Category: Strategy

Heads Up: Boards, Businesses, Leaders- CyberSecurity, Risks and Responsibility, Heightened Requirements.

Dickinson Wright

Corporate boards recognize that cybersecurity is and will remain a high priority because of the attendant risks on so many levels. And two recent matters – one a case and the other a high profile internal investigation – portend that an imminent frontier in corporate monitoring will be cybersecurity.

Cybersecurity is “hot” and will stay “hot” for corporations, executives, regulators, law enforcement and legislators. Rarely is there a corporate compliance discussion in 2017 where cyber isn’t “the” topic or a material part of the discussion. Corporate boards recognize that cybersecurity is and will remain a high priority because of the attendant risks on so many levels. And two recent matters – one a case and the other a high profile internal investigation – portend that an imminent frontier in corporate monitoring will be cybersecurity.

Recent governmental attention to corporate cybersecurity programs suggests strongly that cyber oversight will be the next priority area for corporate compliance monitoring. The Securities and Exchange Commission (SEC), for example, announced in January 2017 that cybersecurity compliance procedures would be a key focus for its Office of Compliance Inspections and Examinations (OCIE) this year.i OCIE previously announced cybersecurity as a priority for its 2016 examination program,ii tracking its September 2015 cybersecurity examinations initiative.iii Considering prior enforcement actions by the SEC against investment advisors and broker-dealers to address allegedly inadequate cybersecurity policies that enabled data breaches, the SEC’s announcement is no surprise. Similarly, the Federal Trade Commission (FTC) has been flexing its enforcement muscle through actions alleging that policy failures led to the exposure of confidential consumer information.iv These actions consistently result in settlements that impose cybersecurity enhancements designed to prevent similar future incidents. In the absence of an informed and sufficient monitoring program, however, it is difficult to assess effectively whether the corporations are implementing the negotiated settlements properly and, perhaps more importantly, as expected by the agency.

The SEC has a well-established track record for using independent corporate monitors across a broad range of cases. The FTC, on the other hand is in its infancy doing so, somewhat surprisingly. In a September 2016 settlement, the FTC jumped into the monitorship space by imposing a monitor to ensure compliance with a settlement that required a company to change fundamentally its compensation structure by rewarding actual sales rather than recruitment of new distributors. Although that FTC settlement did not present a cybersecurity issue, the FTC nevertheless set the stage to connect monitorships with the agency’s already active regulatory attention to cybersecurity matters. An example of such an opportunity presented on March 1, 2017 when Yahoo announced, in its Form 10-K filed with the SEC,v that as a result of an internal investigation associated with three cybersecurity incidents – including the theft of data from more than one billion accounts – the Company “took certain remedial action, notifying 26 specifically targeted users and consulting with law enforcement.” The 10-K describes the cyber-centric “other remedial actions” as follows:

The Board has directed the Company to implement or enhance a number of corrective actions, including revision of its technical and legal information security incident response protocols to help ensure: escalation of cybersecurity incidents to senior executives and the Board of Directors; rigorous investigation of cybersecurity incidents and engagement of forensic experts as appropriate; rigorous assessment of and documenting any legal reporting obligations and engagement of outside counsel as appropriate; comprehensive risk assessments with respect to cybersecurity events; effective cross-functional communication regarding cybersecurity events; appropriate and timely disclosure of material cybersecurity incidents; and enhanced training and oversight to help ensure processes are followed.

The 10-K also references 43 related class action lawsuits and the company’s cooperation with the SEC, the FTC, the United States Attorney’s Office for the Southern District of New York, and two State Attorneys General. Additionally, the General Counsel and Secretary resigned, receiving no severance payments. Moreover, the CEO gave up $12 million in stock and did not receive her 2016 cash bonus. It is easy to see where breaches and remediation as Yahoo disclosed could become the door-opener for a cybersecurity monitor.

Traditional corporate monitoring models allow for the implementation of an independent monitor to oversee an organization’s compliance with imposed obligations over a period of time. Independent monitors, by operation of the monitorship agreement, typically receive access to the subject company’s personnel, files, books, and records that fall within the scope of the settlement agreement and have authority to take necessary steps to become fully informed regarding the monitored company’s operations, within the parameters of the agreement. The independent monitors also are free to communicate with the regulatory body (or agency) regarding the monitored company’s corrective measures (or lack thereof). If the subject organization is found not to have complied with the terms of the settlement (i.e., not adhering to the compliance and other policies, procedures and steps designed to remediate and correct the conduct that gave rise to the settlement), then penalties can be assessed, including reinstitution of the criminal or regulatory action(s), and extension of the monitorship. And, particularly in the cybersecurity area, systems vulnerabilities easily can challenge the test of compliance with the settlement terms.

Cybersecurity-related regulatory actions, however, usually do not follow this model. Instead, many cybersecurity settlements and consent orders mandate only that independent third-party professionals periodically assess and report on the implementation of information privacy and cybersecurity safeguards. Because cybersecurity settlement agreements do not typically include an active independent monitor with the requisite background and experience to assess an organization’s remedial cybersecurity measures on a granular level, the benefits of an imbedded qualified professional to ensure true remediation are absent from the impacted company. Ideally, a cybersecurity monitor would and should have through knowledge, skill, training, experience, or education sufficient up-to-date technical expertise and a measurable level of experience – preferably a minimum of five years of demonstrable experience dealing with cybersecurity or incident responses – to act in a cyber-monitoring capacity. Also, the cybersecurity monitor should hold a minimum of one relevant technical certification. Instead, the present norm is the less beneficial periodic spot-checking undertaken by professionals who likely do not have the level of knowledge of the organization or an in-depth appreciation of the issues surrounding what gave rise to the settlement and need for remediation in the first place.

This seemingly minimalist approach to corporate cybersecurity monitoring is surprising because proper implementation of cybersecurity safeguards is, by design, meant to be tailored to a specific organization. It is not always clear, however, that proper implementation necessarily will satisfy regulators’ expectations. For example, many experts view the National Institute of Standards and Technology’s Framework for Improving Critical Infrastructure Cybersecurity (the “Cybersecurity Framework”) to be a benchmark for modern digital security implementation standards. In a seeming inherent contradiction, the FTC has opined that (1) the Cybersecurity Framework is not something with which an organization can “comply,” and (2) even if an organization follows the NIST Cybersecurity Framework (which the FTC describes as “a set of industry standards and best practices to help organizations identify, assess, and manage cybersecurity risks”), then that does not necessarily mean an organization’s cybersecurity policies will withstand regulatory scrutiny.vi Additionally, cybersecurity enforcement actions often are precipitated by incidents exposing sensitive third-party information, which in turn result in the near inevitable perceptions of an absence of cybersecurity buy-in from management teams and a failure to fully appreciate various cybersecurity risk vectors. Periodic spot-checks of corporate policies, and even implemented practices, can miss these issues; meanwhile, an independent and informed monitor with appropriate in-depth knowledge of a company’s remedial efforts undertaken pursuant to a settlement agreement would be well-positioned to identify and remediate corporate deficiencies while simultaneously satisfying regulators’ expectations.

Properly addressing modern and emerging corporate and regulatory cybersecurity concerns demands a new compliance prism and model as part of settlement agreements with government agencies. Rather than simply accepting periodic external assessments, matters involving cybersecurity should be addressed more effectively through the use of a cyber-knowledgeable independent corporate monitor. That monitor will be able to appreciate the technical cyber and substantive needs of the subject company, have intimate knowledge of that company, and understand the goals and objectives of the regulatory body with the cyber-compliance expectations. Equally important is that the monitor will be in a position to ensure – from an informed position – that the company implements proper cybersecurity practices, and the Board, management and staff receive appropriate cyber-training. Thus, the not-too-distant future is now for cybersecurity monitoring and monitors.

i U.S. Securities & Exchange Commission, SEC Announces 2017 Examination Priorities (Jan. 12, 2017), https://www.sec.gov/news/pressrelease/2017-7.html

ii U.S. Securities & Exchange Commission, SEC Announces 2016 Examination Priorities (Jan. 11, 2016), https://www.sec.gov/news/pressrelease/2016-4.html

iii U.S. Securities & Exchange Commission, OCIE’s 2015 Cybersecurity Examination Initiative (Sept. 15, 2015), https://www.sec.gov/ocie/announcement/ocie-2015-cybersecurity-examination-initiative.pdf

iv E.g., Federal Trade Commission v. Wyndham Worldwide Corporation, 799 F.3d 236 (3d Cir. 2015); Federal Trade Commission v. D-Link Corp., No. 3:17-cv-00039 ((N.D. Cal. Compl. filed Jan. 5, 2017))

v https://www.sec.gov/Archives/edgar/data/1011006/000119312517065791/d293630d10k.htm

vi See Andrea Arias, Fed. Trade Comm., The NIST Cybersecurity Framework and the FTC (Aug. 31, 2016), https://www.ftc.gov/news-events/blogs/business-blog/2016/08/nist-cybersecurity-framework-ftc

Improving Family Owned Business Boards And Governance With Addition of Specially Qualified Independent Directors

This article originally appeared in The Family Business Boardroom quarterly newsletter.

Seven Steps to Recruiting Value Add Independent Directors
director_recruiting_final
© The Family Business Consulting Group
By Anne Hargrave

The Addition Of Specially Qualified Independent Directors To Family Owned Business Boards and Improved Governance Processes Is Increasingly Common, and Of Interest To Successful Family Owned Businesses.

Incorporating independent directors into a family firm’s board is considered one of the standards for family business success. The prospect of finding independent directors who can both challenge business leaders and represent ownership interests can be daunting. Following these seven steps will help identify directors who will add value to the family business enterprise.

1. Establish a Nominating Committee
Identify three to four people to manage the director search process and recommend candidates to the board, which is responsible for electing a new director. The nominating (or governance) committee can facilitate an inclusive process, incorporating stakeholder perspectives to identify candidates who will support the needs of the business and the shareholders.

2. Collect Stakeholder Opinions
Soliciting stakeholder opinions on the characteristics of a new director gives participants an opportunity to express their point of view and will make it easier to accept the ultimate conclusion of the board. It is helpful to:

Review strategic challenges and board member expertise – Consider how your industry is evolving and the degree to which the business is prepared. What parts of the strategic plan are new territories for management? What skills might a new director have to support management in executing the plan?
Assess the board’s culture and function – Clarify what you would like to maintain and what you would like to change. Consider the impact of near term retirements on the board’s culture and whether you are seeking a director who might become the chair in the future. What director characteristics are important to enhance the board’s functioning?
Consider family and shareholder dynamics – Independent directors who build relationships with shareholders, spouses and future shareholders can be valuable in creating alignment between the board and shareholders. What characteristics will be important for a new director to relate well with shareholders?
Explore potential added value for management – Ask management to identify specific skills in a new director that will be helpful to them. Taking into consideration the board’s view of management’s opportunities for growth, what attributes might a new director have to mentor to management?
3. Create a Board Prospectus
As a tool for recruiting new directors, the prospectus outlines important factors about the business and the expertise desired, including:

A summary of the business’ history, products, markets served, strategic focus and size
Rationale for seeking a new director
Board structure, including number of independents, committees, meeting frequency and board fees
Board responsibilities
Desired director experience, attributes and education
4. Solicit and Review Candidate Pool
The nominating committee manages a process of circulating the prospectus to colleagues, advisors and personal contacts requesting candidate referrals. They collect and review candidate resumes to establish a pool of candidates whose background aligns with the prospectus, at least on paper. Using a firm experienced in searching for family business directors can be helpful in expanding the candidate pool.

5. Conduct Interviews
The nominating committee then narrows the candidate field incrementally until a qualified director has been identified. It is helpful to break the interviewing process into the stages noted below to compare candidates and share thinking about the right fit for the board.

a) Provide candidates with the prospectus and confirm their interest.
b) Interview each candidate via telephone.
c) Review the interview outcomes and identify a small group of candidates for in-person interviews.
d) Invite candidates to meet in person with nominating committee members.
e) Review the in-person interview outcomes, determining whether you have the right candidates to choose amongst. If so, move forward.
f) Consider the value of additional interviews or a chemistry fit social gathering with key stakeholders for the final candidates.

6. Decide
When you have identified a board candidate whom you believe has the right skills, values and cultural fit, extend an invitation. At that time determine whether or not the candidate is interested in accepting, contingent upon reference checks.

7. Conduct Reference Checks
Conduct reference checks and any additional vetting to confirm the candidate’s value add to other boards, their level of expertise, and, if they have had family business experience, the manner in which they were helpful to the family and business system.

Boards Of Directors in 2017: 5 Trends To Be Aware Of.

Previously posted in Private Company Director Magazine

The Responsibilities Of Boards Continue To Increase, Demanding Increased Director Awareness and Understanding Of Developments Likely To Impact That Business.

2017 Board of Directors Predictions: 5 Trends to Watch
By Brian Stafford

“For board members and directors tasked with guiding their companies through these changes and the complexities that could arise in the aftermath of 2016, change is needed in the boardroom as well. From expanding skillsets to greater accountability for brand reputation and issues management, here are five of the top trends that will make the biggest impact on boards in 2017”.

2016 was a year marked by significant changes—stunning political upheavals via Brexit and our own controversial new President-elect; a growing number of big-ticket, multi billion dollar M&A deals amid massive enterprise court battles, particularly in the technology sector; evolving regulations and proposed governance standards; as well as persistent and increasingly destructive cyber security attacks, threatening everything from the outcome of the U.S. election to the sale of Yahoo to Verizon for $4.8 billion.

For board members and directors tasked with guiding their companies through these changes and the complexities that could arise in the aftermath of 2016, change is needed in the boardroom as well. From expanding skillsets to greater accountability for brand reputation and issues management, here are five of the top trends that will make the biggest impact on boards in 2017.

Prediction 1: Individual Accountability Becomes a Focus

Board members will be measured by more than just collective financial performance, but also for their personal effectiveness, diligence, ethical quotient (EQ) and contribution to the corporate brand. Thus, it will be imperative for board members to evaluate the security of their confidential digital communications (both personal and professional), and adopt modern best practices designed to protect the integrity of sensitive information, and ultimately, the brand’s reputation.

Prediction 2: Diverse Board Members Wanted (& Needed)

Boards have often been criticized for lacking the diversity and modern skillsets needed to compete in today’s fast-paced and technology-driven business world. However, in order to both solve complex challenges facing businesses today, as well as capitalize on market opportunity globally, more diverse views, experiences and skill-sets in the boardroom are needed.

This evolution will revolve around three key areas:

1. More women as directors
2. Board members with varied skill sets (such as technology and security)
3. Unwavering commitment to technological adoption in the boardroom, and across the enterprise.

Prediction 3: Greater Accountability Calls for Improved Collaboration

In 2017, board members must also have more transparency, authority and collaboration to advise and make key decisions in tandem with company decision makers.

As the level of accountability grows, there will need to be a redistributed line between the board and executive management. This new redistribution will also guide how the board interacts with activist investors, shareholders and each other.

Prediction 4: Cyber Security Becomes a Board Problem

In 2017, boards will need to strongly consider adding individuals with CIO/CISO experience. Cyber security is perhaps the single biggest risk to enterprises today, with breaches impacting corporations around the world daily, and many are not ready for battle.

To help better prepare, boards will need to make it a priority to enhance public-private partnerships and utilize third party providers to leverage the cumulative cyber-knowledge of its whole network. This will help solve fundamental problems like a lax security culture, knowing where data is located and how regulations will impact the company.

Prediction 5: Political Changes Enter the Boardroom

President-elect Donald Trump promises to bring about a variety of changes to foreign policy, domestic practices and corporate governance. With Trump in office, board members will need to keep an even closer eye on how corporate governance is set to change, including new requirements for board oversight as well as the evolving role of the corporate secretary. In fact, there’s already talk of potential changes to key legislations such as dismantling Dodd-Frank and swift immigration and labor changes.

2017 will undoubtedly be a transformative year for many enterprises and the boards that govern them. While time will tell how each of these trends will impact boards, I am willing to bet that those that continue to evolve and adhere to industry best practices will outperform those that stick with the status quo.
Brian Stafford is Chief Executive Officer of Diligent Corporation. Brian is responsible for all day-to-day operations, with a focus on accelerating global growth and incorporating scale into the business in order to seamlessly manage the growth. Brian previously served as a Partner at McKinsey & Company, where he founded and led their Software-as-a-Service Practice. Prior to his tenure at McKinsey, Brian was the Founder, President and CEO of CarOrder, a division of Trilogy Software based in Austin, Texas. Brian is also an active seed stage investor and start up advisor. His other passion lies in the arts, supporting the NYC community in his role as a BAM board member.

How Some Family Offices Are Changing Their Investment Strategies

Previously posted on LinkedIn.

Food For Thought On Some Family Offices’Changing Strategies for Investment, and For Direct Investment In Particular.

Balancing what can, therefore, be a rather imprecise notion of ESG performance or “impact” and the asset’s financial performance within the decision-making and constitutional framework of a family office may not be without its complications and some will take to this approach more readily than others.

Family Office Insights
Sustainable and Impact Investing: An Increasing Focus for Family Offices
As highlighted in our previous “Family Office Insights” piece, the last few years have witnessed a growing number of family o ces undertaking direct investments and developing their human and technical resources as enablers for such investments. While not without its challenges, such a strategy can deliver economic benefits by way of reduced fund management fees while giving investors a greater level of engagement and in uence within the underlying businesses.
At the same time, we are seeing mounting evidence to suggest that more and more family o ces are turning their focus and capital allocations toward businesses and assets that satisfy certain environmental, social and corporate governance (ESG) criteria and/ or that seek to achieve positive social or environmental “returns” or “impact” alongside nancial performance.
This is, of course, not a trend that is exclusive to family offices and should not come as a surprise. We live in a world of increasing interest in the environmental and social consequences of business and trade, where the behavior of corporations is scrutinized more and more rigorously, and so the impetus for making investments in and supporting organizations that have a positive impact on society will surely continue to strengthen. As social awareness and pressure increases, it seems inevitable that the whole gamut of investors, across the private and public sectors, will look to increase their exposure to, or use of, products or assets that satisfy certain ESG, “green” or “impact” criteria in one way or another.
Nor is this a recent phenomenon; the idea of investing to align with ethical standards or to incentivize or disincentivize certain types of environmental or social behavior is long established.
What has perhaps been a catalyst for the more recent trend, however, is a realization by many investors that companies (and the instruments deriving from them) operating ESG-sensitive business practices are capable of matching, if not outperforming, their peers and comparable investments from a nancial perspective.
Converging Trends
There could be said, to be some degree, of correlation between the growing trend of direct investments by family o ces and the increase in capital being allocated by family offices to businesses or investments that operate with ESG considerations at their core, especially those that can truly be said to be “impact investments.”
The Millennial generation is undoubtedly more influenced by and
in tune with ESG concerns than their forebears, and with a large number of 30-40-year olds now starting to assume greater decision- making responsibility within their own family organizations,
greater proportions of the capital at their disposal is now being aimed in this direction. The emergence of a new cohort of global entrepreneurs with strong social and ecological consciences and loud social media-enabled voices no doubt adds further support to the momentum of a generation who want to put their money to work in a socially productive and bene cial way, while still generating acceptable investment returns.
More particularly, while liquid assets in this space such as ESG- oriented equity funds become increasingly prevalent and investable and will continue to attract a meaningful share of available capital, alternative assets such as direct investments can o er a much more “hands-on” approach to ESG investing, by removing intermediaries and often giving investors a role in the operation or governance of a business, enabling them to make an “impact.” Reputational benefits by association may also accrue to families that are seen to be actively involved with ESG businesses and investments, which can add to the appeal for some family organizations. For the right asset and assuming nancial performance targets are achievable, there can then be a compelling investment rationale at the con uence of these developing trends.
What Are the Challenges?
In the case of direct investments, identifying and gaining access to the right investment opportunities and then executing them will present the sort of challenges with which family offices are increasingly familiar.
As well as the typical hurdles of sourcing deal flow and identifying investment opportunities, there is the more fundamental question
of how to measure performance as far as ESG or “impact” is concerned. This is essentially an emerging asset class that is still in its infancy; there is no such thing as standardized criteria with which to measure “impact” against, and while corporate governance (the “G” of ESG) has received considerable attention and is some way toward more global or regional standardization, the other limbs of this commonly used acronym remain di cult to quantify or verify. In the US and in other jurisdictions, including the UK, the development of the “bene t corporation” model, aimed at addressing ESG concerns and social investing more generally, does, however, show signs of providing one form of veritable framework in which to join a for-profit enterprise with a social investment goal.
While the general trend seems, therefore, to be one of ever-increasing development, transparency and disclosure (other examples of which include the “comply or explain” regimes for public companies, requirements for regulated funds and the proliferation of ESG-oriented indices in the public equity and debt markets), which will help with the evolution of best practice and benchmarks for many investors, an assessment of performance from an ESG or “impact” perspective will often be to a large extent subjective.
Balancing what can, therefore, be a rather imprecise notion of ESG performance or “impact” and the asset’s financial performance within the decision-making and constitutional framework of a family office may not be without its complications and some will take to this approach more readily than others.
How Advisers Can Help
There will be a range of areas in which external advisers can help, depending on the asset in question and what the investment aims and objectives are.
A thorough understanding of the business model and particularly the supply and distribution chains will be critical and, accordingly, a more bespoke and possibly more intrusive approach to due diligence might be necessary. Likewise, a familiarity with the markets the business operates in and the local public policy landscape may be more valuable than it might otherwise be. Negotiating and obtaining appropriate governance and information rights, giving an ability to direct or monitor specific aspects of its investment, can also become a crucial aspect of the deal terms and may go beyond what is typically sought by a minority investor. Where direct investments are made in real estate, analyzing and agreeing to the terms and conditions applicable to tenants and potential service providers can also be a means of shaping the performance and credentials of the asset. In the case of funds and listed entities, where the opportunity for direct “impact” will be more limited, investors may wish to consider how they can influence performance or behavior by way of shareholder activism or softer, more diplomatic means such as raising concerns with directors and fund managers directly. With such a variety of approaches and considerations, there will, therefore, be numerous ways in which advisors should be able to add value to the process throughout the life cycle of the investment.

Contacts
Robert J. Shakespeare
Of Counsel, Singapore
T +65 6922 8674
E robert.shakespeare@squirepb.com
Daniel G. Berick
Partner, Cleveland
T +1 216 479 8374
E daniel.berick@squirepb.com
The contents of this update are not intended to serve as legal advice related to individual situations or as legal opinions concerning such situations nor should they be considered a substitute for taking legal advice.

Government Relations Is Serious Business, And More Than Just Lobbying

Lobbying Is Not Enough to Build Influence Among U.S. Lawmakers
Michael D. GottliebElise Gurney
DECEMBER 28, 2016

Posted in The Harvard Business Review, December 2016

Lobbying Is Not Enough to Build Influence Among U.S. Lawmakers

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As organizations shift their focus toward understanding and investing in their Washington brands, they add more structure and certainty to their government affairs strategies. By collecting and heeding the most relevant data—the feedback of policymakers—companies equip themselves to make the most informed decisions about their investments in Washington.

Every budget item should justify its existence. But when it comes to influencing federal policy, companies don’t always used the right yardstick—or any yardstick at all—for determining and improving return on investment. A firm may have seen success on past legislation, but how much of that outcome had to do with our company’s engagement? And how will we fare in the next policy fight? With so many moving parts in the policy space, determining a Washington strategy (and a budget) can seem equal parts art and luck.

Enter the concept of a Washington brand, which is the measure of a company’s long-term reputation and influence among the powerbrokers of DC—from K Street to Capitol Hill to the White House—who write the laws and regulations affecting corporate bottom lines. Just like consumer and employer brands, a Washington brand captures how the audience perceives a company, and how those perceptions influence their future behavior. Do these policymakers respect a given company? Do they care what that company thinks, and actually listen? Is that company their first call when they have a question? As it relates to DC, a strong brand offers an upper hand in influencing policy outcomes.

Importantly, that Washington brand can be measured, tracked, and analyzed. Through an annual survey of more than a thousand federal policymakers (and subsequent interviews with over 400), National Journal’s Policy Brand Research captures and quantifies Washington’s perceptions of 100 organizations across 15 industries, from energy to healthcare to technology. The last several years of this research have surfaced the specific activities and approaches to advocacy that can strengthen a Washington brand—and those that can’t.

Building a Strong Washington Brand

So how does a company build and maintain a strong Washington reputation? Not, as it turns out, through lobbying alone. Lobbying represents just one of twelve key activities that contribute to long-term efficacy and influence in Washington. But the best path forward depends on each organization’s unique situation, shaped in part by its corporate practices and the realities of the industry; a strategy that strengthens one company’s reputation can have the opposite effect on another. Crafting an optimal approach therefore requires a critical assessment of each organization’s strengths and weaknesses.

Consider a Fortune 100 company whose history of vocally opposing regulations landed it in the lower half of the Washington reputation ranking. National Journal’s Policy Brand Research identified this refusal to compromise as a major roadblock to the company’s Washington brand, and guided the organization toward a more collaborative posture—not just on rules and regulations, but around workforce development and diversity initiatives. Federal agency and White House staff in particular took note; they began inviting the company into conversations and seeking out its perspectives. Eventually, cross-Washington respect for the company’s input rose.

The outcome was drastically different for another Fortune 100 company that sought to boost its reputation in the wake of a corporate crisis. Without first assessing its standing in Washington, the company ran a high-profile ad campaign to promote its corporate social responsibility to policymakers. For a company that had already created a strong impression of its corporate conduct, this would have likely bolstered existing perceptions and provided a reputational boost. But this company enjoyed no such effect. Because it had failed to address the issue head-on, Washington influentials saw the campaign as nothing more than a public relations ploy that increased their existing skepticism.

As organizations shift their focus toward understanding and investing in their Washington brands, they add more structure and certainty to their government affairs strategies. By collecting and heeding the most relevant data—the feedback of policymakers—companies equip themselves to make the most informed decisions about their investments in Washington.

Companies have long relied on data-driven approaches to track and improve every other business function. Why should government affairs be any different?

Michael D. Gottlieb is Executive Director of National Journal’s Policy Brands Roundtable, a research and consulting firm that serves corporations and associations.

Business Leaders And Boards-Strategic Issues and Analytics In Business Planning and Competitive Action

Shared on LinkedIn.

The age of analytics: Competing in a data-driven world, suggests that the range of applications and opportunities has grown and will continue to expand. Given rapid technological advances, the question for companies now is how to integrate new capabilities into their operations and strategies—and position themselves in a world where analytics can upend entire industries.

Is big data all hype? To the contrary: earlier research may have given only a partial view of the ultimate impact. A new report from the McKinsey Global Institute (MGI), The age of analytics: Competing in a data-driven world, suggests that the range of applications and opportunities has grown and will continue to expand. Given rapid technological advances, the question for companies now is how to integrate new capabilities into their operations and strategies—and position themselves in a world where analytics can upend entire industries.

The age of analytics
Big data continues to grow; if anything, earlier estimates understated its potential.
A 2011 MGI report highlighted the transformational potential of big data. Five years later, we remain convinced that this potential has not been oversold. In fact, the convergence of several technology trends is accelerating progress. The volume of data continues to double every three years as information pours in from digital platforms, wireless sensors, virtual-reality applications, and billions of mobile phones. Data-storage capacity has increased, while its cost has plummeted. Data scientists now have unprecedented computing power at their disposal, and they are devising algorithms that are ever more sophisticated.

Earlier, we estimated the potential for big data and analytics to create value in five specific domains. Revisiting them today shows uneven progress and a great deal of that value still on the table (exhibit). The greatest advances have occurred in location-based services and in US retail, both areas with competitors that are digital natives. In contrast, manufacturing, the EU public sector, and healthcare have captured less than 30 percent of the potential value we highlighted five years ago. And new opportunities have arisen since 2011, further widening the gap between the leaders and laggards.

Progress in capturing value from data and analytics has been uneven.
Would you like to learn more about the McKinsey Global Institute?
Visit our Technology & Innovation page
Leading companies are using their capabilities not only to improve their core operations but also to launch entirely new business models. The network effects of digital platforms are creating a winner-take-most situation in some markets. The leading firms have remarkably deep analytical talent taking on various problems—and they are actively looking for ways to enter other industries. These companies can take advantage of their scale and data insights to add new business lines, and those expansions are increasingly blurring traditional sector boundaries.

Where digital natives were built for analytics, legacy companies have to do the hard work of overhauling or changing existing systems. Adapting to an era of data-driven decision making is not always a simple proposition. Some companies have invested heavily in technology but have not yet changed their organizations so they can make the most of these investments. Many are struggling to develop the talent, business processes, and organizational muscle to capture real value from analytics.

The first challenge is incorporating data and analytics into a core strategic vision. The next step is developing the right business processes and building capabilities, including both data infrastructure and talent. It is not enough simply to layer powerful technology systems on top of existing business operations. All these aspects of transformation need to come together to realize the full potential of data and analytics. The challenges incumbents face in pulling this off are precisely why much of the value we highlighted in 2011 is still unclaimed.

The urgency for incumbents is growing, since leaders are staking out large advantages, and hesitating increases the risk of being disrupted. Disruption is already happening, and it takes multiple forms. Introducing new types of data sets (“orthogonal data”) can confer a competitive advantage, for instance, while massive integration capabilities can break through organizational silos, enabling new insights and models. Hyperscale digital platforms can match buyers and sellers in real time, transforming inefficient markets. Granular data can be used to personalize products and services—including, most intriguingly, healthcare. New analytical techniques can fuel discovery and innovation. Above all, businesses no longer have to go on gut instinct; they can use data and analytics to make faster decisions and more accurate forecasts supported by a mountain of evidence.

The next generation of tools could unleash even bigger changes. New machine-learning and deep-learning capabilities have an enormous variety of applications that stretch into many sectors of the economy. Systems enabled by machine learning can provide customer service, manage logistics, analyze medical records, or even write news stories.

These technologies could generate productivity gains and an improved quality of life, but they carry the risk of causing job losses and dislocations. Previous MGI research found that 45 percent of work activities could be automated using current technologies; some 80 percent of that is attributable to existing machine-learning capabilities. Breakthroughs in natural-language processing could expand that impact.

Data and analytics are already shaking up multiple industries, and the effects will only become more pronounced as adoption reaches critical mass—and as machines gain unprecedented capabilities to solve problems and understand language. Organizations that can harness these capabilities effectively will be able to create significant value and differentiate themselves, while others will find themselves increasingly at a disadvantage.

About the author(s)

Jacques Bughin and James Manyika are directors of the McKinsey Global Institute, and Michael Chui is an MGI partner; Nicolaus Henke and Tamim Saleh are senior partners in McKinsey’s London office, Bill Wiseman is a senior partner in the Taipei office, and Guru Sethupathy is a consultant in the Washington, DC, office.
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McKinsey on Disruptive Technology-Driven Change In The Automotive Industry.

McKinsey Dec 2016
Shared previously on LinkedIn:

“Technology-driven trends will revolutionize how industry players respond to changing consumer behavior, develop partnerships, and drive transformational change.”
You will note that some of the strategic issues raised, are similar to issues being faced by manufacturers of other complex products.The ability to recognize and effectively respond to these issues will be of increasing concern and value.

Today’s economies are dramatically changing, triggered by development in emerging markets, the accelerated rise of new technologies, sustainability policies, and changing consumer preferences around ownership. Digitization, increasing automation, and new business models have revolutionized other industries, and automotive will be no exception. These forces are giving rise to four disruptive technology-driven trends in the automotive sector: diverse mobility, autonomous driving, electrification, and connectivity.

Most industry players and experts agree that the four trends will reinforce and accelerate one another, and that the automotive industry is ripe for disruption. Given the widespread understanding that game-changing disruption is already on the horizon, there is still no integrated perspective on how the industry will look in 10 to 15 years as a result of these trends. To that end, our eight key perspectives on the “2030 automotive revolution” are aimed at providing scenarios concerning what kind of changes are coming and how they will affect traditional vehicle manufacturers and suppliers, potential new players, regulators, consumers, markets, and the automotive value chain.

This study aims to make the imminent changes more tangible. The forecasts should thus be interpreted as a projection of the most probable assumptions across all four trends, based on our current understanding. They are certainly not deterministic in nature but should help industry players better prepare for the uncertainty by discussing potential future states.

1. Driven by shared mobility, connectivity services, and feature upgrades, new business models could expand automotive revenue pools by about 30 percent, adding up to $1.5 trillion.

The automotive revenue pool will significantly increase and diversify toward on-demand mobility services and data-driven services. This could create up to $1.5 trillion—or 30 percent more—in additional revenue potential in 2030, compared with about $5.2 trillion from traditional car sales and aftermarket products/services, up by 50 percent from about $3.5 trillion in 2015 (Exhibit 1).

Connectivity, and later autonomous technology, will increasingly allow the car to become a platform for drivers and passengers to use their time in transit to consume novel forms of media and services or dedicate the freed-up time to other personal activities. The increasing speed of innovation, especially in software-based systems, will require cars to be upgradable. As shared mobility solutions with shorter life cycles will become more common, consumers will be constantly aware of technological advances, which will further increase demand for upgradability in privately used cars as well.

2. Despite a shift toward shared mobility, vehicle unit sales will continue to grow, but likely at a lower rate of about 2 percent per year.

Overall global car sales will continue to grow, but the annual growth rate is expected to drop from the 3.6 percent over the last five years to around 2 percent by 2030. This drop will be largely driven by macroeconomic factors and the rise of new mobility services such as car sharing and e-hailing.

A detailed analysis suggests that dense areas with a large, established vehicle base are fertile ground for these new mobility services, and many cities and suburbs of Europe and North America fit this profile. New mobility services may result in a decline of private-vehicle sales, but this decline is likely to be offset by increased sales in shared vehicles that need to be replaced more often due to higher utilization and related wear and tear.

The remaining driver of growth in global car sales is the overall positive macroeconomic development, including the rise of the global consumer middle class. With established markets slowing in growth, however, growth will continue to rely on emerging economies, particularly China, while product-mix differences will explain different development of revenues.

3. Consumer mobility behavior is changing, leading to up to one out of ten cars sold in 2030 potentially being a shared vehicle and the subsequent rise of a market for fit-for-purpose mobility solutions.

Changing consumer preferences, tightening regulation, and technological breakthroughs add up to a fundamental shift in individual mobility behavior. Individuals increasingly use multiple modes of transportation to complete their journey; goods and services are delivered to rather than fetched by consumers. As a result, the traditional business model of car sales will be complemented by a range of diverse, on-demand mobility solutions, especially in dense urban environments that proactively discourage private-car use.

Consumers today use their cars as all-purpose vehicles, whether they are commuting alone to work or taking the whole family to the beach. In the future, they may want the flexibility to choose the best solution for a specific purpose, on demand and via their smartphones. We already see early signs that the importance of private-car ownership is declining: in the United States, for example, the share of young people (16 to 24 years) who hold a driver’s license dropped from 76 percent in 2000 to 71 percent in 2013, while there has been over 30 percent annual growth in car-sharing members in North America and Germany over the last five years.

Consumers’ new habit of using tailored solutions for each purpose will lead to new segments of specialized vehicles designed for very specific needs. For example, the market for a car specifically built for e-hailing services—that is, a car designed for high utilization, robustness, additional mileage, and passenger comfort—would already be millions of units today, and this is just the beginning.

As a result of this shift to diverse mobility solutions, up to one out of ten new cars sold in 2030 may likely be a shared vehicle, which could reduce sales of private-use vehicles. This would mean that more than 30 percent of miles driven in new cars sold could be from shared mobility. On this trajectory, one out of three new cars sold could potentially be a shared vehicle as soon as 2050.

4. City type will replace country or region as the most relevant segmentation dimension that determines mobility behavior and, thus, the speed and scope of the automotive revolution.

Understanding where future business opportunities lie requires a more granular view of mobility markets than ever before. Specifically, it is necessary to segment these markets by city types based primarily on their population density, economic development, and prosperity. Across those segments, consumer preferences, policy and regulation, and the availability and price of new business models will strongly diverge. In megacities such as London, for example, car ownership is already becoming a burden for many, due to congestion fees, a lack of parking, traffic jams, et cetera. By contrast, in rural areas such as the state of Iowa in the United States, private-car usage will remain the preferred means of transport by far.

The type of city will thus become the key indicator for mobility behavior, replacing the traditional regional perspective on the mobility market. By 2030, the car market in New York will likely have much more in common with the market in Shanghai than with that of Kansas.

5. Once technological and regulatory issues have been resolved, up to 15 percent of new cars sold in 2030 could be fully autonomous.

Fully autonomous vehicles are unlikely to be commercially available before 2020. Meanwhile, advanced driver-assistance systems (ADAS) will play a crucial role in preparing regulators, consumers, and corporations for the medium-term reality of cars taking over control from drivers.

The market introduction of ADAS has shown that the primary challenges impeding faster market penetration are pricing, consumer understanding, and safety/security issues. Regarding technological readiness, tech players and start-ups will likely also play an important role in the development of autonomous vehicles. Regulation and consumer acceptance may represent additional hurdles for autonomous vehicles. However, once these challenges are addressed, autonomous vehicles will offer tremendous value for consumers (for example, the ability to work while commuting, or the convenience of using social media or watching movies while traveling).

A progressive scenario would see fully autonomous cars accounting for up to 15 percent of passenger vehicles sold worldwide in 2030 (Exhibit 2).

6. Electrified vehicles are becoming viable and competitive; however, the speed of their adoption will vary strongly at the local level.

Stricter emission regulations, lower battery costs, more widely available charging infrastructure, and increasing consumer acceptance will create new and strong momentum for penetration of electrified vehicles (hybrid, plug-in, battery electric, and fuel cell) in the coming years. The speed of adoption will be determined by the interaction of consumer pull (partially driven by total cost of ownership) and regulatory push, which will vary strongly at the regional and local level.

In 2030, the share of electrified vehicles could range from 10 percent to 50 percent of new-vehicle sales. Adoption rates will be highest in developed dense cities with strict emission regulations and consumer incentives (tax breaks, special parking and driving privileges, discounted electricity pricing, et cetera). Sales penetration will be slower in small towns and rural areas with lower levels of charging infrastructure and higher dependency on driving range.

Through continuous improvements in battery technology and cost, those local differences will become less pronounced, and electrified vehicles are expected to gain more and more market share from conventional vehicles. With battery costs potentially decreasing to $150 to $200 per kilowatt-hour over the next decade, electrified vehicles will achieve cost competitiveness with conventional vehicles, creating the most significant catalyst for market penetration. At the same time, it is important to note that electrified vehicles include a large portion of hybrid electrics, which means that even beyond 2030, the internal-combustion engine will remain very relevant.

7. Within a more complex and diversified mobility-industry landscape, incumbent players will be forced to compete simultaneously on multiple fronts and cooperate with competitors.

While other industries, such as telecommunications or mobile phones/handsets, have already been disrupted, the automotive industry has seen very little change and consolidation so far. For example, only two new players have appeared on the list of the top-15 automotive original-equipment manufacturers (OEMs) in the last 15 years, compared with ten new players in the handset industry.

A paradigm shift to mobility as a service, along with new entrants, will inevitably force traditional car manufacturers to compete on multiple fronts. Mobility providers (Uber, for example), tech giants (such as Apple, Google), and specialty OEMs (Tesla, for instance) increase the complexity of the competitive landscape. Traditional automotive players that are under continuous pressure to reduce costs, improve fuel efficiency, reduce emissions, and become more capital-efficient will feel the squeeze, likely leading to shifting market positions in the evolving automotive and mobility industries, potentially leading to consolidation or new forms of partnerships among incumbent players.

In another game-changing development, software competence is increasingly becoming one of the most important differentiating factors for the industry, for various domain areas, including ADAS/active safety, connectivity, and infotainment. Further on, as cars are increasingly integrated into the connected world, automakers will have no choice but to participate in the new mobility ecosystems that emerge as a result of technological and consumer trends.

Automotive & Assembly