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Geopolitical Disruption A Top Board Concern For 2017

Olivia Berkman

Strategy will be the board of director’s best weapon against risk. FEI Daily spoke with Dan Konigsburg, managing director of Deloitte Global’s Center for Corporate Governance on Deloitte’s 8th annual Directors’ Alert, which highlights key concerns facing boards today and how to address them strategically and courageously.

FEI Daily: What are the disruptions boards will face in the coming year?

Dan Konigsburg: Some of them are new, some of them are not. We have the results of the U.S. election. We have Brexit in the UK. We had the surprise Italian election. We’ve got elections coming up that people are concerned about in Europe. I think for the first time in a while, people are concerned about the consequences to their business. Not just political disruption but the growth in populism and how that might affect business.

People are also closely watching what’s happening in China (in the South China Sea), what’s happening in the Euro zone, what’s happening between the U.S. and Mexico.

Cyber is a disruption that remains. Boards are very closely following the way that cyber risks, hacking, problems with the breakdown of intricately interconnected connected systems are disrupting them.

And activism would be the fourth one I would raise. Shareholders becoming much more active as owners and challenging companies in a way that perhaps they weren’t four or five years ago.

FEI Daily: What are some of the differences in areas of concern between the U.S., Europe, and Asia?

Konigsburg: There’s an interesting difference around disruption. A lot of people point to disruption in business models as being one of the biggest concerns for boards, and not just business models, but political disruption. In Asia, we heard, “I don’t actually believe in disruption.” Disruption is another way of saying you haven’t prepared yourself, you haven’t looked at all the risks. That is a real distinction. We’re generalizing, but perhaps we ran into that a bit more in Asia.

FEI Daily: How should boards approach these disruptions?

Konigsburg: Boards have to be more courageous in challenging old ways of thinking. Challenging management certainly takes courage. Being courageous without thinking about all the risks is not courage, that’s being foolhardy. It’s about being able to be contrarian, with full knowledge of the facts and being aware of risks.

FEI Daily: What are some of the questions that boards should be bringing up and discussing?

Konigsburg: First of all, boards should start by asking questions about themselves: Do we have the right people around the table to deal with these disruptions, and these risks? This brings up questions of board composition and diversity. Do we have folks that come from different backgrounds, do we have women on the board, do we have racial minorities who can see things differently and give a better chance at thinking divergently and dealing with problems?

The questions that boards should be asking of management includes, are we prepared? Management, walk us through a scenario. If we start to see a border, import tariff in the U.S., and we’re big importers into the country, what does that do to our costs, what does that do to our cost of capital? Walk us through that and take us down to the agile line, and what does it mean.

FEI Daily: Conversely, what should management understand about the challenges their boards will be facing?

Konigsburg: I think management doesn’t often think about things from the board’s perspective. They’re looking at the canvas one inch away from the picture. So it’s good for management to take a step back and ask themselves some basic questions. These are people who come together four, five, six, seven times a year. They’re not working at the company. They’re very thoughtful, smart people, but perhaps they don’t know every in and out of the business. So if you were in that position, how would you want to be presented to? What information would you need? What are the big-picture areas of discussion that would help lead to better decision making?

So I think it can be very helpful for management to turn that picture around and say, let me imagine what directors are going through. And that has implications for board reporting, for the type of discussions that you have. It can help management pull the board back if they’re trying to go too deep and micromanage. And equally, it can help them pull back and say, let’s look at the bigger picture: let’s look at economic trends, let’s look at geopolitical questions.

FEI Daily: Given where we are politically, do we think the role of boards will expand?

Konigsburg: I think for the U.S., yes. There are certain industries where the board is going to become a much bigger player. I would say banks and financial institutions certainly. The regulators are encouraging boards to play a larger and larger role.

The trend is for boards to do more and more. I think one of the questions as you look into the future is where does it stop? We put a lot of responsibility on the shoulders of outside directors. And as I said earlier, they’re only there at the end of the day, as part-timers.

From both the perspective of regulators and from the perspective of a mom-and-pop investor who rely on boards to protect their interests, what’s reasonable to expect? What’s unreasonable? I don’t think we’ve reached a conclusion about that. I think that’s really open to debate still.

FEI Daily: How can boards develop a resilient strategy?

Konigsburg:  When we talk about resiliency, we mean a strategy that holds up over time. We’re talking about strategies that can be flexible that can change, perhaps as external circumstances change.

You want a strategy that is not rigid. A poor, non-resilient strategy would be one-dimensional. You need people on the board that come from different backgrounds that are approaching this from different angles, who can see around corners. I think one of the advantages of having outsiders on your board is they aren’t there in the weeds. And that increases your chances of having a strategy that holds up over time.

For more insight on disruption in today’s complex business environment, see Are You Ready To Monetize The Disruption Economy?

This article originally appeared in FEI Daily. It is republished by permission.

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Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.

Spring Will Be Critical For Revenue Recognition Implementation

Olivia Berkman

A Q&A with Deloitte’s Eric Knachel 

Revenue recognition implementation takes a lot longer than people think, and spring will be a critical time. As companies scramble to work on the new standard and focus their time and resources on satisfying the revenue and measurement requirements, many companies are ignoring the disclosure requirements. According to Eric Knachel, senior consultation partner, revenue recognition at Deloitte & Touche LLP, that’s a big mistake. FEI Daily spoke with Knachel about the progress that’s been made and how to catch up if you’ve fallen behind.

FEI Daily: We spoke in October about revenue recognition readiness after the release of Deloitte’s Revenue Recognition Roadmap, and, at that time, you shared that you thought most companies are in an “assessment phase.” What phase do you think they’re in now?

Eric Knachel: I’d say there are still many companies in the assessment phase, although I think that a number of them have moved from assessment to beginning the implementation. The thing about the assessment phase is that it’s pretty broad, you can be in that phase and working at it for a week or months. The reality is, for calendar year-end companies, between October and now, there probably hasn’t been a whole lot of activity on the new revenue standard, just because it’s their year-end close. So there probably hasn’t been an enormous amount of progress made in that time. The spring and summer become critical time periods.

FEI Daily: If many companies still have a lot of work to do and may not intend to consider the standard’s new disclosure requirements until early 2018, is that a risky strategy?

Knachel: It’s definitely a risky strategy. What we’ve seen is that the actual implementation takes longer than people imagine, and so as result you run into situations where there’s more to do than you actually have time for. As that runway gets shorter, you start making it a lot more difficult on yourself and you may run into resource issues, both internally and externally. External resources will become more difficult to find.

FEI Daily: You also shared that you thought more companies would be going to full retrospective route versus the modified retrospective route. Do you still find that to be the case?

Knachel: There’s probably been a bit of decrease in the number of companies that are doing full retrospective compared to where we were before. The business reasons for why someone would do full retrospective are their peers, investor relations, and the level of work and cost. Those business reasons haven’t changed. If companies have procrastinated in terms of implementation and were previously on the fence, they’re seeing the clock ticking and are saying, ‘We’re going to go modified retrospective because, while we didn’t think the difference in effort was enormous, there is a difference in effort, and our runway is shorter, and we’ve got to get this done.’

FEI Daily: Are you hearing different challenges from companies this year versus last year?

Knachel: For some of the companies that have done the assessment and the implementation, they’re moving into the disclosure. We’re seeing that that is proving to be a challenge. Most companies are scrambling to work on the new revenue standard and focusing the bulk of their time and resources on satisfying the revenue and measurement requirements, those are the high-profile elements. But in that process, many companies are largely ignoring the disclosure requirements. They may view it as a minor detail that can be dealt with once the standard goes into effect. I think that’s a mistake. Waiting for that until the end is proving to be problematic for companies.

FEI Daily: What is your recommendation to companies that have fallen behind when it comes to implementation at this point?

Knachel: There’s no time to lose. Not to suggest that crash diets work, but if you wanted to lose 20 lbs. in the span of six months, and you’ve gotten to month five and you hadn’t done anything, you could arguably get onto a crash diet and lose your 20 lbs. in a month.

Here, there’s really not a crash diet available to you. The work is still there, and if you didn’t do anything in six months, you’ll have to work a lot harder and be a lot more focused and intense. It probably gets back to resources.

For more on managing financial regulation, see Prioritizing The CFO’s To-Do List For 2017.

This article originally appeared in FEI Daily and is republished by permission.

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Olivia Berkman

About Olivia Berkman

Olivia Berkman is the managing editor of FEI Daily, Financial Executives International’s daily newsletter delivering financial, business, and management news, trends, and strategies.

Why Your Lizard Brain Wants You To Keep Using Excel Forever

Susan Parcells

As human beings, we’re hardwired to resist change. For hundreds of thousands of years, a change in routine usually led to danger, like running into a toothy predator or being ostracized from the tribe.

To keep us alive, the oldest part of our brain—the “lizard brain”—ensures that once we find a “safe” activity, we repeat it. Billions of neurons work hard to create circuits that serve to reinforce our habits, good and bad. And the more often we do an activity the same way, the less likely we are to try something new, even if it’s an obvious improvement over the old.

This explains why, as accountants, we still rely on hundreds of spreadsheets to manage the financial close. Spreadsheets are no longer the best tool for ensuring a fast or accurate close, but repeated use has wired our brains to prefer using them.

Excel is the bad habit we can’t break. Even if the close still takes us an agonizing 10+ days, even if we shudder every time we remember that we have to manually aggregate hundreds of files at the end of the quarter, our lizard brain still loves Excel—because it’s safe.

What the lizard part of our brain doesn’t yet realize is that change is no longer enemy number one. Instead, the ability to manage change is how we survive—and thrive—in the modern world. In business, just keeping up, let alone staying competitive, now requires being flexible, creating new ideas, adopting and adapting to new technology.

For accountants, it’s no different. We know Excel, we understand it, and we’re really good at using it. But it’s holding us back in a multitude of ways: from improving efficiency, from increasing accuracy, and from contributing our best talents to the success of our company.

All those hours and days we spend manually entering data, double-checking that data, and emailing, saving, and filing spreadsheets is simply lost time. We’re so busy doing rote work that we can’t do our real work: providing crucial insight, strategy, and analysis.

To that end, changing the way we close every month requires changing our habits. The first step? Start slowly and simply be open to Excel alternatives. Then begin to research how one of these alternatives might help you improve the accuracy, visibility, and efficiency of your close.

Here are a few resources to get you started:

This article originally appeared in BlackLine Magazine and is republished by permission.

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Susan Parcells

About Susan Parcells

Susan Parcells, CPA, CGMA, is senior director of Finance Transformation and Product Expert for BlackLine. Throughout her career as both an auditor and various management positions within accounting, Susan recognized that the traditionally manual processes within the financial close were not only inefficient, but often exposed companies to risk. She began to focus on process improvement around the close, helping accounting teams reduce their workload and instead use their analytical skills to focus on other value-added activities, all while enhancing controls around those processes. She now spends her time attending conferences, trade shows, and other venues to educate companies on ways in which they can optimize their financial close processes along with having great control around them. Her greatest passion is helping others, which makes her role at BlackLine a perfect fit.

The Future of Cybersecurity: Trust as Competitive Advantage

Justin Somaini and Dan Wellers

 

The cost of data breaches will reach US$2.1 trillion globally by 2019—nearly four times the cost in 2015.

Cyberattacks could cost up to $90 trillion in net global economic benefits by 2030 if cybersecurity doesn’t keep pace with growing threat levels.

Cyber insurance premiums could increase tenfold to $20 billion annually by 2025.

Cyberattacks are one of the top 10 global risks of highest concern for the next decade.


Companies are collaborating with a wider network of partners, embracing distributed systems, and meeting new demands for 24/7 operations.

But the bad guys are sharing intelligence, harnessing emerging technologies, and working round the clock as well—and companies are giving them plenty of weaknesses to exploit.

  • 33% of companies today are prepared to prevent a worst-case attack.
  • 25% treat cyber risk as a significant corporate risk.
  • 80% fail to assess their customers and suppliers for cyber risk.

The ROI of Zero Trust

Perimeter security will not be enough. As interconnectivity increases so will the adoption of zero-trust networks, which place controls around data assets and increases visibility into how they are used across the digital ecosystem.


A Layered Approach

Companies that embrace trust as a competitive advantage will build robust security on three core tenets:

  • Prevention: Evolving defensive strategies from security policies and educational approaches to access controls
  • Detection: Deploying effective systems for the timely detection and notification of intrusions
  • Reaction: Implementing incident response plans similar to those for other disaster recovery scenarios

They’ll build security into their digital ecosystems at three levels:

  1. Secure products. Security in all applications to protect data and transactions
  2. Secure operations. Hardened systems, patch management, security monitoring, end-to-end incident handling, and a comprehensive cloud-operations security framework
  3. Secure companies. A security-aware workforce, end-to-end physical security, and a thorough business continuity framework

Against Digital Armageddon

Experts warn that the worst-case scenario is a state of perpetual cybercrime and cyber warfare, vulnerable critical infrastructure, and trillions of dollars in losses. A collaborative approach will be critical to combatting this persistent global threat with implications not just for corporate and personal data but also strategy, supply chains, products, and physical operations.


Download the executive brief The Future of Cybersecurity: Trust as Competitive Advantage.


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To Get Past Blockchain Hype, We Must Think Differently

Susan Galer

Blockchain hype is reaching fever pitch, making it the perfect time to separate market noise from valid signals. As part of my ongoing conversations about blockchain, I reached out to several experts to find out where companies should consider going from here. Raimund Gross, Solution Architect and Futurist at SAP, acknowledged the challenges of understanding and applying such a complex leading-edge technology as blockchain.

“The people who really get it today are those able to put the hype in perspective with what’s realistically doable in the near future, and what’s unlikely to become a reality any time soon, if ever,” Gross said. “You need to commit the resources and find the right partners to lay the groundwork for success.”

Gross told me one of the biggest problems with blockchain – besides the unproven technology itself – was the mindset shift it demands. “Many people aren’t thinking about decentralized architectures with peer-to-peer networks and mash-ups, which is what blockchain is all about. People struggle because often discussions end up with a centralized approach based on past constructs. It will take training and experience to think decentrally.”

Here are several more perspectives on blockchain beyond the screaming headlines.

How blockchain disrupts insurance, banking

Blockchain has the potential to dramatically disrupt industries because the distributed ledger embeds automatic trust across processes. This changes the role of longstanding intermediaries like insurance companies and banks, essentially restructuring business models for entire industries.

“With the distributed ledger, all of the trusted intelligence related to insuring the risk resides in the cloud, providing everyone with access to the same information,” said Nadine Hoffmann, global solution manager for Innovation at SAP Financial Services. “Payment is automatically triggered when the agreed-upon risk scenario occurs. There are limitations given regulations, but blockchain can open up new services opportunities for established insurers, fintech startups, and even consumer-to-consumer offerings.”

Banks face a similar digitalized transformation. Long built on layers of steps to mitigate risk, blockchain offers the banking industry a network of built-in trust to improve efficiencies along with the customer experience in areas such as cross-border payments, trade settlements for assets, and other contractual and payment processes. What used to take days or even months could be completed in hours.

Finance departments evolve

Another group keenly watching blockchain developments are CFOs. Just as Uber and Airbnb have disrupted transportation and hospitality, blockchain has the potential to change not only the finance department — everything from audits and customs documentation to letters of credit and trade finance – but also the entire company.

“The distributed ledger’s capabilities can automate processes in shared service centers, allowing accountants and other employees in finance to speed up record keeping including proof of payment supporting investigations,” said Georg Koester, senior developer, LoB Finance at the Innovation Center Potsdam. “This lowers costs for the company and improves the customer experience.”

Koester said that embedding blockchain capabilities in software company-wide will also have a tremendous impact on product development, lean supply chain management, and other critical areas of the company.

While financial services dominate blockchain conversations right now, Gross named utilities, healthcare, public sector, real estate, and pretty much any industry as prime candidates for blockchain disruption. “Blockchain is specific to certain business scenarios in any industry,” said Gross. “Every organization can benefit from trust and transparency that mitigates risk and optimizes processes.”

Get started today! Run Live with SAP for Banking. Blast past the hype by attending the SAP Next-Gen Boot Camp on Blockchain in Financial Services and Public Sector event being held April 26-27 in Regensdorf, Switzerland.

Follow me on Twitter, SCN Business Trends, or Facebook. Read all of my Forbes articles here.

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