What questions should board members ask the leadership of their companies in the weeks to come? Political experts Terry Baxter, who served in three presidential administrations and is the former CEO of the National Transportation Safety Board (NTSB), and Alex Castellanos, co-founder of public affairs firm Purple Strategies and current member of CNN’s political analysis team, opined on considerations for the business community in this time of political and societal uncertainty.
Castellanos shared that President-Elect Donald J. Trump is highly aware that his administration will be under pressure to enact policies that produce economic growth. Both panelists agreed that the success of the new administration will also hinge on delivering on regulatory and tax reform, as well as changes to healthcare policy. Ever present in the incoming administration’s actions will be the populist sentiment that propelled the success of the Trump campaign. Castellanos suggested that companies that expect to succeed in this environment should be prepared to tell their story about how they are contributing to American renewal, including domestic job growth.
Attendees took away from the program several key questions that directors should be asking of management—and of each other—in post-election America:
Questions for Management
Information gathering: How are we informing ourselves about the new administration’s proposed policies, the implementation of those policies, and what those changes might mean for our company?
Outreach: What is our outreach and engagement plan for advancing our positions on important issues with the new administration?
New trends: How is our company identifying current trends, disruptors, and business impact issues? How are we identifying key actions that have longer-term or permanent implications?
Tax policy: What are we doing to prepare for shifts in the tax policy?
Spending: How are we positioning the company to benefit from proposed spending on infrastructure?
Growth: What core assumptions about our business’s growth should be reconsidered in light of the changes in government? What possible, emerging growth opportunities are on the horizon that we should be anticipating? Do we have a capture plan in place for these growth opportunities?
Exposure: What is our exposure to trade policy changes and the fluctuation of the U.S. dollar?
Supply chain: Do we know which of our critical suppliers could be impacted by a shift to a nationalist trade policy?
Strategic planning: How are we integrating political risk analysis and assessments into our strategy and risks processes?
Scenario planning: How robust and effective are our current scenario-planning processes, and how prepared are we to act quickly if needed?
Technology: What impacts will the new administration have on the growth of technology?
Questions for Fellow Directors
Compensation: What objectives are our compensation plans setting out for key executives and business units? Are we rewarding the right activities and the right behaviors?
Board composition: Does our board have the right combination of skills, diversity, and experience to provide effective guidance and oversight to management?
The audience also left with an important piece of advice. Castellanos cautioned that, in a world where we get our news from each other and the President-Elect has an affinity for social media, it is more critical than ever for companies to have a well thought-out corporate social media strategy.
Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of the National Association of Corporate Directors (NACD) or the NACD Capital Area Chapter.
Kimberly Simpson is NACD regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.
In this digital age, an organization’s ability to collect, analyze, aggregate, associate, and securely share data around the world is mission-critical. However, an increasing number of laws have been adopted across the globe regulating and restricting the transfer of information, ranging in type from data privacy-focused regulations to national security-focused regulations.
Regulatory restrictions can present significant challenges for global organizations, as they could directly impact business transformations (e.g., new cloud sourcing arrangements, the collection of mobile and Internet data, big data analysis projects, and the like) and corporate compliance initiatives (e.g., auditing, monitoring, internal investigations, e-discovery, whistleblower hotlines, and other similar compliance undertakings).
Knowing what these restrictions are, how they impact the business, and how the organization is addressing compliance are key to the board’s oversight of data management practices, which are an increasingly fundamental business element.
Knowledge is Power
Because regulations are increasingly impacting how information may be collected, used, and transferred, it is essential for directors and executives to understand these regulations and to apply best practices. By doing so, boards can help their organizations mitigate the risk of exposure to regulatory noncompliance, in particular as the potential penalties for noncompliance become increasingly material. To accomplish this, boards must ensure that their organizations are informed of the five W’s of data to stay ahead of the compliance curve:
Who – Who are we, who are our data subjects, and who has access to our data?
Where – Where do we keep our data and where do we transfer our data?
Why – Why do we collect and transfer this data?
When –When are we retaining data and for how long, and when do we share it with others outside the organization?
What – What solutions do we have in place to safeguard regulated data and what elements are in place address any local requirements, including cross-border transfer requirements?
Data Privacy-Related Cross-Border Transfer Restrictions
Outside of the United States, many jurisdictions, including those in the European Union, regulate the collection, processing, and transfer of personal data via comprehensive data protection laws that cover a broad range of personal data and activities related to such information, including its collection, use, and transfer. Considering the ubiquity of data collection for marketing, commerce, and employment purposes, these regulations have significant implications for a broad range of businesses.
Personal data covered by these regulations is often broadly defined to include any information relating to, or that could be linked to, an identified or identifiable individual, including the following:
Email address (including work email address)
Payment card information
These regulations often restrict the transfer of such personal data across international borders unless certain conditions are met. The first question in the analysis is often whether the data is being transferred to a jurisdiction that provides similar or “adequate” protection for personal data.
If the answer is “no,” then investigate whether:
adequate safeguards have been put in place or some other justification for the transfer can be relied upon; and/or
whether a derogation applies (e.g., the data subject has consented to the transfer or the transfer is required for the performance of a contract).
It is important to note that accessing personal data remotely in a different jurisdiction from the one in which it is stored is often viewed by foreign regulators as a transfer to that other jurisdiction (e.g., viewing data stored in Germany from a computer in the U.S.). It is also noteworthy that United States’ legal protections for personal data frequently fail to meet the “adequacy” standards of authorities in more highly regulated jurisdictions, such as those in the European Union.
Data Privacy-Related Cross-Border Transfer Solutions
There are several solutions for organizations that need to transfer personal data across borders to countries that may not be deemed to provide “adequate” protection to personal data by certain foreign authorities, such as the United States. Boards should ask management teams to verify that one or more of the following solutions is in place to comply with applicable cross-border data transfer restrictions:
Consent – Where appropriate, ensure that the data subject has given his/her voluntary and unambiguous consent to the proposed transfer. It is important to note that this option may not be available for employee data in certain jurisdictions in which employees are generally not seen as able to provide voluntary consent to their employers, such as in Germany or France.
Data Transfer Agreements – Review whether or not contractual provisions designed to provide adequate protection to the personal data transferred are utilized by the organization both for internal cross-border transfers between affiliated entities and for transfers to third parties (e.g., the EU Standard Contractual Clauses).
Binding Corporate Rules – Determine whether the organization should adopt enhanced internal personal data protection policies and procedures within the group of companies, referred to as Binding Corporate Rules, and have those approved by the applicable regulators in order to rely on them as a solution.
EU-U.S. Privacy Shield Framework – For transfers of personal data from the European Economic Area to the United States, determine whether the recently approved EU-U.S. Privacy Shield Framework, which provides that organizations self-certified to the Framework are deemed to provide “adequate” protection to personal data by the European Commission, may be an appropriate solution.
These solutions will likely continue to evolve, along with the various regulations that impose the restrictions, in order to address the ever-changing digital marketplace. For example, under the new European General Data Protection Regulation (GDPR), which comes into effect in May of 2018, requirements around what constitutes valid data subject consent will have more prescriptive conditions and any new decisions by the European authorities deeming that a non-EU jurisdiction provides “adequate protection for personal data” will likely be subject to more rigorous requirements (although existing “adequacy” decisions will be grandfathered). The penalties are also increasing, with fines for violating the GDPR going up to EUR 20,000,000, or 4 percent of the total worldwide annual turnover of the preceding financial year, whichever is higher. Furthermore, beyond data privacy-related cross-border transfer restrictions, boards should also be aware that there may be additional potentially applicable cross-border transfer restrictions on organizations, including those related to national security or state secrets.
Given the significant financial and regulatory burdens for non-compliance, boards need to understand how these cross-border transfer regulations may impact their organization and stay informed of their organization’s compliance position, and any risk decisions made related thereto, when it comes to both current and future data collections and uses.
As a partner at Baker & McKenzie LLP, Michael Egan advises clients across a range of industries regarding the legal aspects of global privacy and data protection, data security, information technology, and related restrictions on data collection and transfer. Joan Meyer chairs the North America Compliance, Investigations & Government Enforcement Practice Group at the firm.
The NACD Atlanta Chapter recently hosted an expert panel to discuss what directors should know and, more importantly, what they should be asking of management about the impact of Brexit on their corporations. The panel was moderated by Ambassador Charles Shapiro—former US ambassador to Venezuela and current president of the World Affairs Council of Atlanta—and featured Jeremy Pilmore-Bedford, consul general from the British Consulate-General in Atlanta; Mary Shelton Rose, PwC East Region advisory leader and leader of PwC’s US Brexit Response Office; and Lynn Clarke, CEO of MetroKitchen.com and director for ABARTA, Inc., Kahiki Foods, Inc., Visii.com, and the NACD Atlanta Chapter.
The takeaways from the event fell into three categories.
Takeaway 1: The Brexit outcome is uncertain, but a more moderate outcome is likely to prevail in the European Union.
To assist directors as they consider how to approach discussions about Brexit, the panel highlighted possible outcomes of the Brexit vote. Clearly, the path that would leave the least uncertainty is the one under which Britain retains access to the European single market through a series of bilateral agreements. However, a model where Britain does not continue to benefit from any part of the single market is also possible. Since the panel met, a UK court ruled that the British government requires parliamentary approval to trigger the process of exiting the European Union (EU), which adds additional complexity and uncertainty to the situation, and could give pro-EU lawmakers more opportunity to influence the direction of the exit.
While some may believe that other EU countries may want to punish the UK for Brexit by offering unfavorable trading terms, the panel seemed to agree that cooler heads will likely prevail as EU member countries focus on Britain’s role as a significant trading partner for the EU. According to Pilmore-Bedford, an upside of Brexit that is often overlooked is that Britain could begin to negotiate its own free-trade deals beyond Europe with growing countries like India.
Takeaway 2: The UK is trying to mitigate uncertainty.
Britain is attempting to mitigate some of the uncertainty about possible outcomes through outreach to companies. For example, British Prime Minister Theresa May recently met with top executives from such companies as Amazon, Goldman Sachs, IBM, and Morgan Stanley in an attempt to reassure investors.
UK officials like Pilmore-Bedford are quick to remind companies that the free movement of labor between Britain and the EU will continue until 2019 at a minimum. Also, the British government is working to enact laws that enhance legal stability for businesses. Still, with no crystal ball in hand and uncertainty even among those closest to the situation, the panel made clear that directors and management must remain vigilant.
Takeaway 3: Directors must exercise due diligence now.
Panelist Lynn Clarke showed the audience a jar of Marmite, a much-loved Unilever product in the UK. She cited an example of how, in the current climate in the UK, otherwise routine operational decisions can have significant impacts on a company’s reputation and bottom line. In the case of Marmite, Unilever decided to raise the price of Marmite in the UK, ostensibly to compensate for the sharp drop in the pound’s value following the Brexit vote. Behemoth grocery chain Tesco reacted by removing the product from its website. Analysts and consumers criticized the price hike, particularly since Marmite does not contain ingredients from outside of the UK. Clarke suggested that companies must exercise additional caution in how business is approached in the UK during this tumultuous time.
In addition, directors may pose a number of questions to management to prepare for Brexit’s impact, depending on the type of operations the company has in Europe:
Strategic Planning: Have we included flexibility in our planning to allow the company to react to scenarios as they unfold?
Investment: Do we want to consider either moving forward with investments or holding off on investments related to UK operations or acquisitions?
Clarke, on the board of a UK tech start-up, noted that start-ups in the UK may move to the EU to access existing seed-funding programs.
Pricing and Margins: Will we be affected by margin compression from goods sold to/from the UK? Should we modify our prices?
Talent: Have we assessed the likely impact of Brexit on talent sourcing to and from the UK should migration be restricted?
Supply Chain: How well do we understand our suppliers’ financial positions? Do we know which of our critical suppliers are most vulnerable to price fluctuations?
Investors: How will we communicate the financial and strategic effects of Brexit and how we plan to mitigate them to investors?
Pension Plans: Will there be concern about pension plans (underfunding, for example, due to asset devaluation)?
Technology: How will all of the above affect technology/systems as changes are needed to HR systems, VAT systems, regulatory systems, etc.?
PwC expert Mary Rose Shelton emphasized that preparing for Brexit will give directors the opportunity to explore less emphasized areas of the company such as the supply chain, human resources outside of the US, and European and other overseas operations. Given that the greatest certainty at this point is that uncertainty will reign for some time to come, smart directors will begin asking the right questions now, helping their companies adapt to conditions as they evolve. Please reference NACD’s recent publication The Board’s Role in Brexit Oversight for additional questions boards can consider in response to Brexit.
Kimberly Simpson is NACD’s first regional director, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.