What Happened in Vegas: Highlights from CES

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As part of the National Association of Corporate Directors’ continuing mission to help directors understand disruptive technologies and trends, I joined more than 175,000 attendees at the 2017 Consumer Electronics Show (CES) in Las Vegas. My team was doing a little reconnaissance work on your behalf. NACD will host a director-focused, member-exclusive tour of the 2018 CES show next January, and we wanted to get an advanced look at the most pressing governance implications from the 2017 event. 

After three days of experiencing more than 3,800 vendors, you start to see past the shine of the latest gadgets and understand how the technology that underpins these products is poised to change the world. How those technologies are leveraged by companies is key to understanding the future of disruption, and as we discussed at last year’s Global Board Leaders’ Summit, convergence is the order of the day.

Voice and Motion-enabled Artificial Intelligence (AI) are Here to Stay

Whirlpool

A booth showcased one of many partnerships between Amazon and consumer products companies, including Whirlpool.

From controlling the radio volume with a wave of your hand, to voice-controlled appliances AI was everywhere. In fact, the most talked-about company at CES this year didn’t even have a booth. The Amazon logo appeared on products produced by Whirlpool to those debuting from smaller start-ups.

Why? Alexa, Amazon’s AI assistant, was ubiquitous on the show floor.

Alexa is leading the way in enhancing consumer products that implement voice-enabled technology. It is anticipated that Alexa will soon be programmed not just to power, but interact with, everything from your toaster to your Toyota.

It became apparent at CES that the future of voice-enabled AI is a person’s ability to speak naturally and rely on the computer to accurately transcribe information. This has significant impact for everyone from office workers to doctors who could reliably dictate notes to medical records.

John Hotta, a director in the healthcare space and NACD Board Leadership Fellow, was also on hand at CES. “Innovations in voice-activated technology also have huge implications for products, services, and the nature of work, as smart speakerphones or personal assistants such as Google Home or Amazon Dot replace direct user interface with a computer,” Hotta said.

Computer, You Can Drive My Car

CES exhibitors demonstrated the growing sophistication of autonomous vehicle technology. Last year Ford Motor Company CEO Mark Fields promised to turn the automaker from a car company to a mobility company. That strategy was on full display as Ford partnered with San Francisco-based start-up Chariot to show off one of its autonomous mini-buses, which Ford hopes will “reinvent mass transit for commuters, companies, and fun-seekers with reliable and affordable service.”

Cloud

A wealth of connected, autonomous vehicles were on display.

Autonomous vehicles also buzzed high above the heads of CES attendees. As drone technology continues to evolve for both commercial and industrial use, autonomous vehicle technology is being applied to those vehicles as well. In a convergence of these trends, Mercedes exhibited a fully autonomous delivery vehicle, equipped with two roof-mounted drones that facilitate package delivery from the van to the doorstep.

Another trend emerged at CES: the use of autonomous vehicles as a tool for vehicle safety. Thanks to the convergence of AI and the Internet of Things (IoT), vehicle-to-vehicle technology has enabled cars talk to their passengers and to other vehicles on the road. As attendees at the 2016 NACD Global Board Leaders’ Summit may remember, Chris Gerdes, head of innovation at the Department of the Transportation (DOT), discussed how DOT is piloting this technology in cities across the U.S. to slash traffic fatalities, and nearly every major automaker is now getting in on the act. Hyundai and Cisco announced a partnership to leverage IoT technology to improve safety and improve congestion by connecting vehicles to municipal infrastructure.

Governance Implications

Collaboration is Key

Logos

Consumer products and technology companies are forging essential partnerships.

As technology becomes more ubiquitous and innovation becomes decentralized, companies are realizing they can’t go it alone. Consumer products companies are linking up with leading technology companies to build resilience to innovation. In addition to the proliferation of Alexa-linked products, Honda Motor Co. has teamed up with VISA to enable vehicle-based mobile payment systems that allow passengers to conduct transactions without leaving their cars. Apparel companies like Tory Burch and Fossil—companies that seem more at home at New York Fashion Week than at CES—also had large booths touting their new lines of wearables. And finally, in-house labs at big brands like Whirlpool are partnering with crowd-funding platforms like IndieGogo to launch new products. Like the auto companies profiled above, this is another example of convergence that directors would be wise to anticipate.

Private Eyes Are Watching You

The act of welcoming devices into our workplaces and homes that listen and watch our every move could revolutionize the way we live and work—and opens us to unprecedented privacy and security concerns. Coupled with a proliferation of smart products aimed specifically at tweens and children, smart devices present a whole host of liability issues that technology, legal, and regulatory experts are just starting to grapple with.

Amazon’s Alexa and Mattel have already made news for the unintended consequences of giving children access to this kind of technology. Additionally, U.S. courts are grappling with the legal implications of using recordings from these devices as evidence. One such case pits Amazon against prosecutors in who believe that data from an Amazon Echo might be key in solving a murder case.

In this rapidly evolving climate, directors should be asking questions about whether or not security is being integrated into product development now and in the future—from research and development, to plant upgrades, to policies that allow employees to use their own smart devices for work.

The Future of the Workforce

Ian Bremmer, president of Eurasia Group and 2016 NACD Global Board Leaders’ Conference speaker, recently said, “Technology will surely create jobs. But virtually none of the people displaced will have the training for them.” The changing nature of the global economy threatens to make some American jobs obsolete. If CES made one point clear, it’s that the current concern over the decline in manufacturing and coal jobs pales in comparison to the potential changes that will come with widespread automation of jobs.

Car

Volkswagen exhibits its electric, autonomous I.D. concept car.

Remember that self-driving delivery van with the automated drones that deliver packages? Think about that and then look at this interactive map of the top jobs by state. Last August, Uber Technologies acquired Otto, a self-driving truck company, further showing how 1.7 million middle-class jobs could disappear in short order. The American economy is facing a potential employment crisis the likes of which may be unprecedented.

It’s not just delivery drivers who are in danger. As Jane Fraser, CEO of Citigroup’s Latin America business said at the Fortune magazine’s Most Powerful Women Summit in October, “we are expecting 500 billion objects to become connected to the internet and this automation is going to hollow out middle and working class jobs.”

This shift has huge implications for the American economy and its ability to compete on a global scale. Consider, for instance, that automated delivery of packages is only helpful if your company has a customer base that can afford to spend money on products. A recent report by the President’s Council of Economic Advisers lays out the dual challenges of educating a workforce that is ready for the jobs of the future, and the uphill battle of transitioning to an AI-based economy. This report is great reading for directors as they consider the role of the corporation in society, and could help the board shape individual company strategy in critical areas like innovation, talent development, and long-term value creation.

You can see, hear, and learn more about these trends at the 2017 Global Board Leader’s Summit. Stay tuned for information about our new director-focused, curated tour of the 2018 CES show next January.

When Trump Comes Tweeting: A New Playbook for Boards

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Richard Levick

What would you recommend if you were on the board of Ford Motor Co., Boeing Co., or Lockheed Martin Corp., all of which have had tête-à-têtes with the incoming leader of the free world? Welcome to the age of the suddenly very bully pulpit. The most powerful thumbs in the world belong to Donald J. Trump, who will soon become the 45th President of the United States.

In mid-December, when Trump despaired that Lockheed Martin’s cost overruns on the F-35 joint strike fighter “were tremendous,” the company’s stock lost $4 billion in market capitalization in a matter of hours. Even though the company quickly recovered those losses when its stock price stabilized, Trump’s tweet triggered some discomfiting moments.

No one understands better how to wield the powers of Twitter, the 24/7 news cycle, and a cult of personality than Donald J. Trump quite like the man himself. To one extent or another, Lockheed Martin Corp., Toyota Motor Corp., Carrier, Mondelez International (parent of Nabisco), Ford Motor Co. , and Boeing Co., have all been caught in Trump’s Twitter maelstrom. Fiat Chrysler Automobiles, in a proactive move to get the target off its back before the opening salvo, wisely announced that it would invest $1 billion and create 2,000 U.S. jobs. A smart play, but as all newlyweds ask, “Will it last?”

We’re in unchartered waters here—and by “we,” I include C-suite executives, corporate directors, and communications counselors like me who advise corporations on how to enhance their brand equity, engage with decision makers, and weather inevitable storms that come with doing business. Social media, fake news, and a new president have changed the rules of engagement.

So what is the new rubric? For most publicly traded companies over the near term, the right response is the easy one: for your shareholders’ sake, meet Trump more than halfway if his demand isn’t too outrageous, and give him the early victory lap. But at some point, after Trump’s modus operandi on these matters inevitably hits some turbulence, that dynamic is likely to change. Watch this space closely, particularly the business-to-consumer tech companies who have millions of customers conditioned to social engagement.

In the meantime, how can a company prepare for presidential squalls or getting caught in the crosswinds of a Twitter-induced tsunami?

There are scores of precautions a publicly traded company should consider, but they can be boiled down to four imperatives.

Engage employees. Trump’s “Make America Great Again” mantra proved enormously popular in America’s industrial heartland. His administration’s public positioning will be devoted to job preservation, reinvigorating the manufacturing base, and sticking up for the little guy. In such a climate, relations with national and local union leaders and heads of employee groups will be doubly important. If a company is suddenly the subject of public scrutiny, its labor and management will want to present a united front. Politics, it is said, makes strange bedfellows. So does business in tough situations.

Enlist allies. Empowering third-party champions has always been an important part of any corporation’s public affairs and communications arsenal, but now it’s absolutely vital. The press and public in today’s environment are inherently suspicious of big corporations and paid spokespeople. In the clutch, customers, vendors, suppliers, community leaders, local environmental advocates, philanthropic heads, Chambers of Commerce, et al., will have far more credibility. The more social media-savvy—and more genuinely connected to grassroots movements—these champions are, the better allies they are for your company.

Prepare now. Companies should use “peacetime” wisely by distilling facts and messages into 140 characters; creating photos and videos for other social channels (e.g., Facebook, Snapchat, YouTube, etc.) that make emotionally appealing messages; track media socially in a sophisticated way that predicts trends; and build a social army now to articulate track records in U.S. job creation and economic growth.

Emphasize speed. Virtually every crisis communications plan in corporate America can be rendered obsolete by the proliferation of Donald J. Trump’s use of social media. If a company is being attacked via social media, it cannot rely on conventional communications to respond. Corporations need to put in place ultra-quick turnaround systems that tap leading-edge media. Build your arsenal of information, army of activists, and strengthen your reflexes now. Have the leader of the company’s digital media team report directly to the board. Integrate your silos so that legal, investor relations, government relations, public relations, digital, and brand practices all know and trust each other. Board members and senior teams need to be put through their paces via scenario drills and full-scale rehearsals.

The most effective way for a company to combat thumb power is through thumb power of its own.


Richard Levick, Esq., @richardlevick, is chair and CEO of Levick, a global communications and public affairs agency specializing in risk, crisis, and reputation management.

8 Risk Oversight Practices to Master in 2017

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Boards and executive teams are challenged by a fast-changing, highly interdependent, and often ambiguous external environment that continually creates unforeseen opportunities and risks. Volatility is the new normal. Not surprisingly, according to the National Association of Corporate Directors’ (NACD) most recent public company governance survey, global economic uncertainty ranks as the top trend corporate directors believe will impact their company in 2017. In yet another NACD poll conducted during a recent webinar, 49 percent of directors did not feel that management was providing them with a reliable view of the future.

The recent election of Donald J. Trump as President of the United States is likely to contribute to this growing sense of uncertainty, with the corporate director community evenly divided about the potential impact, according to the NACD webinar poll. Forty-two percent of directors report that his administration will be good for business, while 42 percent are unsure about the impact, and still another 16 percent believe that a Trump presidency will not be good for business.

RiskOversightBlogDiagram

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In this complex, uncertain environment, what can boards do to gain more comfort from management that risks are accurately identified and well-controlled?

The International Standards Organization in ISO 31000 defines risk as “the effect of uncertainty on objectives,” which can be a negative or positive deviation from what is expected. More specific to business, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) is currently defining risk as “The possibility that events will occur and affect the achievement of strategy and business objectives.” Each of these definitions of risk exposes a company to potential loss—indeed, yet another definition of risk authored by insurance professionals highlights risk as the possibility of loss. Yet when viewed as part of an active business dynamic, risk, as daunting as its manifestations may be, is far more than the chance of loss. Rather, risk is a level of uncertainty that can create economic opportunity.

The recently released Director Essentials: Strengthening Risk Oversight identifies eight leading risk oversight actions that directors can take to seize opportunities and avoid the loss possibilities inherent to risk. A brief outline of each action and a key question boards should consider asking follows.

1.) Clarify the Roles of the Board, Committees, and Management. The board, all board committees, and all members of senior management need to know their unique roles in risk oversight. Without clarity on ownership of specific responsibilities, redundancies and lapses can occur.

The practice of role definition helps establish a clear mandate for risk oversight by the board and offers management a blueprint for the execution of risk management.

  • Is there a common understanding among management, the board, and board committees about their respective roles, responsibilities, and accountabilities on strategy?

2.) Understand the Company’s Risk Profile. Especially in light of the new environment, all board members should be aware of the company’s key risk exposures, which collectively are referred to as the company’s risk profile. Oversight of any business requires understanding the major risks that it faces now and in the future, and making decisions accordingly. Although the universe of risks that a company faces may be almost limitless, a company’s risk profile is the composite (and analysis) of the most pressing risks that impact strategy and reputation.

  • What are the strategic assets we must protect at any cost? Are they at greater risk now?

3.) Define the Company’s Risk Appetite. Companies take risks in order to grow and compete in the marketplace, yet they need parameters for how much risk they are willing to accept. The board plays a critical role in defining the boundaries of risk for the company.

  • Given our risk profile, strategy, and the uncertainty surrounding the current business environment, what risk appetite should our company have? Have we clearly cascaded our risk appetite into decision-making processes at the level of operations?

4.) Integrate Strategy, Risk, and Performance Discussions. All too often, risk and business performance assessments are divorced from the strategy process in the organization. These silos increase the likelihood of poor, costly decisions.

  • When we discuss strategy in this evolving environment, how do we consider both risks to the strategy and the risks inherent in our chosen strategy?

5.) Ensure Transparent and Dynamic Risk Reporting. Risk reporting must reach the right people with the right information. Reports should not be limited to the metrics mandated by external disclosure rules—they should include all the information the board needs to assess the company’s risk exposure. Similarly, reporting should be dynamic, taking into consideration the velocity by which existing risks change or new risks emerge.

  • What is the threshold for risk-related reporting to the board (e.g., categories of risk, specific issues or incidents)? What situations may call for greater board engagement (e.g., perceived management failure to disclose or address a critical risk)? Do we have a protocol that defines these situations? 

6.) Reinforce Clear Accountability for Risk. The management of risk in today’s often-extended enterprise is complex, with executive teams typically transferring ownership of risks to specialist functions. But examination of recent risk disasters reveals that diffuse accountability for risk management is a major problem.

  • As we reward our executives, do we take into account their ability to anticipate and manage risk? Are accountability for and performance in managing risks effectively embedded in incentive structures at all levels of the organization? How far down the reporting chain do our incentives for risk management excellence go?

7.) Verify That Mitigation Reduces Risk Exposure. The success or failure of risk mitigation is often underreported, leaving boards with a limited understanding of whether or not risks are effectively minimized over time.

  • Do we clearly differentiate between risks that can and cannot be mitigated? Are our mitigation plans realistic? Do we understand that mitigation does not mean elimination? Have we clearly communicated our expectations for reporting on risk mitigation?

8.) Assess Risk Culture. Culture is often described as how work really gets done when no one is looking, and it is critical to ensuring a successful and sustainable strategy. More specifically, risk culture is a critical subset of overall corporate culture defined as the behavioral norms inside a company that drive both individual and collective risk decisions. A well-balanced risk culture can unleash innovation, and deter fraud and abuse.

  • Do we have a culture in which staff at all levels know what risks to take and what risks to avoid? How willing are employees to speak up about problems that can cause significant risk to the organization?

By adopting the above eight practices, directors can help their companies prepare for risks in 2017 and beyond.

For more NACD insight and support on board risk oversight, please visit our Risk Oversight Resource Center.