world.
According to a recent survey from Deloitte, attitudes to corporate risk among CFOs are changing as 2015 progresses.
The Deloitte CFO survey for the second quarter of 2015 monitored the views of 122 CFOs of FTSE 350 companies and other large private UK companies. Compared with the previous quarter, the level of financial and economic uncertainty as “above normal, high or very high” is deemed to have fallen, from 63% in the first quarter, to 55%.
Corporate risk appetite has improved, with 59% of CFOs saying that now is a good time to take risk on to their balance sheets—up from a two-year low of 51% in the previous quarter.
The survey highlights that the proportion of CFOs focusing on expansion is the highest since the first quarter of 2011. Forty-one per cent say introducing new products and services or expanding into new markets is a strong priority for the next 12 months. This is a jump up from 28% feeling that way in the first quarter.
Sixty-six per cent of CFOs said they expected UK businesses to increase capital expenditure in the next 12 months, with 70% expecting hiring to increase.
Is the reality so positive?
All this ebullient positivity might fly in the face of reality.
It is hard to say whether one can extrapolate much from such surveys on true corporate risk appetite, despite the numbers.
In May the Financial Times reported that more than a third of CFOs in Europe were more optimistic about their companies’ prospects compared with last year. However, the paper also noted that “there are little signs of this translating into an upswing in investment”.
Equating rising risk appetite with expanding business investment risks can be taking a blinkered view on the true realities of creeping risk, and the need for its mitigation.
If there is greater risk appetite among CFOs in the FTSE 350, there are a few risks of which they might want to take particular heed. They include cyber-security, the very real and very grave pitfalls of a lack of communication between CFOs and CIOs/CTOs, and the lack of an holistic view of the business in its world context in the boardroom.
In the wake of a review by Lord Davies on the under-representation of women in the UK’s boardrooms four years ago, and the subsequent igniting of a wider debate on the need for boardroom diversity beyond gender, FTSE 350 companies have had a lot to contend with, in terms of expectation.
For the financial services sector, added to that expectation has been pressure for ethical conduct, backed up in the UK by new regulation.
Business are also struggling to come to terms with the need for better cyber-security, and the preparation of their business for a digital world. Where such concerns—including those linking conduct with reputational risk—fit in when it comes to discussions about risk in the boardroom could be interesting.
While it is clear that hearts and minds in FTSE 350 boardrooms are focused on the immediate phenomenon of political risk in Europe, there is a danger that it eclipses developments taking place every day that demand a shifting overall attitude to risk, and its better management.