www.pwc.co.uk Board discussions What NEDs have been debating March 2017 Contents Introduction 1 A global political update 2 Data analytics and its role in relation to strategy 6 General Data Protection Regulation and data privacy 9 Blockchain and its far-reaching implications for business 12 Tax – a reputational risk for business? 15 Culture as a risk management tool and a licence to operate 18 Cyber security – stage 1 21 Cyber security – stage 2 24 Responding to investor activism 28 Crisis management 30 Executive remuneration 33 Audit Committee update (ACN) 37 Introduction PwC’s programme for Non- The workshops explored how the Board At a more macro level, in February we Executive Directors (NEDs) can influence and shape culture, had A global political update from includes a series of briefings, bringing values to life, building trust Eurasia Group. In these uncertain workshops and other events to help with stakeholders and assessing, political times, this early evening event address the need to keep up to date measuring and monitoring culture. provided an overview of Eurasia Group's with Board level issues. This As one specific area of risk, the darker top 10 political risks for 2017 to further document summarises the side of the relentless technology inform strategic decisions. discussions arising from our developments, such as Blockchain and Developments for Audit Committees events over the past six months. data analytics, was focused on in our two – which continue to have a full agenda – The season began with our September Cyber security workshops. The first were not overlooked. A series of update briefings on General Data Protection workshop covered a broad landscape of workshops provided a regulatory update, Regulation (GDPR) and data privacy. cyber security basics – setting context, a look at developments in corporate The GDPR is now in its final form and explaining why this is a Board issue and reporting and accounting, as well as a will come into force at the start of 2018, providing a framework to help NEDs session considering user access replacing the existing Data Protection think about the key areas. The second management. The latter has become ever Directive. It will transform the data allowed for a deeper dive into four key more important as the risk and threat privacy and protection landscape by areas – developing a business landscape continues to evolve putting all businesses at risk of fines and perspective, assessing current state, due to increasing interconnectedness. sanctions if they fail to protect personal improvement recipes and handling For those on Remuneration data. Individuals no longer have to prove incidents and crises. Committees there were sessions that they have suffered financial loss but Investor activism and how to respond exploring issues with executive pay, can just cite distress. was explored in another of our including public perceptions of An early evening event in September workshops. Investor activism is inequality. Recent corporate governance explored Blockchain and its far- increasing in the UK as volatile equity developments and Government reaching implications for business. markets provide activist investors with consultations aiming to address these This technology, which underpins the opportunities to build stakes in were discussed. Consideration was given crypto-currency Bitcoin, presents far undervalued companies. Boards can be to what this means for Remuneration wider opportunities and challenges than hesitant to react but being on the back Committees in 2017 and beyond in terms simply disrupting business models in the foot often makes it harder to respond of transparency, strategic alignment and financial services sector. It consists of effectively to shareholders further down flexibility, stakeholder engagement and ‘blocks’ of data in a digital ledger which, the line. The session considered what fairness. in turn, creates a single shared view of characteristics an activist looks for in a We also ran a number of interactive the blocks that every participant in the potential target and how Boards might sessions throughout the year including network can access simultaneously. respond, both in terms of taking steps to a 'Game of Threats'TM cyber attack Blockchain therefore has the potential prevent an approach but also what to do simulation, a 'False Assurance' film event to remove the need for a back office/ once one has happened. with the ICAEW and various webcasts reconciliation process and also eliminate Recognising that in today’s complex and exploring topical business issues. We plan the ‘middleman’. As it is sector agnostic, inter-connected business environment to include further interactive sessions in the potential implications of this are crises will happen, the workshop season future programmes. significant. concluded with a session looking at In all of the events there was considerable Our October early evening briefing Crisis management. Getting crisis debate, with a sharing of ideas on the looked at Tax – a reputational risk for response right is not something that can topics and discussion around the role every business. There is heightened be improvised when a crisis strikes and NEDs can play. The combination of public, media and political interest in the capabilities that underpin that expert knowledge with the invaluable matters of tax policy and fairness. This response take time to build. In today’s sharing of experiences with peers adds brings significant reputational risk and social media driven world, Boards no real value to these sessions, and I would has elevated tax to a Boardroom issue. longer have the luxury of time to consider like to thank all those NEDs who The need to respond to a broad range of their course of action and need to be able participated. We will continue to focus on stakeholders means that Boards need to to put a previously developed, and matters featuring on Board agendas and be comfortable that they understand and preferably rehearsed, plan swiftly into look forward to further insightful can appropriately articulate their operation. discussions over the next six months company’s tax strategy and how the Our January briefings revisited the of the programme. associated risks are being managed. technology angle looking at Data Risk is a constant feature on the Board analytics and its role in relation to agenda, even more so in these uncertain strategy. The world is at an inflection times, and we continue to focus on point where artificial intelligence and different aspects of this topic. Our winter data analytics can help businesses make workshop season included sessions better and faster decisions. However, too Andy Kemp considering Culture as a risk often data analytics is used to analyse the Chairman, management tool and a licence past rather than predict the future and Non-Executive Director programme to operate. inform decisions. To become a data- driven organisation, leadership needs to [email protected] Culture is currently an area of focus for set the tone and deliver on it, using March 2017 regulators and others as society attempts predictive analytics to support strategic to respond to a lack of trust in business. decision-making. Board discussions March 2017 | 1 A global political update Political context is important for business as political stability Presenter: encourages a positive outlook which has a knock-on effect on the Sean West, Global Deputy CEO, economy. Political risk can impact all aspects of a company’s business Eurasia Group such as consumer sentiment, workforce quality and availability, taxes [email protected] and foreign exchange. Proper planning and management of political risks can therefore help to drive commercial success, especially in emerging and frontier markets. Global political update Independent America • The need to prioritise stability over The session was structured around This is not about the US becoming difficult policy choices risks policy Eurasia Group’s top 10 political risks for isolationist but unilateralist. failures such as a re-inflation of asset 2017. bubbles. • Militarily, it’s all about America and As initial context, it was noted that the other nations will not necessarily be A weaker Merkel world is becoming riskier. For the first able to depend on US commitments. Merkel will be re-elected but with a time, Eurasia Group are using the term • Economically, it’s about industrial smaller majority. Previously Europe’s ‘geopolitical recession’, where a policy that squeezes countries and indispensable leader, she will be a substantial series of events has dragged companies for better deals for US weakened figure. down the positive impacts of politics. workers. • Externally, Europe will be For the last five years, Eurasia Group has • Values wise, the US focuses on challenged by France’s elections, been talking about a ‘G Zero world’, one transactions rather than principles. Greece’s finances, Brexit without global leadership. This has now Currently, therefore, there is the negotiations and relations with both combined with a populist revolt against Russia and Turkey. globalisation whereas domestic policies absence of a unified West supporting • Domestically, Germany will be were previously permissive towards it. democracy from the same point of view, challenged by their refugee policy, This negative trend in domestic politics as well as the potential for negative terrorist attacks, corporate crises in key economies combines with bilateral relations. Implications of an and populism with the Alternative negative external conditions at the independent America include: for Germany gaining ground. geopolitical level resulting in the • chaos from an absent superpower – geopolitical recession. particularly in Europe and the Merkel is increasingly becoming a lone voice for keeping Russian sanctions A geopolitical recession plays out over Middle East in place. a much longer timeframe. In Eurasia • weakening of global institutions – Group’s projections, few countries show global fragmentation No reform encouraging signs over the next six • the rise of China and possible Some countries that were previously months. In a sense, a neutral political conflict.