UK businesses are over-cautious and at risk of missing out on seizing opportunities due to a fear of taking acceptable risks, according to leading insurer RSA. This reticence – uncovered in a major study of the UK business community’s attitude to risk – could delay the country’s return to economic prosperity, warn experts.
- Report reveals how green shoots of recovery may go untended as recession reaction ushers in era of over-caution
- Seven in 10 businesses reacting to perceived rather than actual risk
- Businesses not grasping opportunities as risk becomes the new taboo
- Less than half of business leaders admire risk takers
The study – Risky Business: how British business leaders are reacting to the recession – is the first in a series to be published by RSA and conducted in association with the Future Foundation. The report highlights how UK business leaders are unable to look beyond the short-term and are unwilling to take risks themselves despite recognising that taking some risks is a necessary part of running a profitable business.
The report reveals that whilst 63% of business leaders believe that there is an opportunity to grow their organisation during the recession, only 45% actually expect to see growth.
“For many businesses today, survival equals success. But in focusing on the immediate they are at risk of missing wider opportunities. Missing these opportunities threatens to delay their own success and the wider recovery of the UK economy”, comments Neil Lightbown, UK Underwriting and Strategic Claims Director, RSA. “UK plc can see the green shoots of recovery but is reticent in helping them grow.”
The extensive study has used both new quantative research with business leaders and the general public together with expert interviews of business leaders to uncover boardroom and public perceptions of risk. This gives the fullest picture yet of the changing sense risk has on our business and personal lives.
The report reveals that a sense of caution is widespread: 58% of the UK population prefers to be cautious rather than to take risk. Amongst business people, 26% enjoy taking risk and 17% of the population share this sentiment. However, 17% of business people also believe companies are now too cautious in their approach to risk.
“These reactions are understandable given the widespread perception that extensive risk-taking helped bring on the credit crunch and the recession”, adds Lightbown. “But the pendulum has swung too far. Risk is a crucial, fundamental part of business decision-making. We need to better understand acceptable risk or we will be so cautious in our business dealings we will ignore the potential green shoots of economic recovery. Businesses can’t take their eye off the future – they need to recognise and grasp the longer-term opportunities.”
The study shows that the concept of risk-taking has become devalued. Less than half of business leaders admire risk takers and a similar proportion believes that entrepreneurship should be rewarded.
Barry Clark of the Future Foundation says, “We’d argue that the common perception of risk has been redefined. Where once risk-taking was exemplified in the public imagination by individuals such as Sir Alan Sugar and Sir Richard Branson, risk is now epitomised by groups of investors in banks speculating on inherently unsound and very complicated investment vehicles. If risk is personified, it now takes on the shape of Sir Fred Goodwin of RBS rather than popular buccaneering entrepreneurs of recent years”.
The study also found that 70% of respondents believe they react to perceived risk rather than actual risk, suggesting business leaders are relying more on suspicion and gut-instinct than fact.
Dr Abigael San, Chartered Clinical Psychologist, says: “Often we react to perceived rather than actual risk leaving us vulnerable to making bad decisions as a result. Given the fear experienced by the population during this climate of economic upheaval, it is not surprising that our tendency to engage in these thinking errors is more pronounced, leading to biases in our thinking that affect our behaviour.
“As humans, we often make decisions about the likelihood of an event occurring based on how available the information is and how easily it comes to mind – something known as the availability bias. We are currently hypervigilant to information that tells us that taking risks is bad and which makes us ever more cautious. It is difficult to take a long term view when we are so overwhelmed with current worries. Thinking is focused on the present as future planning feels futile given the perceived unpredictability of the situation.”
Key findings from the study include:
- 72% of business leaders believe some risk in business is necessary but 63% believe the business community has taken too much risk in recent years
- 17% of businessmen believe companies are currently too cautious in their approach to risk
- 67% of the public think entrepreneurs should not be rewarded for taking risks
- 26% of business leaders enjoy taking risk; 17% of general population enjoy risk
- 33% of business people accept that they are now more cautious about taking risks
- 25% of business leaders see risk taking as a way to make money
- 58% of the population prefer to be cautious rather than take risk
Research was carried out in April 2009 by the Future Foundation on behalf of RSA. 252 business directors and 1,239 UK adults were interviewed.
