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10 TRENDS DIRECTORS NEED TO KNOW AS 2020 APPROACHES

WomenCorporateDirectors Names Key Digital, Legal, and Employee Concerns

  

Heading into fall with eyes on 2020, corporate boards should brace for the increasing impact of digital migration, artificial intelligence (AI), and cultural shifts on their companies – and what this means for their role as directors, says WomenCorporateDirectors Foundation (WCD). “Trends point to a very different reality for boards today than five or ten years ago,” says Susan C. Keating, CEO of WCD. “With boards asking more questions of management and exercising more oversight in areas that were once fully ‘owned’ by the leadership team, directors require much more real-time information and awareness than ever before.”

 

Opportunities and risks around emerging technologies and what companies can expect from their workforce, investors, and other stakeholders as far as changes to corporate culture were themes at the WCD Global Institute in Silicon Valley – a sold-out event that is WCD’s largest annual gathering of its members. WCD members serve on the boards of public and large, privately held companies. Nearly 300 board directors, CEOs, and experts on governance and digital, legal, and regulatory matters convened at the Hewlett Packard Enterprise headquarters this spring in San Jose, CA, to explore urgent and emerging developments and concerns for boards.

 

From the discussions, WCD has identified ten trends that are key to board agendas for fall and 2020 – a quick summary of each, with insights from experts featured on relevant panel sessions, follows.

 

10 Trends Directors Need to Know as 2020 Approaches

 

  1. Increasing need for a “digital trust bank.” “An increasing reliance on digital platforms requires us to have a ‘digital trust bank’ to use when things fail, because things will,” says Shamla Naidoo, Global Chief Information Security Officer at IBM. “To build this digital trust, we need to communicate thoughtfully with our customers. We need them to understand that, just like everything else in the world, digital is not perfect – it can fail. But we need them to know that we are not reckless or careless in our decisions. Whether it’s a data breach or an e-commerce failure, we must engage transparently and quickly with customers to show them that we understand the issues and that we take proactive actions where we can and we react quickly where we must.”

 

  1. Persistence of demand for digital currency. “The hardest thing to understand for the vast majority of even the most sophisticated investors is why 100 million people are buying and trading Bitcoin,” says Matthew LeMerle, co-founder and managing partner of Fifth Eraand Keiretsu Capital. “It’s because we have the dollar, the euro, the British pound – all high-quality, reasonably secure, trustworthy currencies that basically maintain their value. But about four billion people in the world do not. Argentina’s peso lost half its value vs. the dollar last year, with one 2-day period down 22%. Indians had all their big bank notes declared worthless – in an economy where 95% of transactions were made in cash. Living in an unstable country may mean having to get out quickly and leaving the money in your bank accounts behind. When your wealth is tied up in these situations, the notion of a secure, usable, digital currency vs. a fiat currency is of enormous value.”

 

  1. Stronger need for boards to push management on technology advancement. “Instead of reacting to what management puts in front of us, boards will need to dig deeper into where the resources and effort are going around the company’s technology initiatives,” says WCD Colombia chapter chair Olga Botero, a director at Evertec, Inc.; founder and managing director, C&S Customers and Strategy; and senior advisor at the Boston Consulting Group (BCG). “We need to ask three questions: What’s the technology that puts us at risk? What are the new technologies we need to keep current and not lose competitiveness? And what new technologies are we not really sure about, but should be experimenting with? Many companies do not spend any money on experimentation and trials. But we need to do more of this because we might find technology that will make sense for our business and help us break ahead of competitors.”

 

  1. Higher risk of anti-trust liability with AI. “There’s a big discussion in the antitrust world about whether AI will be used to collude.” says Maureen K. Ohlhausen, a partner at Baker Bottsand former acting chair of the Federal Trade Commission. “Will two algorithms operating separately in two different companies eventually come to a collusive price? Will this be considered price-fixing? Issues around ‘tacit collusion’ and the true intent of the company in designing pricing algorithms have challenged courts and regulatory agencies, and the lack of black-and-white rules around this will continue to challenge boards and management.”

 

  1. Rapid leaps in AI functionality creating need for guard rails. “Companies are using AI across a broader range of functions – from saving staff time to mitigating subconscious human bias in business processes,” says Nancy Calderon, Global Lead Partner, KPMGLLP; director, Global Delivery Center, Ltd., KPMG India; director, WCD Foundation. “But the exponential benefits that AI increasingly provides must not outweigh the need for governance around its use – and the actual outcomes. For example, a company implemented an AI program to reduce subjectivity in hiring. But the company found that rather than getting rid of bias, the AI program taught itself to prefer male candidates, and automated the bias. This highlights how managers and programmers, from the start, have to consider the assumptions programmed into the AI. Boards will increasingly have to ask management: What guard rails are in place? Even if the intent is good and it sounds like a great business decision, what are the risks?”

 

  1. Broader application of artificial intelligence in cybersecurity.“There is a wide gap in the level of knowledge among companies and how AI can be used to mitigate risk,” says WCD member Nelda Connors, a director at Boston Scientific Corp, Delphi Technologies, Enersys, and Echo Global Logistics. “While AI is the hot topic when thinking about products and services, many companies are not yet at a place of exploring AI for their cybersecurity efforts. But if there is risk that AI can help mitigate, it’s important to identify this. Boards can help move the company to the next level of thinking around AI by asking these questions of management.”

 

  1. Less fear among employees about machine replacement of jobs.“There’s a tendency for people to fear AI as something that’s going to replace them, but companies are changing how they talk about AI with their workforce,” saysEmma Maconick, a partner leading the data privacy and cybersecurity practice at Shearman and Sterling. “Employers are shifting from using the term ‘artificial intelligence’ to ‘augmented intelligence,’ where the human is intentionally kept in the loop. We need more, not fewer, people who can work with AI. The war on talent is not going away – there is an acute shortage of data scientists in the U.S. We need to broaden our perspective and plug into tech-savvy talent pools across the world.”

 

  1. People risk continues to be as important as technology risk.“Technology won’t save us from fraud,” says Claudia F. Munce, a director at Best Buy Corporation, Bank of the West/BNP Paribas, and CoreLogic Inc. “Many companies who are on the digital leading edge think in bits and bytes. They forget that most of the insider threats come from a physical form – someone walking out the door with a laptop. At the highest levels, you really need to understand the people dynamic in your core team and how employees perceive the sense of fairness at the company. But tech can be used as a tool to see things more clearly. It can spot patterns of incidents or behavior that are predictive of insider fraud.”

 

  1. Growing risk around the next level of #MeToo lawsuits.“A couple of years after the headlines and lawsuits prompted many companies to make changes, you can see how the reactions of certain employees reveal the true culture of a company and will lead to the next level of #MeToo,” says Vanessa Griffith, partner, Vinson & Elkins LLP. “Even in companies taking progressive measures, I’ve seen situations in which #MeToo has exposed fault lines within the organization. Some employees are showing their lack of trust in their colleagues, in the system, in management by saying: ‘Well, now I’m not going to mentor women, or be alone with women or travel with them.’ They are opening up themselves and the firm to discrimination claims from women who have had their careers negatively impacted by a refusal of men to take on appropriate roles of sponsorship and mentorship. So they’re trading claims of harassment for claims of discrimination or retaliation somewhere down the road.”

 

  1. Oversight of culture now a permanent part of the board’s brief.“Culture affects a company’s tolerance for risky behavior, and boards are moving from a passive oversight role to being much more active in guiding management,” says Ora Fisher, Vice Chair, Latham & Watkins. “For one, it’s management’s responsibility to implement the culture, but what if management is engaging in the risky behavior? I would be worried if management is strongly resistant to board oversight and regular reporting; that’s a dangerous red flag. Boards have potential legal liability for the risks, and are also able to see things going on at a company that management may miss because they are seeing it every day and it doesn’t register, or are more challenged than some due to the constant pressures of their jobs.”

 

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Banking

BRANCHES ARE THE HUMAN FACE OF YOUR BANK?

Sudeepto Mukherjee, Senior Vice President, Financial Services Lead EMEA & APAC Publicis Sapient

 

Branches have always played a pivotal role in a bank’s ability to acquire and service customers. Historical surveys have consistently pointed to the fact that proximity to branches is one of the key reasons that determine who consumers choose to bank with. Even with the increased adoption of mobile banking in the past decade, research from data specialists CACI had found that surprisingly, the decline of branch visitors has been modest, equating to less than 2% per year, with digital channels supplementing the customer experience rather than replacing it.

The COVID pandemic has changed all of that. It has suddenly forced consumers away from branches into call centres and web/mobile channels to meet their banking needs. So the big question is what role should branches play as we recover from this pandemic? Will branch centric business models like that of Metro Bank still thrive or will the digital only banking offerings like those from Starling and similar win out?

Banks will always have 2 different faces to consumers. The first face is one that is human and relationship based. This is the part of the bank that consumers rely on to get advice on how to manage their life savings. The face that they call upon when they are in financial distress and need help overcoming that. The face that helps them make product choices on what credit type would best suit their circumstance. The second face is that of the bank as an efficient machine that uses the best available technology, data and AI to meet transactional needs quickly. This is the face that consumers rely on to make payments in real time and conveniently. The machine that provides the ability to quickly respond to queries around account balances and transaction history. The machine that alerts consumers when certain actions are performed on their accounts. Customers expect both these faces from their bank. However, the financial crisis and the PPI scandals saw banks loose the trust and credibility of customers as they were seen to be driven more by internal profits rather than consumer needs. The human face of the bank was no longer visible to most consumers and the machine failed to live up to the expectations set by the Big Tech giants like Apple and Amazon that seamlessly provided services via their digital platforms.

The Bank Branch can play a pivotal role going forward in re-establishing this human side by helping a bank build trust and become the primary advisor for our financial needs. Instead of just meeting transactional needs like check deposits and account openings, banks can now transition branches into relationship centres where their employees are 100% focussed on financial advice and well-being of their customers. They are teachers and coaches, life-cheerleaders and financial partners – they are many in number.

Historically this model has been difficult to achieve because of the high cost of such personalised service at scale in branches. However, advancements in technology/AI coupled with the propensity of customers to use digital channels for transactional needs now make this imminently within reach .

 

This transition will require a fundamental shift in 3 big areas:

  • Creating a strong digital infrastructure to enable an omni-channel service: Banks will have to double down on their digital transformation efforts and build an infrastructure that can serve most transactional needs seamlessly via digital channels and call centres. The operational burden on both call centre and back office staff will have to be significantly reduced by automating as many processes as possible and providing the right tools and insight to help consumers efficiently.
  • Culture and Capability: This will also require a big shift in both capability and culture. Every function of a bank (like risk, finance, product control) will have to get more comfortable in leveraging technology to do a majority of the tasks currently done by humans while investments will be needed in new capabilities so front line staff can focus on building relationships at scale and provide good advice to consumers.
  • Bringing customers along on this journey: All this will work only if there is also a strong focus on educating customers on how best to interact with a bank and use branches only for the most complex needs while relying on other less expensive channels for day-to day banking services.

 

Making this transition will not be easy. Constrained finances and a higher compliance burden, have resulted in a large technology debt and complex operating models in most banks. Banks have to take a more ambitious approach to “jump” to this new model. Digital leaders like Amazon and Netflix have shown how a shift from physical stores to a more digital centric ecosystem can not only be more efficient but also create value for consumers.

Now is the time for banks to seize this opportunity to redefine the role of branches and re-establish them as essential advice centres for meeting their communities financial needs.

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Finance

TIME TO FOCUS ON YOUR ‘WEALTHBEING’

Tony Mudd, Divisional Director, Development & Technical Consultancy. St James’s Place

 

FIVE WAYS TO SAFEGUARD YOUR FINANCIAL FUTURE

The financial and economic impact of the coronavirus crisis has thrown up a host of issues for families to consider.

Above all, the experience has reinforced the importance of always being prepared.

The pandemic’s effect on jobs and incomes has underlined the value of having a robust financial safety net in place.  And it’s never too late to take control and start planning. It’s time to focus on your ‘wealthbeing’.

 

Here are some positive steps you can take to safeguard your financial future.

  1. Income security

With almost nine million UK employees of around one million businesses1 placed on furlough since the coronavirus crisis unfolded, there is potential for large numbers of redundancies as employers examine their reopening plans and contemplate the future of their business.

If you’re in employment and still being paid, look at how long that is likely to continue. As far as you are able, try to budget appropriately. Also look longer term at other sources of finance that you would be able to access if needed (such as savings, existing investments or, perhaps, borrowing), as well as the gaps that insurance policies could help fill.

Tony Mudd

If you are facing redundancy, make sure you understand what you can expect from your employer – your notice period, redundancy entitlement and statutory redundancy cover – as well as the government support that’s available.
Ask yourself – Where do I stand? What do I need? Can I continue to pay my bills? What are my responsibilities?If you do need to dip into your savings or investments, be careful about where you take it from – and when. The right choices here will help you preserve your capital by helping you minimise your tax, reduce charges and get the best from your assets.
If you don’t have savings or investments available, check whether you’re entitled to state support. The Money Advice Service website is a good source of information and guidance. If you’re struggling, or think you might soon be, don’t hesitate to seek free, impartial debt advice from the likes of StepChange and Citizens Advice.

 

  1. Create an insurance buffer

Do a risk audit on yourself. Ask what the financial implications would be – for you and your family – if you get sick or lose your job. Ascertain what potential risks you might face as a family and as an individual. It will be different for everyone, so it’s about considering your personal circumstances and those of the people who rely on you to work out what you need. There’s nothing to stop parents or grandparents from paying income protection premiums for a younger member of the family, particularly if they are renting or starting out on the property ladder and can’t afford them.

 

  1. Prepared for later-life care?

It may seem a long way off, but the Covid-19 outbreak has shown us all that our lives can change in an instant. A will is something that should be reviewed on a regular basis, as it sets out not only who your assets will go to, but also when. Power of attorney (POA) can be especially important, and it’s essential in long-term care. This is an area where financial advice is enormously valuable. Long-term care planning is difficult, and too often people ask for advice when they are already in or approaching a crisis, when it’s likely too late to make a significant difference.

 

  1. Avoiding gaps in inheritance and legacy plans 

Inheritance Tax legislation changes frequently, and because you don’t know when you are going to die, it can be difficult to cover every possible gap, even with a will in place and some form of legacy planning. The closest option is often ‘whole of life’ cover, which can pay out in trust as a legacy or help family cover any Inheritance Tax liabilities. One of the great things about protection policies is that they can be the solution to a range of different problems.

 

  1. Involve your partner and family

Many families remain reluctant to talk about money issues. Consider working with a financial advisor who can bring the family together to ensure that all the necessary issues are discussed among the people who need to be involved. An advisor can facilitate the discussions (without emotional involvement) and offer guidance.

 

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