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NEDs – A GLOBAL PERSPECTIVE

Today’s boards, wherever they are located, must have the capability to identify and assess the risks and opportunities that global developments present for their business. The recent Channel Islands NED Forum saw a panel of business leaders examine some of the issues boards are facing today.

Moderated by John Clacy, Lead Partner for Deloitte in the Channel Islands, the panel was composed of Simon Osbourne, Chief Executive ICSA, Andreas Tautscher, Channel Islands CEO for Deutsche Bank and Paula Williams, NED, Channel Islands Co-operative Society.

Building a Global Awareness

The panel kicked off with a discussion around the need to have an active awareness of global developments, threats and opportunities. John Clacy pointed to the fact that typically the Channel Islands investor is off island and this is often where the primary business activity is – the investment managers and investments themselves. It’s vital therefore that boards understand and appreciate life outside the islands.

Simon Osbourne underlined the importance of asking the question – what is the role of the board and what is the purpose of the business? He emphasised that the board must understand its customer and what the determined business purpose and values are and that there are operational and HR policies to match.

The delegates were challenged that there was still a tendency to be complacent about the range and degree of risk to the businesses they have oversight of, and to themselves.  Commercially a company’s licence to trade is fragile, reputation risks are growing all the time, and while globalisation continues to bring challenge and opportunity, the Channel Islands now also face the impact of the USA re-trenching and Brexit.

Adequately mapping the required skills according to the entity’s purpose and ensuring an appropriately broad range of knowledge and experience is held within the board is essential to being prepared for global risks.

The difficult external reputational issue of offshore tax and how the islands are perceived from the outside was also raised. John noted that we should not be nervous, in reality, the islands are here to facilitate investment and further discussion lead to the conclusion that we need to ‘bring critics into the room’.

Cyber Security

Paula Williams spoke of the ever-growing IT risk, with cyber security being top of the agenda for many companies today. She proposed that the challenge in the boardroom is that directors have not grown up around the level of technology that is in use today. They may not fully understand issues such as security between mobile devices, and therefore the amount of budget that is allocated to those security requirements is inadequate.

It is clear that the very nature of cyber threat requires boards to be ready to respond very quickly when a situation occurs and that is only possible if the necessary planning has been done in advance. Paula challenged the delegates to reflect on whether they had adequate plans in place. She cited the threat of reputational damage through social media as an example, pointing out that customers can be very publically demanding and the speed in which reputations are damaged is very fast.  As Rick Cudworth, Crisis Management Consultant with Deloitte and Adam Moorshead, Managing Director of JTC Group in Guernsey later illustrated, pre-prepared response plans to risks and potential issues are crucial to have at both board and management level.

John highlighted that cyber security is one of the top three risks identified by the Deloitte Boardroom Survey but less than 50% of boards believe their organisation is adequately prepared for cyber security risks. The statistics evidenced a huge risk that many boards need to face up to and represents a huge risk to the islands. This includes businesses where boards are responsible for managing outsourced solutions as much as it does to in-house teams, and it was emphasised as being particularly relevant to funds and fund administration.

Simon pointed out the fact that GCHQ is sending out people to educate boards about technology – this indicates that many still don’t fully understand its implications. Andreas encouraged delegates to reassess the balance between putting trust in the executive and their teams who rely on controls and processes within the business, and being an enquiring NED who must constantly challenge everything they see and hear.

Increased Regulator Demands

Regulators are making individuals much more accountable in their board roles for what is happening within the organisation. The industry is now seeing more and more enforcements, with directors being held to account for failings within their model.

Global business models, which are common in financial services, mean there are multiple sets of regulations to consider, making it a very complex risk model to manage.

John called for NEDs to question how comfortable they are with the uniqueness of processes and models that their business has

Increasing Diversity on Boards

Boards must map out the challenges they will be facing and look at the gap in skills. Greater skills diversity will limit the blind spots and help to future-proof the board.

Andreas emphasised the need to actively take measures to avoid the pitfalls of ‘group-think’. Pointing out that often the lawyers and accountants who most commonly take up board roles have studied at the same universities, trained with the same firms and then come back together with very similar life experience. The need to attract different people, from diverse backgrounds to offset that danger was universally agreed by the panel.

The panel discussed the need to look at people outside of those same career routes and outside of the finance industry. Instead of lawyers and accountants, consider NGOs, design and marketing people as well as professionals from the operational side of the business – who can see risks and identify how to deal with them. Similarly, candidates from building societies and mutuals or co-operatives were cited as having potentially relevant experience.

The need to be able to not just manage threats, but also harness disruption as a business opportunity was also discussed.

With so much regulation and change, the business focus can move away from the customer, therefore effective boards need customer advocates.

Key actions that boards could take to ensure adequate diversity on their boards centred on broadening the field of search and included:

  •       Ensuring that the nomination committee process involves all the NEDs to get a full spectrum of views;
  •       Not relying on the same headhunter that you use all the time, and not being afraid to advertise;
  •       Embracing the equality and human rights commission proposal that there should be open, competitive selection for NEDs. 

The impact that regulators have on recruiting an adequately diverse board was also discussed. The minimum qualifications and experience they demand, while positive in regards to policing board competency, can inadvertently reinforce the standardisation of people around the table.

Wrap Up

John wrapped up the panel by challenging delegates to encourage people from different business backgrounds to take that next step towards non-executive directorships. He reaffirmed the importance of supporting people to make that step into the boardroom and helping them to take on what is a very challenging role.

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