The rapid pace of technological advancements is causing tectonic shifts in the business risk landscape. Social media and artificial intelligence (AI) in particular are causing directors to reconsider how they think and talk about risk. Consequently, these topics were the focus of the first part of a roundtable discussion on the next generation of risk hosted by EisnerAmper LLP and the National Association of Corporate Directors (NACD) in New York last week.
There is an abundance of examples of companies that sustained severe reputational damage after being caught in the center of a social media storm. Most recently, credit reporting company Equifax made headlines after the company disclosed that it was the subject of a major data breach that compromised the information of roughly half of the U.S. population. The company’s offering of free credit monitoring to affected customers only made matters worse: several print and digital news outlets, including The New York Times, analyzed the terms of the offer, which suggested that by signing up for the service, a person relinquished his or her right to take legal action against Equifax. While the company later changed the legal language in another effort to assuage public concern, reestablishing its trustworthiness may be more of an uphill battle.
“Some of these things would have always been in the news, but the amount of time and the quickness with which news reaches an audience is unbelievable,” EisnerAmper Audit Partner Steven Kreit observed. “Boards need to make sure there’s a social media strategy throughout the company. Boards need to ask management what it has planned for and make sure they can react to those issues as they come up. It’s also important to have policies around social media. What is the CEO allowed to say? Are they allowed to have personal accounts and use that to disseminate company information?”
When attendees were asked if they knew their company’s social media policy backwards and forwards, few indicated that they did—but there was some debate as to how necessary this is. “I don’t think it’s appropriate for a board member to know the details of what the policy is,” one director opined. “What the board needs to know is that there’s a policy and that employees know what they can and cannot say about the company.”
Kreit agreed. “You don’t want to get too far into the weeds,” he said, “but a CEO may react to something in the middle of the night and that response may harm the company. And board members need to make sure the company doesn’t get hurt.”
While most of the discussion focused on preparing for the worst, one attendee observed that a company response plan that is effectively used to respond to negative feedback on social media can not only curb a damaging situation, but help to restore trust in the company.
Discussion then turned to AI. Here, some companies are ahead of the curve in applying technology that has the power to parse through massive amounts of data to make a determination about something. Take for example, IBM’s Watson, the supercomputer that famously competed on the game show Jeopardy!, facial recognition software and self-driving cars. Here, the risk is that AI is advancing so rapidly as a disruptor across nearly every industry. If a company isn’t paying attention now, the competition will leave it in the dust later. But AI is a broad subject area and identifying the elements that are most relevant to a board agenda—namely the risks—can initially seem daunting.
“These are conversations I rarely hear discussed around the boardroom table,” Kreit remarked. “And these are risks that keep changing.”
“An interesting exercise is to look at risk factors in public disclosures,” one attendee said. “We look at competitors and it’s easy to see what risks they are identifying in the same industry.”
“In the conversations I’ve had, it isn’t so much about whether the machine will do its own thing and crush humans as much as asking what fundamental technology are we not using to help us be more competitive and customer-focused,” one attendee offered. “The other thing is, technologists sometimes rely too much on technology. At some point, a human being has to put subjectivity in the mix to make sure the automated methodology you employed doesn’t come back and bite you. This conversation comes through the CISO [chief information security officer] on my board as well as the CTO [chief technology officer] together.” Another director remarked that these discussions take place on the audit committee level.
“It’s important to not think about technology and risk without it being an integral part of the strategy discussion,” another director piped in. “If it isn’t, I think it becomes an academic conversation and you’re walking ahead with one eye open and one eye closed.”
To this end, and in closing this portion of the roundtable, another attendee remarked on how board composition it critical in positioning the board to oversee this issue in the years ahead. “If you don’t have enough forward-looking people with experience from other industries, you’re doomed. Look at who you’re working with and have some sense of what you are [as an organization], what you want to be, and how you’re going to get there.”
Next week, the NACD Board Leaders’ Blog will feature roundtable discussion highlights that explore geopolitical and regulatory risks.
At NACD’s Master Class this August, directors from companies like Boingo Wireless Inc., Colgate-Palmolive Co., Kimberly-Clark Corp., GameStop Corp., and the Royal Bank of Canada convened in Laguna Beach, California, for peer-to-peer discussions on strategy, risk, and leading through disruption. One common thread ran throughout the discussions: companies expend enormous resources and efforts to mitigate cyber, geopolitical, and other threats, but they have yet to allocate the same attention to technology disruption. Kelvin Westbrook— president and CEO of KRW Advisors LLC, and a director of Archer Daniels Midland Co., Stifel Financial Corp., and T-Mobile US Inc.—framed the issue this way for Master Class participants: “Companies can survive cyber data breaches, but many don’t survive innovative technology disruption. It’s a bigger deal that we need to address.”
A prosthetic hand created using low-cost 3-D printing technology was demonstrated at the 2015 Global Board Leaders’ Summit. Photo by Denny Henry.
This year’s Global Board Leaders’ Summit puts technology and disruption front and center, with a variety of leading-edge speakers and sessions that focus on these themes. But more than just convening discussions, the director community get hands-on experience with emerging trends via Innovation Nation. This popular feature, launched at last year’s Summit, is back once again, featuring an even more robust cross-section of the trends, technologies, and innovations that are disrupting your businesses and shaping your world. This year’s exhibits include opportunities to immerse yourself in virtual reality, experience the sharing economy at work, and see the latest in drone technology up close. Here is a sampling of who will be on hand:
Dancing With the Start-Ups, a new feature modeled after the popular show Shark Tank, builds on popular sessions from past Summits that gave directors a chance to “Meet the Disruptors.” This fast-paced competition will feature 12 companies across three key industries—healthcare, financial services, and energy— to showcase the latest and greatest in emerging business. Both the competition and a booth showcasing the startup talent in Innovation Nation will offer Summit attendees the chance to meet the entrepreneurs who are hoping to be your next competitors in the marketplace. For those who can’t make the Sunday session, or who just want to get to know the companies a little better, swing by Innovation Nation to learn more about innovative new ways to diagnose malaria, the latest in solar energy technology, the intersection of market data with sustainability, and much more.
Dave Meadows is a self-described “lifelong ‘tinkerer’ and inventor”—inclinations that served him well in his former role as a senior research and development executive with Novartis International AG. Several years ago, Meadows set out to solve a problem that has plagued wine drinkers for nearly 9,000-years—adverse physical reactions, especially when drinking reds. Five years later, The Wand™ was born. This invention removes 95 percent of the histamines and sulfite preservatives from wine. The result—a whole legion of wine enthusiasts who had previously learned to avoid wine can once again partake without the fear of headaches and other adverse reactions. You can experience the power of The Wand™ firsthand and talk to Meadows about and his work in the areas of medical diagnostics, sports medicine, and consumer packaged goods.
Big data and analytics are driving the growth of nearly every business, from heavy hitters like General Electric and Alibaba to early stage start-ups and family farms. This new trend is poised to transform industries, power new business models, enable innovation, and create greater value. According to research from International Data Corporation, worldwide revenues for big data and analytics will grow to $187 billion by 2019—a 50 percent increase from revenues in 2014. But Powerlytics Inc. cofounder Kevin Sheetz cautions that, when it comes to data, big doesn’t mean better, and behind the hype are a number of critical questions boards should be asking to ensure their companies are taking full and smart advantage of this trend. Sheetz will be at the Summit to give directors real-time interaction with the company’s platform, which aggregates publicly available consumer and business financial data from sources like IRS tax returns, the U.S. Census Bureau, and the U.S. Department of Labor.
February 15, 2011 became a milestone in both game show and artificial intelligence (AI) history, as the IBM-designed super computer, Watson, bested previously undefeated players Ken Jennings and Brad Rutter to win Jeopardy! The Watson team has been hard at work in the intervening five years to use natural language processing and machine learning to make sense of large amounts of unstructured data. IBM developers will be available to demo this technology and answer questions about the intersection of AI and analytics.
The Internet of Things (IoT) is reshaping the business landscape in ways that aren’t yet fully understood. The U.S. Department of Transportation (USDOT) is one of many organizations harnessing the IoT to save lives. According to data from the National Highway Traffic Safety Administration (NHTSA), there were more than six million police-reported crashes on U.S. roads in 2015. While the number of people surviving car accidents has increased significantly thanks to airbags, antilock brakes, and other technology, USDOT’s Connected Vehicles program aims to stop many of those crashes from happening in the first place. This unique partnership between state and local transportation agencies, vehicle and device makers, and the public, aims to test and evaluate technology that will enable motor vehicles, roads and other infrastructure, and devices to “talk” to one another so every vehicle on the road is aware of the position of other nearby vehicles. Chris Gerdes, USDOT’s chief innovation officer, will discuss the program Monday on the main stage. Swing by the Innovation Nation to check out this technology, learn more about how you can bring the program to your home city, and get inspiration for how the IoT might just help your own business survive and thrive.
These are just a few snapshots of the incredible line-up of thought leaders and emerging technology at next month’s Summit. Want to learn more? View the full list of speakers and sessions at NACDonline.org/summit.