The Sharp Side of Risksharp Side of Risk - Forbes Insights

8/12/2019 The Sharp Side of Risksharp Side of Risk - Forbes Insights

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THE SHARPSIDE OF RISKUNDERSTANDING, ANTICIPATING AND

MANAGING BUSINESS RISK

IN ASSOCIATION WITH:


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FOREWORD

Natural, economic, social, nancial and technological.

The risks facing businesses have always been plentiful, but today they are more complex and more interconnected

than ever before. This is fostering rapid and signif icant change across the global marketplacechange that brings new

opportunities for growth and success, as well as unexpected and sometimes unwelcome challenges.

For the past century, Zurich has helped companies across the United States, and around the world, better understand

and manage change and the risk it presents.

Whether its large or small, global or local, we know your business. This is why we take the time to learn what makes

your company unique; what it needs to foster growth, to enter new markets, to explore new processes and technolo-

gies, and to recover from business interruptions.

With our insight, we are able to deliver insurance solutions that help our customers manage risk. By openly sharing

our insights and learnings, we are also able to help the broader business community better understand the risks it faces

in todays complex world.

On this note, I am proud to introduce The Sharp Side of Risk: Understanding, Anticipating and Managing Busi-

ness Risk, a research report focused on how key business sectors are planning to grow in a world of interconnected

risks and economic uncertainty.

This collaboration with Forbes is just one example of how we continually seek to learn from the industries we serve.

We hope you find it both in formative and enjoyable.

E. Randall Clouser

Head of Marketing, Distribution & Regional Management

Zurich in North America

Connect with us on social media. @ZurichNAnews Zurich North America

For more information on our insurance products

and risk management solutions, visit us atzurichna.com.


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2 | THE SHARP SIDE OF RISK

CONTENTS

Foreword .....................................................................................................................................1

Executive summary .............................................................................................................. .3

Understanding risk and lessons learned (or not)....................................................... 4

Plans for strategic growth ..................................................................................................11

Where future risks lurkand where the jobs will be ...............................................18

Where the construction jobs will be .............................................................................22

Executives rate their companys risk-management skillsand their own involvement in risk assessment .........................................................24

Methodology and acknowledgments ..........................................................................28


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COPYRIGHT 2013 FORBES INSIGHTS |

EXECUTIVE SUMMARY

To be successful, growth strategies need to be aligned with risk management. Such alignment

provides understanding about what might hamper growth, and aims to prevent any impedi-

ments to growth. And yet while many companies have taken financial hits because of unforeseen

events, a significant number of executives dont yet have a total grasp of their companys expo-

sure to risk or of its risk-management strategies, according to a survey conducted by Forbes

Insights and Zurich in North America. The respondents included more than 400 executives who

work in one of four industries: banking and financial services, real estate, healthcare, and con-

struction. (See Methodology, page 28.)

The state of the U.S. economy casts the darkest cloud over future revenues and job growth,

according to the survey, though respondents saw a somewhat brighter future for their own

companies. Executives tend to be concerned about risks that have an immediate impact on

growththe economy and the cost of energy and healthcare among thembut they may

be less knowledgeable about risks looming over the horizon, notably cyber terrorism and

climate change.

The analysis conducted by Forbes Insights reveals a significant contradiction when it comes to

the executives understanding of how well their companies have aligned risk management withgrowth strategies. The number of executives who believe that such alignment exists in their

companies is meaningfully larger than the number of executives who know what the actual risks

may be. To help executives resolve the incongruity, this report focuses on how companies can

approach aligning risk management with growth strategies.


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UNDERSTANDING RISK AND

LESSONS LEARNED (OR NOT)Key findings:Executives dont have a total grasp of their companys exposure to risk or of its

risk-management strategies. Even though many of those surveyed say their companies have

taken financial hits because of unforeseen events, a significant number do not seem to have

learned the importance of managing risk. Those who have recognized this imperative say they

will pay more personal attention to specific risks, different for each industry, and some will bring

in outside advisers.

We stuck to what

we do best, got our

arms tightly around

compliance, and

have tried to do the

right thing.

RICHARD A. GRAFMYRE

President and CEO,

Penns Woods Bancorp

We had a subcontractor who decided he wanted to go out

of business and ended up costing us $70,000, says Thomas

F. Judson Jr., chairman and CEO of The Pike Company, a

general contractor operating out of Rochester, N.Y. The

let-down involved the non-delivery of tiles for a college

science building Pike was buildinga blindsiding that

took the company somewhat by surprise, even though

subcontractor default is a constant

risk, says Judson. It also made a

signicant dent in the already-

narrow margin Pike had built into

its bid for this particu lar project.

Far from being the excep-

tion, stories like this are all too

common, although the underly-

ing reasons vary by industry (see

Figure 1a). Just 24% of respon-

dents claimed unforeseen risks

had not hit their companies nan-

cially at all. Richard A. Grafmyre,

president and CEO of Penns

Woods Bancorp, which runs the

13-branch Jersey Shore State Bank

in rural Pennsylvania, includes

his company among that number.

We stuck to what we do best, got our arms tightly around

compliance, and have tried to do the right thing, he saysby way of explanation. Judson, Grafmyre and other top

executives quoted in this report were interviewed inde-

pendently of the survey.

Figure 1. Has your company ever suffered

financial damages due to unforeseen risks

in any of the following areas?

(Percentage of survey respondents answering yes.)

Operational risk

Regulatory/compliance risk

Financial risk

28%

27%

26%

Figure 1a. Top areas of risk by industry

Banking/Financial Services

Financial risk

Construction

Operational risk

Healthcare


Real Estate

Operational risk

38%

33%

24%

35%


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Figure 2. Top three barriers to effective

risk management, by industry


Lack of understanding of how to mitigate

Lack of understanding of sources

Insufficient budget

Construction



Lack of organization

Healthcare

Insufficient budget



Real Estate


Growth strategy not aligned with risk management


27%

26%

43%

28%

30%

33%

25%

25%

36%

25%

29%

26%

Asked to identify the barriers to effective risk manage-

ment, the biggest number of executives (more than 30%)

said it was a lack of understanding of how to best miti-

gate risk. Almost as many (just over 29%) blamed a lack

of understanding of the sources of risk. Nearly 25% citedtheir companys insuffi cient risk-management budget.

There was divergence within the four industries on which

barrier s were the worst. In the construction industry, 43%

of the executives pointed to a lack of understanding of the

sources of risk, and 36% in banking/nancial services cited

a lack of understanding in how to mitigate it. In healthcare,

33% of the respondents agged an insuffi cient budget, and

among their real estate counterparts, 26% blamed a failure

to align ri sk management with growth strategy.

Surprisingly, given the swath of nancial damage

caused by unanticipated events, 45% of executives still

said theyd manage risk no differently over the next three

years, about twice the percentage of those who said they

would make changes. Even more startling, 32% didnt

know whether theyd do things differently or not.

These gures varied by industry (see Figure 3). These

percentages suggest executives in the construction indus-

try are the most condent that they have risk management

right. They may be right. But the survey a lso showed their

reluctance to see severe climate change as a risk, which

might prove to be dangerous hubris.

Among those who said they would do things differ-

ently, close to 40% said they would make some or all of the

same four changes, namely:

View risk a s interconnected

Align r isk management more closely

to growth strategy

Cover more risks

Revamp the in-house risk management team

More than 20% of this group said they would consult

with or hire outside advisers, with those in banking/nan-

cial serv ices the most likely to do so and their peers in real

estate and construction the least.


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GETTING PERSONALExecutives also identied specic risks that deserve more of

their personal attention. Again, priorities varied by industry.

More than half of the executives in banking/nancial ser-

vices put regulatory and compliance risk at the top of theirlist, but they also agged technology, operational and nan-

cial risk. Respondents in real estate prioritized nancial risk,

and those in healthcare, operational risk. Constructions

respondents identied strategic and operational risk as the

two priorities deserving more of their personal attention.

THE SINGLE BIGGEST RISK FORCONSTRUCTIONS GENERAL CONTRACTORSAs the survey found, most companies have been hit by unan-

ticipated events, a catchall that covers everything from a

tsunami in Japan that wipes out a production facility to a

collapse in housing prices that undercuts a banks mortgage

business to a vendors bankruptcy that severs a supply chain.

The interviews conducted by Forbes Insights found that

these setbacks can happen despite the most painstaking and

thorough risk management. The Pike Company, the gen-

eral contractor burned by a defaulting tile subcontractor, is a

case in point. We have pretty disciplined risk management

when we look at potential jobs, says Pikes Judson, and that

includes looking at potential suppliers. Every one of them is

part of the r isk equation.

The defaulting tile subcontractor typies how the tight

economytoo little work, too many competitorshas

added a new risk for the construction industry. In our busi-

ness, a lot of people get really good at a certain k ind of work

and then the market shrinks, so then the margins shrink.

They shrink all the way through the supply chain. One of

the things that weve seen is that our subcontractors are much

more fragile nancially than they used to be, says Judson.

Hell get no argument from Michael Kennedy, general coun-

sel of Associated General Contractors of America, a trade

group. I would say that the single biggest risk that general

contractors are facing at the moment is the r isk of a subcon-

tractor default, he says.

Judson is less concerned about the risks imposed by

changing climate or extreme weather. AGCs Kennedy offers

an explanation for such equanimity. Weather is always a

risk in construction, and the risk of a delay resulting frombad weather is something that contractors are used to allo-

cating in their contracts, he says. I dont think weve seen

the weather patterns disrupt construction projects any more

or less than they have historically. The big, what we cal l the

CATS, the catastrophes, can have an impact on the cost of

insurance and in particular, builders risk insurance for proj-

ects being constructed in coastal areas. The rates have risen

Figure 3. How executives would manage risk

over next three years, by industry


No differently

Dont know if they would do it differently

Construction

No differently


Healthcare

No differently


Real Estate

No differently


42%

37%

41%

32%

50%

29%

47%

31%


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in coastal areas with a higher risk of wind damage and the

like, but Kennedy says the insurance is still available and

reasonably affordable.

Scott Rasor, head of Construction at Zurich in North

America, agrees that a subcontractors failure or defaultsupersedes natural catastrophe as a threat to contractors.

But he notes something else of import. We see poor work-

manship creating construction defects because contractors

in bad nancial shape will often cut corners in order to

meet meager margins, he says. In that sense, shoddy work

can serve as an early warning signal of more serious trou-

ble ahead, so general contractors should be on the lookout

for it. Rasor also points out that the construction industry

is crowded. He expects more contraction through acquisi-

tions, especially among family-owned companies that lack

clear succession plans.

Healthcare

Operational risk


Financial risk

Technology risk

Strategic risk

Real Estate

Financial risk

Technology risk

Strategic risk

Operational risk


Figure 4. Top five risks most deserving of personal attention, by industry

39%

41%

42%

43%

50%

48%

33%

34%

30%

24%



Strategic risk

Financial risk

Operational risk

Technology risk

Construction

Operational risk

Strategic risk

Financial risk


Technology risk

41%

41%

41%

51%

58%

34%

28%

55%

54%

26%

We see poor workmanship creating

construction defects because

contractors in bad financial shape

will often cut corners in order to

meet meager margins.

SCOTT R ASOR

Head of Construction,



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A BANKER EXPECTSA SIDEWAYS RECOVERYOther peoples nancial health isnt a risk limited to the

construction industry. Penns Woods Bancorp CEO

Grafmyre says the nancial well-being of his businesscustomers is an ongoing issue. I think most banks are

through the worst of the economic risk, he says. What

were seeing now is just an elongated, sideways recovery

that continues to put stress on our business customers, as

does additional regulation. Our concern is just that, the

continued stress on our small and medium-sized busi-

ness customers. The economy and regulation are beyond

Grafmyres control, he readily admits, but he can still

attempt to contain some of the

risks they represent for his custom-

ers. We work with our clients and

try to help them with their ba lance

sheet management so they can

withstand these extended periods

of stress, he says. Grafmyre also

ags computer hacking as a threat,

not only to his bank but his indus-

try as a whole.

Chris Taylor, head of Financial

Institutions at Zurich in North

America, says deliberate hackers

are only part of the security prob-

lem. Lending institutions are in

a paradoxical position, he says.

The protection of PII [Personally

Identiable Information] is para-

mount at a time when a majority

of customers access their accounts

using a mobile device. Also of

note, Taylor adds, PII is often stored on a cell phone, phone

thefts are increasing and more than half of their owners

fail to protect their phone with the most basic and com-

mon-sense security method: a password. More than ever,

nancial institutions must use an encompassing Enterprise

Risk Management approach that covers all eventualities.

A REAL ESTATE EXECUTIVE EYESTHE EMPLOYMENT NUMBERSEdward J. Fritsch, president and chief executive of

Highwoods Properties, a real estate investment trust

in Raleigh, N.C., also looks at how others are doing as

a source of potential risk to his business. To be sure, he

points to the U.S. economy as a continuing challenge for

his company, which, among other things, owns nearly 350

offi ce and commercia l propert ies, mainly in the Southeast.

Our forecast is the economy will continue to improve,

but it will be more of a waddle than a fast-paced run, he

predicts. We think it has been slow in evolving, and we

dont think the cadence of that is going to pick up dra-

matically over the next couple of years. There are still

signicant issues that need to be dealt with in Washington

that I think will serve somewhat as the governor over the

speed at which the economy can recover. We seem to

be going from one scal crisis to another. As we start to

recover and nd statistics that are clear tel ltales of encour-

aging economic growth, we run right into another brick

wall of theoretical scal concern. So, certainly the debt

ceiling, the scal cliff, the sequester, you feel like you go

from one crisis to the next.

But more specically, Fritsch looks at job numbers. I

think employment is the biggest risk for us, he says. Ilike to think we run a fairly complex business, but the gist

of it is that if youre a customer of ours and youre not hir-

ing more people, you dont need more of our product. If

you lease 20,000 square feet and youre not hir ing more

people, then its hard for me to convince you that you now

need 30,000 square feet. So the employment picture is

something that were keenly interested in. So is housing.

We use housing as an early telltale indicator, because as

housing goes, employment typically tends to follow.

The protection of

PII [Personally

Identifiable

Information] is

paramount at a time

when a majority of

customers access

their accounts using

a mobile device.

CHRIS TAYLOR

Head of Financial Institutions,Zurich in North America


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COPYRIGHT 2013 FORBES INSIGHTS | 9

Like Judson, Fritsch doesnt think climate change is a

major threat, or that energy prices are a risk. We heat and

cool mil lions of square feet of offi ce space for the comfort

of our customers, he says, but there has been an advance

in technology and construction products that enable us tocontinue to be able to look a customer or prospect in the

eye and give them the assurances that they will be in a

comfortable environment. For example, the glass that

is made for buildings today is exponentially more effec-

tive and better than it was years ago. The microprocessors

that manage the energy control systems and HVAC ther-

mostats and so on are exponentially more complex and

more effi cient than they were year s ago, he says. As for

the fuel needed to heat and cool his offi ce spaces, When

we develop a building, the upfront need is to be cognizant

of what utility rates could do to the bottom line. That,

he says, drives his company to buy the right glass, buy

the right roof, buy the right centrifugal chiller, buy the

right microprocessor. I like to think that we would buy

highly effi cient mater ials because its the wise investment

to make, whether the EPA mandates it or not.

As at other companies, Highwoods Properties has

employees who are charged with managing these risks,

says Fritsch, professionals who focus solely on how

energy is consumed and deployed

and paid for. Its a real science. Aslong as youre not foolish about

the way that you buy it, consume

it and deploy it, it can be effec-

tively done. So we recognize that

the risk is out there, but I think the

aptitude, the technology and the

materials are there to adequately

address it. As I say, employment is

what we really look at.

Dan Kleiman, head of Real

Estate at Zurich in North America,

notes how risk management

among real estate investors has

evolved over 15 years. They now

routinely look at such issues as the

usage of space and its relationship

to utility costs, design and construction, and constantly

changing codes and ordinances imposed at the federal and

local level. But while all thi s has produced a more detailed

appreciation of risk, he says, it has to be juxtaposed

against a new reality of severe weather patterns.

Kleiman cites Californias recent hail and thunder-

storms as examples, so aberrant that the damage they

caused fell outside any predictable or measurable patterns.

From the insurers standpoint, says Kleiman, our pro-

cesses have become much more sophisticated, and we are

capable of predictive modeling and very sound underwrit-

ing processes, which help to anticipate such events. Even

so, unpredictable weather continues to affect the accuracy

of actuarial models, he says, as does the unpredictabil-

ity of where storms are hitting. The encouraging news,

in Kleimans view: Companies do seem to be getting

smarter about creating response plans for various catastro-

phes, including weather. Theyre building better buildings

and integrating risk management practices to protect them-

selves. But again, he cautions, these efforts wi ll not always

carry the day. Companies can prepare for severe weather,

but the degree of severity can still surprise us.

Companies do seem

to be getting smarter

about creating

response plans for

various catastrophes,

including weather.

DAN KLEIMAN

Head of Real Estate,



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HEALTHCARES QUAKE-IN-PROGRESSTechnology was cited by Pam Davis, CEO of Edward

Hospital and Health Services in suburban Chicago, as an

important component of risk management. Its critical to

have a robust IT infrastructure in place to drive operationaleffi ciencies in workow, effectively monitor and measure

quality, and engage patients in their healthcare and disease

management through an effective patient portal, she says.

The need for computer systems that can talk to each

other is critical for companies in the healthcare indus-

try, which is deep into merger s, business-mix reshuffl ing,

entry into new businesses and cost-cutting. No wonder so

many executives in the survey identied technology as the

best way to make their company an industry leader. (For

more, see How to Be Best in Breed, page 17.) Davis also

notes that risk management is a key part of the equation

each time we make important business deci sions and, she

adds, to help manage risk, we have built a strong interna l

team, supported by excellent vendors.

Stoking the risk for every company in healthcare,

including Edward, is a series of epochal reforms, notably

the tightening tourniquet of Medicare reimbursements

and the Affordable Care Act (Obamacare), a quake-in-

progress, many of whose aftershocks havent yet started.

An industry-wide realignment of business mixes has

enmeshed just about every sector of healthcare, including

hospitals, extended care facilities such as nursing homes,

and a grab bag of medical facilities like dialysis centers

and physicians group practices. A major risk facing most

healthcare companies is clearly regulation. But theres also

a risk of being squeezed into an unwelcome mergeror

out of business, evenby newcomers to a particular sec-

tor, such as hospitals snatching up not only other hospitals

but nursing homes and doctors. For more on how various

healthcare players plan to grow amid such upheaval, see

the next section.

Risk management is a key part

of the equation each time we make

important business decisions.

PAM DAVIS

CEO,

Edward Hospital and Health Services


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PLANS FOR STRATEGIC GROWTH

Key findings:The three-year outlook for economic growth is weak, but executives feel betterabout the prospects for their own industryand even better about their own companys future.

That may mean good news about jobs, too. None of the companies surveyed are putting all

their eggs into a single growth strategy, but overall, domestic expansion is the most popular.

This includes acquisition, particularly in healthcare, as hospitals, medical facilities, nursing homes

and various other components of the industry fight ever-narrowing margins. Different industries

are eyeing different parts of the U.S. for expansion, but most companies plan to stick fairly close

to home. Meanwhile, some of those that already have international sales or operations plan to

expand there, too, and a few are planning to make their first-ever foreign forays.

for Europe

46% Decline or significant decline

43% No change

11% Increase or significant increase

globally


53% No change


Figure 5. Growth predictions for the U.S.

economy three years from now


50% No change


MOST OPTIMISTIC FOR THE U.S.Half of the executives in all four industries expected no change

in the strength of the U.S. economy over the next three years.

But with 30% anticipating some bounce-back, they clearly

thought the U.S. economy would do better than Europes, for

which most saw continuing declines. The majority predicted

the global economy would remain unchanged.


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Real estate executives showed the most condence in

global growth, with 26% expecting an increase. Some 21%

of those in banking/nancial services thought that way.

Condence was lower among executives in healthcare (14%)

and construction (15%).Respondents condence about global growth varied by the

size of their company and showed that the biggest and smallest

companies had the most and least condence, respectively.

Among the 118 companies already doing business in

a foreign country, executives from 24% of them expected

an increase in economic growth, versus 18% that didnt.

Respondents at the 80 companies planning their rst-ever

foreign expansion were almost evenly split over where they

thought the global economy was headed21% expected

growth and 24% looked for a decrease.

FEELING GOOD ABOUT THEIROWN INDUSTRIESAbout 45% of the surveyed executives predicted growth

in each of their own industries over the next three years,

despite the fact that only 30% looked for economic growthin the U.S. as a whole.

AND THEIR OWN COMPANIESSimilarly, executives expected to see their own com-

pany outperform its industry in revenues. But here their

predictions varied dramatically by industry. The most opti-

mistic: banking/nancial services executives, 64% of whom

expected their company revenues to increase by more than

3% and 14% predicting a rise of more than 15% (Figure 8).

Figure 6. Confidence in a global recovery,

by company size (revenues)

$25 million to $99 million




16%

20%

19%

22%

Figure 8. Expectations for growth

in your company


Revenue growth more than 3%


Construction



Healthcare



Real Estate



14%

35%

13%

46%

14%

59%

14%

64%

Figure 7. Expectations for growth

in your industry


39% No change


Note: Does not add to 100% due to rounding


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A MIXED BAG OF GROWTH STRATEGIESNone of the companies in the survey have bet their revenue

growth on a single st rategy, according to their executives.

Overall, domestic expansion was the most popular (41%

of respondents said their company would take that route)and nancing options, such as going public, the least (11%).

Growth through talent/recruitment scored in the mid

20%s, signa ling hopeful news for job creation.

Particular growth strategies varied by industry (Figure 9).

TOP EXECUTIVES DESCRIBE THEIRPLANS FOR STRATEGIC GROWTHFor many companies, growth strategy includes team-

ing with others. Pike, for example, recently merged with

LeCesse Construction Services, another Rochester com-pany and one with strengths in senior housing and the like.

This wi ll ease Pikes strategic move into healthcare, which

Judson thinks offers growth opportunity for hi s company.

Healthcare institutions are looking at new ways to deliver

what they provide for their customers, he says. In our

business, the changes we see are related to the changes our

customers see.

Figure 10. Top three strategies by company size (revenues)


Domestic expansion (47%) New marketing (38%) New products (31%)


Domestic expansion (40%) Organic growth(35%) New products (33%)


Domestic expansion(37%) Organic growth (35%) New products (35%)


Organic growth (43%) Mergers and acquisitions (39%) Domestic expansion(37%)

Figure 9. Top three strategies, by industry

Banking/Financial Services | Organic growth (51%) New marketing (38%) New products (35%)

Construction | Domestic expansion (52%) New marketing (27%) Talent/recruitment (27%)

Healthcare | New products (49%) Domestic expansion (43%) New marketing (38%)

Real Estate | Domestic expansion (40%) New marketing (32%) Organic growth (29%)


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Acquisitions also play a role in the growth plan of banker

Richard Grafmyre. His Penns Woods Bancorp is in the pro-

cess of buying Luzerne Bank, another rural Pennsylvania

institution. Luzerne will keep its name, but the acquisition

will add eight branches to PennsWoods portfolio. Our small-

business commercial group was

our agship product until a few

years ago, and now all residen-

tial products are on the table, says

Grafmyre, who describes his strat-

egy as cautious. Were continuing

to balance our asset base.

Community banks like

Grafmyres, meanwhile, along with

big players like TD Bank and

KeyBank, are in the strategic sights

of David Desjardins, president and

CEO of Acadia Federal Credit

Union, of Fort Kent, Maine, which

looks across the St. John River to

Canada. Desjardins plans to turn

bank customers into his members

by offering no-fee services and

pushing commercial business on

top of what has traditionally been

personal banking. Rather than open a fourth branch, he

hopes to use technology to attract newcomers. One way

hell do this is to set up video service via a form of ATMs

that business and private customers can use to talk to bank-

ers and make transactions. He aims to increase membership

from 11,000 to 11,300 by the end of 2013, and for a 3%

annual growth after that.

Hospitals have been prescribing acquisitions and part-

nerships for some years now as an Rx for their growth, and

they have become widespread among both non-prots and

for-prots. The trend continues. Edward Hospital CEO

Davis says the hospital has aggressively pursued acquisition

of primary care physician practices as well as targeted spe-

cialists. The institution has also set up partnerships with

the largest independent multi-specialty physician group in

the region, DuPage Medical Group, to coordinate care for

more than 100,000 HMO patients, and with NorthwesternMedical Faculty Foundation to provide neuro-inter-

ventional and neurological services. Next up: a

merger with another independent hospital,

Elmhurst Memorial.

These deals dont represent growth for

growths sake for Edward. Healthcare

reform demands that hospitals take a much

more active role in managing the overall

health of patients, even as our payment for

services goes down, says Davis. That means we

have to be more creative. We need to grow our service

area to have more potential patients to care for, because it

is more effect ive and cost-effi cient to manage the health of

a population with a more diverse group of patients.

Dan Nash, head of Healthcare for Zurich in NorthAmerica, calls mergers and acquisitions the name of the

game for the industry. But he warns of inherent risks,

including those facing hospitals that buy doctors prac-

tices. For one thing, the hospital is also acquiring any

outstanding liabil ities that physicians, working outside the

hospital and operating like satellites, might have accrued,

he says. Another risk that weve already discovered is that

their premises may not be covered by hospital insurance.

Yet another risk that comes with acquiring a doctor prac-

tice: If it used to have fewer than 50 employees, it wasnt

required to provide them with health insurance. But as part

of a larger company, the hospital, it is now required to do

so. Nash urges hospitals also to be cautious in the acquisi-

tion of enterprises like assisted living facilities, ambulatory

care facilities and the like, because of the many unknowns

that still pervade the new rules of the Affordable Care Act.

WHAT A DOCTORPRESCRIBED FOR HIMSELFSo how do individual doctors, for example, feel about their

place in this roiling, cost-cutting, regulation-beset industry?

Trapped, recalls Bruce Hyman, a general practice physi-

cian in Lake County, north of

Chicago, describing how he felt

the world closing in on him in

2010. For one thing, running

a business seemed to be taking

more of his time than practic-

ing medicine, something hed

done for almost 20 years. He

was spending up to $15,000 a

quarter on technology, which

he needed to process claims and

stay current with various reg-

ulatory agencies. Malpractice

insurance was high, particularly

in Il linois. Offi ce overhead kept

climbing. Reimbursements,meanwhile, from private insur-

ers and Medicare, took ever

longer, sometimes 90 days. By

the end of every month, says

Hyman, youre getting closer and closer to asking yourself,

Oh boy, am I going to meet my payrol l, am I going to meet

my other requirements?

Healthcare reform

demands that

hospitals take a

much more active

role in managing

the overall health of

patients, even as

our payment for

services goes down.

PAM DAVIS

CEO,

Edward Hospital and

Health Services

[A hospital that buys

doctors practices] is

also acquiring any

outstanding liabilities

that physicians, working

outside the hospital and

operating like satellites,

might have accrued.

DAN NASH

Head of Healthcare,Zurich in North America


16/30


Lake County had become a highly competitive mar-

ketplace for healthcare, especially for hospitals, Hyman

says. Advocate Medical Group, the largest in the state,

was there. So was Northwestern, which had just acquired

the local Lake Forest hospital. We had the North Shoresystem and a couple of smaller ones, too: Vista, which is

part of a Tennessee for-prot, and the Aurora Group. All

of them were trying to buy primary-care physician prac-

tices like his own, he says. I started to think that maybe

the model of the old traditional practice or small group

practice was going to be extinct.

Was extinction the name of the risk Hyman was actu-

ally facing? Would he have to sell his practice to one of the

hospitals and go on salary? He remembers thinking, Im

not really suited to work on an assembly line. But when

Advocate bought the hospital he was associated with, the

one he sent his patients to, Hyman told himself, Im going

to explore this. He got in touch with James R. Dan,

Advocates CEO and, it turned out, also a physiciana big

plus for Hyman. The outcome: he agreed to sell his practice;

Advocate computerized everything, trained, retained (and

upped the benets of) his staff, brought three additional

doctors into the practice, and, all along, kept his patients

informed on everything that was happening. Hyman, who

says he got an excellent price for his business and now makes

more than he did before as a principal, has one remaining

question. Why didnt I do it sooner?

To John Murphy, president and CEO of the Western

Connecticut Health Network (comprising hospitals, clin-

ics, emergency systems, physician practices, home care

agencies and the like), Hyman is obviously one of those

doctors who, as Wayne Gretzky has said, can see where

the puck is headed. Murphy thinks joining hospital sys-

tems will be the career path for an increasing number of

new M.D.s. Admittedly, some docs may say, Wait a sec-

ond. I want to be Marcus Welby, M.D. I respect that,

says Murphy, referring to the h it 1970s TV ser ies (Robert

Young played the doctor). But the real ity is that physi-

cians who really just want to take good care of patients

need to have a technology person in the offi ce who can

help manage the electronic medical records and digitize

the practice, and somebody with a nancial background

to manage complex contractual relationships with payers.Youre also up against a ll kinds of compliance is sues. The

payers and the government are going to be rewarding pro-

viders who can deliver coordinated care.

ITS ALL ABOUT MANAGING THE PENNIESNot everyone eyes acquisitive hospitals as fondly. One

such individual is Michael J. Pescatello, executive direc-

tor of Radius HealthCare Center at Danvers, a 159-bed

skilled nursing facility in Massachusetts. Like many in

this sector, Radius is involved in

many facets of post-acute care, but

a string of healthcare reforms and

diminishing reimbursements has

made it a struggle to meet todays

spiraling costs of labor, food, elec-

tricity, heat, and other expenses,

Pescatello says. When I rst

entered the business of long-term

care [at another facility], I was told

that operationally it was all about

managing the pennies. Margin

spreads between revenue and

expenses were very thin. Today,

theyre even thinner.

One reason for this is that hos-

pitals and outts like Pescatellos

are now going after the same

patients, those who need skilled

care after being discharged from a

hospital. Previously they worked in

partnership: a hospital would sendsuch folks to an independent post-

acute setting like Radius. But now hospitals are hanging on

to these folks (and their Medicare disbursements) by moving

them into closed-paneled ACOs, or accountable care orga-

nizations, which are skilled nursing facilities they own or

operate themselves. In other words, a hospital would rather

buy or run an outt like Radius and keep the insurance

money for itself.

We are now

expanding our

marketing efforts

beyondhospital

discharge planners.Were marketing

directly to senior

groups, senior

centers, and assisted

living facilities.

MICHAEL J. PE SCATELLO

Executive Director,

Radius HealthCare Center


17/30


18/30


FOREIGN EXPANSIONOnly 19% of the executives said their companies had for-

eign growth plans, versus the 40% who said theyd be

staying within the U.S. But companies already doing busi-

ness abroad are planning to grow there, either by steppingup sales or by increasing their international operations.

As the chart s show (Figure 12), executives expect more

companies to increase their foreign sales efforts than to

establish additional foreign operations. But theres a dif-

ference in the growth strategies of the biggest companies

covered by the survey, those with annual revenues of $500

million to $749 million, and the smaller ones. Only a few

of the big outts expect to sell their way into more foreign

markets while many more of them will establish additional

foreign operations.

Executives whose companies are eyeing foreign

expansion favored two main parts of the world, Europe

and Asia Pacic.

HOW TO BE BEST IN BREEDExecutives picked a number of different strategies that

would help to position their company as an industry

leader, in the U.S. and elsewhere. The most-often cited:

business processes and work arrangementsin other

words, technology. Among the respondents in banking/

nancial serv ices, 68% identied this as the best way to the

top, as did 56% of those in construction. Among respon-

dents in real estate, 47% chose community investment/

partnerships as their rst choice, making it the top strategy

for this group. Technology still came a close second, with

44%. Technology was also the top choice among health-

care executives, though for just 49% of them. Perhaps thi s

relatively low percentage signals that theyre all doing it

anywayand have to, if only to survive.

Figure 12. Percentage of companies

(by revenues) that will sell into more

international markets





and that will set up additional

foreign operations





13%

19%

19%

6%

3%

7%

8%

14%

Figure 13. Foreign favorites

Real Estate Europe

Construction Europe

Healthcare Asia Pacific

Banking/Financial Services Asia Pacific

48%

56%

63%

82%


19/30


WHERE FUTURE RISKS

LURKAND WHERE THEJOBS WILL BE

Key findings:The state of the U.S. economy casts the darkest cloud over future revenues and

job growth, though respondents see a somewhat brighter future for their own companies.

Executives tend to be concerned about risks that have an immediate impact on growth, such

as energy and healthcare costs. They display fewer worries about more nebulous risks, like

cyber terrorism and climate change, perhaps because these exposures may seem more remote

and beyond any form of risk management that they can recognize. Most executives expect anupturn in hiring.

Executives in banking/nancial services, real estate and

healthcare gave more or less equal rank ing to what threat-

ens their companys revenues. The U.S. economy came

rst; community investment/relationsa rms relation-

ship with the community it operates in and is supplied by,

including investments, loans and donations to that com-

munityand healthcare costs jockeyed for the next two

places. Construction respondents, though agreeing that

the national economy is the No. 1 potential threat, nomi-

nated oil and energy prices and sustainability initiatives as

Nos. 2 and 3. Some 39% of this group also identied nat-

ural disastersand 34%, changing weather patternsas

growing threats to their industry. These last two ndings

showed a higher degree of concern over Mother Nature as

a harbinger of nancial damage than evidenced in other

parts of the survey.

Anxiety about regulation may be waning. Although

close to a third of all respondents said the threat has increased

somewhat or signicantly, 44% said it had decreased by

the same extent56% in the case of executives in bank-

ing/nancial services, despite the fact that these particular

respondents still list it as a prime source of risk.Does this mean Washington reformers have wrought

their worst? Possibly so. But that doesnt mean the threat

is over. As noted earlier, banker Richard Grafmyre, for

one, is waiting for the end of the Dodd-Frank shake-

out. Until that happens, he says, he isnt about to leave

Pennsylvania and take on what he calls the burden of

multi-state banking regu lations and the different compli-

cations that come with them.

The 33% in the construction industry who expected

regulation to decrease somewhat or signicantly as a threat

may be deluding themselves, thinks Michael E. Kennedy,

general counsel of the Associated General Contractors of

America. We dont see any fading of regulatory activ-

ity at the federal level, he says. There are quite a few

initiatives that are still pending from the rst term of the

current administration. The evidence we have is anec-

dotal, but it does suggest that the U.S. Department of

Labor, the Equal Employment Opportunity Commission

and the Environmental Protection Agency continue to be

quite aggres sive in their enforcement activities.

HOW THE FACE OF RISK MAY CHANGEOVER THE NEXT THREE YEARSExecutives expected their company to be looking at the

same sources of risk and degrees of risk three years from

now as they do today. In other words, they said the U.S.

economy and healthcare costs would continue to have a

somewhat or signicant effect on their companies, with

regulation still a threat, too. Construction respondents

again agged energy costs as a high-risk factor three yearshence. The majority of respondents tended to dismiss

future threats of cyber terrori sm or terrorist attacks on the

U.S. as insignicant, just as they do now.


20/30


THE EFFECTS ON HEADCOUNTFeeling good about their companys growth prospects

suggests good news for future employment, too, albeit

with different expectations among executives of the four

industries surveyed. Among construction executives, 50%expected a somewhat higher job increase of between 3%

and 15%, while 8% looked for a signicantly higher rise of

more than 15% (Figure 15).

Clearly, construction looks to be the biggest creator of

new jobs over the next three years (Where the construc-

tion jobs will be, page 22).

Figure 15. Expectations for job growth

in your company

Banking/Financial ServicesHeadcount growth more than 3%

Headcount growth more than 15%

Construction



Healthcare



Real Estate



42%

7%

50%

8%

42%

8%

31%

9%

Figure 14. Which risks are growing

somewhat or significantly, by industry


U.S. economy

Community investment/relations

Healthcare costs

Construction

U.S. economy

Oil/energy prices

Sustainability initiatives

Healthcare


Healthcare costs

U.S. economy

Real Estate

U.S. economy


Global economy

60%

48%

37%

51%

42%

39%

42%

46%

46%

55%

49%

45%

EXECUTIVES EXPECT TO INCREASE HIRING, BUTTHE U.S. ECONOMY AND HEALTHCARE COSTSREMAIN RISKS


21/30


THE NEGATIVE IMPACT OF HEALTHCARECOSTS ON HEADCOUNTExecutives in the survey were asked to identify which

events were likely to either decrease or increase their com-

panys headcount over the next three years.They chose a number of potential events that could

create a decrease in jobs, but an overwhelming number

picked healthcare costs in their various forms. Offered a

choice between total healthcare costs, provider health-

care costs or employer healthcare costs, banking/nancial

services and construction executives pointed to all three

as potentially harmful to any prospects of an increase in

headcount. Healthcare executives, excluded by the survey

from provider or employer options, split their vote for the

most likely threat to job growth for their industry, with

31% picking healthcare costs and 31% naming the U.S.

economy. The regulatory environment, with 25%, was

their third pick.

Respondents identied a very different set of events

when asked to say what would somewhat or signicantly do

the opposite and increase the headcount at their company

(Figure 17). The U.S. economy came in rst for executives

in real estate (44%) and in construction (49%). Executives

in banking/nancial services cited the regulatory environ-

ment (39%) with the U.S. economy a close second (38%).

Healthcare executives put healthcare costs rst, with 36%,

though they too rated the U.S. economy a close second,

with 35%. Among other potential boosts to job growth,

respondents in real estate identied the global and European

economies, with 37% and 31%, respectively, making them

perhaps unexpected Nos. 2 and 3 for that industry.

Figure 16. Events that could somewhat or

significantly decrease headcount

Banking/Financial ServicesTotal healthcare costs

Provider healthcare costs

Employer healthcare costs

Construction

Total healthcare costs

Provider healthcare costs


Healthcare


U.S. economy

Regulatory environment

Real Estate



U.S. economy

33%

31%

31%

28%

25%

25%

31%

31%

25%

26%

26%

23%


22/30


Saint Augustine prayed to be granted chastity, but

not yet. Executives interv iewed for this report echoed the

sentiment when asked about their hiring projections, say-

ing, yes, theyll be taking on more people, but not yet.

Edward Fritsch of Highwoods Properties says the down-turn enabled hi s real estate company and others to do the

paring of mediocre and underperformers that maybe we

should have done earlier. Our v iew now is that productiv-

ity is at an all-time high. Companies are properly staffed

with the right people that they need to deliver on their

mission and vision statements. The next step is that as busi-

ness gets better, theyre going to have to add people.

Fritsch has put his nger on a Catch-22 of how the

recovery might affect jobs, at least as it affects Highwoods

Properties. Hes looking for employment to pick up among

his customers to help his company grow, but he cant start

hiring until his customers do. Many of them are wait-

ing for consumers to start spending, but they wont spend

unless theyre working and feel secure about their jobs.

New hiring in all aspects of healthcare may also be

stalled, at least for the present, because of the enormous

contraction going on. So says James Dan, president of

Advocate Health Care, the non-prot hospital giant in

Chicago that acquired Bruce Hyman and many other

physicians along with various nursing facilities and the like

in recent years. Dan believes that healthcares evolution

necessarily will get rid of what he calls unnecessary care

but that new jobs will be there if employees are willing

to adapt and train. This applies to nurses, and it applies to

doctors, too. Hyman says hes had growth opportunities

himself, having been involved in strategic planning and

primary care development. Hes even mulling going after

an MBA. Dan cites the aging baby boomers as one sure but

changing market, and one that will produce employment.

I dont care how much exercise you do, the boomers are

going to need care, he says. And if that care includes

the need for a stent, well, he believes that before long the

patient will be going to an outpatient clinic for the proce-

dure rather than a hospital.

Figure 17. Events that could somewhat

or significantly increase headcount

Banking/Financial ServicesRegulatory environment

U.S. economy


Construction

U.S. economy

Sustainability initiatives


Healthcare


U.S. economy

Regulatory environment

Real Estate

U.S. economy

Global economy

European economy

39%

38%

23%

49%

30%

29%

36%

35%

33%

44%

37%

31%


23/30


WHERE THE CONSTRUCTION JOBS WILL BE

Forbes Insights interviewed Kenneth D. Simonson, chief economist at the Associated General

Contractors of America, for his take on the construction industrys coming increase in

employment.

Where do you think growth is going to come from over the next three years?

Im pretty upbeat about the outlook for construction overall. I certainly think that multi-family construction has really strong

prospects. I think that single-family home building is going to keep growing, at least for the next few months, and its not going to

retreat. It may stall at a lower level than we saw last decade, but certainly not going back to where it was in the last five years. Pri-vate, non-residential construction also looks like its well past its low point. Im particularly optimistic about construction related

in any way to oil and gas: drilling, transportationmeaning pipelinesand downstream uses by domestic oil, gas and natural gas.

I think the Panama Canal expansion is also leading to a variety of con-

struction activity and will for several more years, as ports on the East

Coast prepare for much larger ships being able to transit the canal, and

the West Coast ports try to improve their productivity in order to hang

on to that traffi c. And then re-shoring [bringing manufacturing activity

back to the U.S.] is helping to increase investments in factories, ware-

houses and transportation facilities.

Any particular region?

Thats showing up in quite a few different industries in different parts

of the country. Then there are selective other pockets of good news for

non-residential construction. For the moment, private colleges and uni-

versities are back on a spending spree, although I think thats going to be

fairly short-lived. And data centers are another very active niche.

Warehouse construction looks good, too, partly in response to the Panama Canal and the re-shoring, but also, as consumers

move their purchases from retail to online, big merchant retailers are trying to locate distribution facilities much closer to their

customers. In the healthcare sector, I expect modest hospital construction, but there seems to be a lot more activity in stand-

alone, urgent care facilitiesso-called doc-in-a-box facilities, where people just walk in to see a doctor.

Where will job growth be weak?

The one downer on construction now and for the next several years is public construction. Local government school districts that

depend heavily on property tax receipts have been slashing construction spending in half, and I dont expect that to turn around

for a couple of years. State government has seen a downturn in revenues for three straight years, according to the Rockefeller

Institute of Government. They have so many more obligations for Medicaid, public employee retirement plans, retiree healthcare

and other income-secure programs. I havent seen much evidence that states are spending more on construction here.


24/30


What do you think the net difference in jobs is going to be?

Let me benchmark by saying last year, according to the Census Bureau, construc-

tion spending overall was up by 10%. I would say thats pretty close to what well

see this year. Job growth really lagged the growth in spending in 2011 and 2012,

partly because firms were reluctant to hire until they were sure that they would have

follow-on work; they werent going to hire just for one job. And also, because they

had reduced the hours of some of the people they had kept on.

At first they were able to fulfill the new work by expanding hours, putting part-

timers on full time or taking people out of the shop and training room and putting

them in the field. Lately, theyve probably been paying more overtime. But I think in

2013, theyre going to have to go out and do some significant hiring.

What does that means in number of jobs?

Last year construction employment rose by about 100,000, to about 5.6 million in December 2012. In 2013, I think firms are going

to be hiring 250,000 to 350,000 additional people. In other words, about a 5% increase in hiring.

Do you see any regional patterns? Is one part of the country better off than the other?

Well, certainly the areas that have a lot of oil and gas drilling are also getting a lot of construction activity. Every well requires an

access road, a runway perhaps, a pad for the well itself and a storage podand then housing for the pumping and processing

machinery, and either a pipeline for getting the product offsite or storage tanks. The nearby communities are benefiting from

spending by the drilling companies, by their workers, by the landowners who become royalty holders. Well definitely see con-

struction in areas like the Marcellus and Utica shales in Pennsylvania, the Bakken formation in North Dakota, the Eagle Ford in

South Texas and probably the Niobrara in Colorado this year, the Parmian Basin in West Texas and Mexico. Oil and gas activity is

also stimulating construction around Houston and in Louisiana with interstate pipelines, petrochemical plants, huge liquefaction

trains [plants that liquefy natural gas that arrives by pipeline] and export terminals.

As construction companies get ready for all this hiring, where is the risk? Where are the unpleasant surprises?

There are multiple types of risk. The feds may try to step in and regulate [hydraulic] fracturing [aka fracking], although up until now

thats been left to the states, and so far I dont see strong evidence that the feds would do so. Theres also the risk that the U.S.

economy will slump and that will cause cancellation of a lot of projects. But I think that for the moment, those risks are fairly low.


25/30


EXECUTIVES RATE THEIR

COMPANYS RISK-MANAGEMENTSKILLSAND THEIR OWNINVOLVEMENT IN RISKASSESSMENTKey findings: Executives give high marks to their companies for how they manage various

risksbut with one critical proviso: Even though most say their company has a commitment to

align risk management with growth strategy, fewer think every company is doing so. Executives

give themselves low marks on their own expertise on some threats to their company.

While executives faulted their companys risk management

on a number of points, as described in the rst section of

this report, at least half of them actually rated their com-

panys overall risk-management skills as very good or

outstanding in a number of areas. Among them were its

managing of nancial risk, corporate responsibility/sus-

tainability risk, strategic risk, operational risk, regulatory/

compliance risk and reputational risk. Companies got their

lowest ratings for their management of political/geopo-

litical risk, but even there, 31% of respondents said their

company was doing a very good or outstanding job.

OUCH!But just how much do executives real ly know about the risks

their company faces? To be sure, the majority (76%) said

they rate the need to align risk management with growth

strategy as very or extremely important,

while almost as many (68%) said that they

believe their company was walking that

talk and, indeed, aligning the two. But

startlingly, only 54% said they were con-

dent or very condent of how aware they

actually were of the risks associated with

their companys growth strategies.


26/30


Figure 18. The extent to which companies

align growth strategy and risk

varied by industry


Company rates the alignment as very

or extremely important

Company actually aligns the two

Construction




Healthcare




Real EstateCompany rates the alignment as very



86%

79%

77%

68%

54%

72%

66%

71%

Figure 19. as did the percentages of

executives who were aware of the risks in

their companys growth strategy


Construction

Healthcare

Real Estate

59%

57%

42%

60%

Conclusion: The low overall awareness scores

reected in Figure 19 cast serious doubt on the respon-

dents assessment of how well their company aligns risk

and growth strategies.

RATING PREPAREDNESS FOR CHANGEAbout 33% of executives gave their company average

scores when asked how well they were prepared to lever-

age a variety of scenarios, ranging from changes in weather

patterns to changes in oil prices. Still, there were some

industry-specic standouts reecting the industrys expo-

sure to particular risks and its ability to handle them. For

example, 59% of executives in construction said their com-

pany was very or extremely well prepared to leverage

lower energy prices, 56% of those in healthcare said their

company was similarly prepared to leverage healthcare

legislation, and 57% of respondents in banking/nancial

services thought their institution was prepared to leverage

continuing or worsening problems in the U.S. economy.

Not surprisingly, the majority of executives in all four

industries said their company was very or extremely well

prepared to leverage an improvement in the U.S. econ-

omy, with 67% of those in banking/nancial services

thinking that way, 60% in real estate, 58% in healthcare,

and 69% in construction.


27/30


READY FOR CATASTROPHE?Executives werent as condent as they might have been in

their companys preparedness for catastrophic emergencies.

Only 28% thought their company was well or extremely

well prepared for cyber terrorism, for example, 33% forsupply chain disruptions, and 20% for terrorist attacks

within the U.S.

These ndings may well reect the executives admit-

ted general lack of know how in such intangible risks (for

more, see Executives rate their own expertise, page 27).

But they also suggest a possible lack of awareness of how

ubiquitous these risks are, cyber attacks in particular. The

computer systems of American Express, JPMorgan Chase,

Exxon Mobil and many others have been attacked in

recent months. China and Iran are widely believed to be

behind the assaults, variously motivated by industrial

espionage or willful sabotage.

Not all cyber terrorism, or computer hacking, bears

the ngerprints of a foreign power, of course. International

hacking groups target big corporations, often seeming to do

so simply out of malice or conceit. Either way, some estimate

that cyber attacks cost U.S. companies billions of dollars.

Sony alone admitted a $171 million loss after an attack on

its PlayStation network in 2011. Disgruntled customers or

investors can also take to the ether, and if their attacks go

viral, which many do, the cost to a target company can run

high, both nancially and in battered reputation. Big-time

hackers and various social mediaTwitter, Facebook, blogs

and the likepresent a very real risk that respondents to the

survey seemed to underestimate.

Executives were better able to get their arms around

more easily-dened emergencies, like ood damage, and

showed some condence that their company had plans

in place to recover from them. For example, 49% said

they were very or totally satised that their company hadplanned to build or replace damaged infrastructure, and

43% felt the same about their companys plans to build or

replace damaged homes, commercial property or factories.

Some 47% said they were very or totally satised that their

company had planned how to nance any of the above.

Almost as many (46%) thought thered be no or little sig-

nicant delay if an emergency forced their company to

relocate offi ces or manufacturing facilities within the U.S.,

and 38% thought that would be the case abroad.

LIVING DANGEROUSLY?The executives in the survey generally saw their compa-

nys approach to risk as more proactive than cautious.

Among those who called their company cautious, 66%

gave economic uncertainty as the reason (86% in the bank-

ing/nancial services sector), 49% pointed to regulatory

uncertainty, and 40% to healthcare costs. Just over 40%

of real estate executives said their companies were proac-

tive or extremely proactive, making them marginally the

least likely to describe their outts that way. Highwoods

Properties Edward Fritsch gives three reasons for this rela-

tive caution.

Figure 20. How thin is the ice?

17% Were extremely or slightly cautious

39% We take on medium risk

44% Were slightly or extremely proactive


28/30


First, This is such a cyclical economy. If you get too

aggressive in the busines s, its only a matter of time before

youre out of business.

Second, Real estate companies need credibility. Its

really important, and you dont earn it on one project. Tokeep your investors, customers and bankers, you need to

be very calculated.

Third, Imagine sitting down today and trying to pre-

dict the GDP, the Dow, interest rates and housing starts

three years from now. You cant forecast these things. Its

the same with a new building. You dig a hole today for a

development that might be completed two or three years

out, not knowing where theyll be at that time.

Concludes Fritsch, Its always wise to aim carefully

before you shoot.

Among those who described their company as proac-

tive, a huge 71% credited its vision and direction for the

boldness. In (distant) second place, 40% cited the risk of

not being proactive. Executives in banking/nancial ser-

vices and healthcare were particularly sensitive on this

point45% and 46% of them, respectively, cited the need

of not being left at the gate by more risk-ready competi-

tors. The claim that proactivity was part of their corporate

DNA was cited by 37% of respondents. Construction

executives were by far the biggest proponents of such rea-

soning, with 60% of them voting that way.

EXECUTIVES RATE THEIR OWN EXPERTISERespondents had little personal involvement in assessing

more arcane but still potentially catastrophic risks and, in

fact, they dont know much about them. More than 45%

said they had little or no expertise in assessing the risk of

natural catastrophes such as an earthquake, for example,

compared with the 24% who said they had some or con-

siderable experti se and who therefore were more involved

in assessing the risk. Similar disparities showed up when

executives were asked to rate their expertise and involve-

ment in assessing the risk of changing weather patterns or

terrorist attacks within the U.S. Long shots though these

threats may be, all of them are stil l the stuff of current news

events and the executives lack of expertise is worrying.

They were more on top of how economic turmoil and

supply chain disruption might affect their company, but

not dramatically so. Some 35% still claimed little or no

expertise, versus 28% who said they had some or consider-

able expertise. More executives said they knew only a little

about how economic turmoil would affect their company

than those who said they knew a lot, with responses of

34% and 28%, respectively. This pattern was common in

all four industr ies, suggesting a broad need for help.


29/30


METHODOLOGY

The insights and commentary found in this report are derived from both a survey and personalinterviews.

In collaboration with Zurich in North America, Forbes Insights conducted a survey in February/

March 2013 that was completed by 414 U.S. executives, evenly spread among four industries: bank-

ing and financial services, construction, healthcare and real estate.

KEY DEMOGRAPHICS INCLUDE:

Executive title: SVP/VP/Director (45%), CEO/President/Owner (18%), CFO/COO (12%), Other

C-level executive (9%)

Company size:$25 million revenue to $99 million (38%), $100 million to $249 million (27%), $250

million to $499 million (23%), $500 million to $749 million (12%)

Survey results are believed to be reliable for informational and educational purposes only. Zurich

does not guarantee the accuracy of this information or any results and further assumes no liability

in connection with this survey. Zurich undertakes no obligation to publicly update or revise any of

this information, whether to reflect new information, future developments, events or circumstances

or otherwise. Nor does Zurich endorse or reject the information presented on this survey. Zurichs

name and logos are trademarks owned by Zurich Insurance Company Ltd.

ACKNOWLEDGMENTS

Forbes Insights and Zurich in North America extend their gratitude to these executives.

James R. Dan,CEO, Advocate Medical Group

Pam Davis, CEO, Edward Hospital and Health Services

David Desjardins,President and CEO, Acadia Federal Credit Union

Edward J. Fritsch,President and CEO, Highwoods Properties

Richard A. Grafmyre,President and CEO, Penns Woods Bancorp

Bruce Hyman, M.D.,Advocate Medical Group

Thomas F. Judson Jr.,Chairman and CEO, The Pike Company

Michael Kennedy,General Counsel, Associated General Contractors of America

John Murphy,President and CEO, Western Connecticut Health Network

Michael J. Pescatello,Executive Director, Radius HealthCare Center

Kenneth D. Simonson,Chief Economist, Associated General Contractors of America


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ABOUTFORBES INSIGHTS

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