What Every Corporate Director Should Know About the New Tax Law-Part 1

George M. Gerachis and David C. Cole

The Tax Cuts and Jobs Act of 2017 (“Tax Act”) has sweeping ramifications. These range from mechanical compliance issues (e.g., revised withholding rates for employees) to strategic concerns that must ultimately be decided in the boardroom. For domestic corporations and foreign corporations with U.S. operations, one strategic imperative is a wholesale re-evaluation of the structure of a company’s operations. In this first of two articles, we identify four significant aspects of the Tax Act with which corporate directors should become familiar.

1. Mandatory “Transition Tax” on Deemed Repatriations of Deferred Foreign Earnings. Many corporations have deferred foreign earnings under Accounting Principles Board Opinion No. 23, recording no associated financial statement U.S. income tax liability based on the position that such earnings are indefinitely reinvested in foreign operations. The Tax Act terminates the deferral and imposes a tax liability on deferred earnings regardless of whether they are actually repatriated. The Transition Tax on this “deemed repatriation” is 15.5 percent on the portion of the earnings represented by cash and cash equivalents and 8 percent on the portion invested in non-cash assets. Although most of the provisions of the Tax Act take effect in 2018, the Transition Tax is due on a corporation’s 2017 tax return and will likely cause a charge to 2017 earnings. There is an election to pay the tax in installments over an eight-year period.

What Directors Should Do. Computing the Transition Tax can be extremely complex and requires data the corporation may not have collected in the ordinary course of its business. This is particularly the case where the corporation has acquired companies that earned foreign profits after 1986. The U.S. Securities and Exchange Commission (SEC) has issued guidance, including Staff Accounting Bulletin 118, to assist corporations in applying generally accepted accounting principles (GAAP) to reflect the impact of the Tax Act where necessary information is not yet available. Directors, and in particular audit committee members, should ensure that the corporation devotes adequate resources to preparing a reasonably accurate computation of the Transition Tax in time to make their disclosures for the fiscal quarter or year ended December 31, 2017. Given the many open issues regarding the Transition Tax that may not be clarified by the filing date of the corporation’s tax return, corporations should enlist expert assistance to interpret the law and refine the company’s computation of the Transition Tax.

The deemed repatriation affords many corporations greater flexibility to utilize previously “trapped” cash (i.e., cash that was held by non-U.S. entities that could not be repatriated without being subject to U.S. tax). This cash might be used to fund acquisitions, capital expenditures, debt repayments, stock buybacks or dividends. Directors should ask management to focus on the corporation’s optimal capital allocation and to report to the board concerning available options.

2. Reduction in Corporate Tax Rate from 35 Percent to 21 Percent. The default rate on corporate taxable income drops from 35 to 21 percent, although there are special lower rates for certain types of foreign earnings discussed below. This 40-percent reduction in the corporate tax rate will affect the value of a corporation’s deferred tax assets and liabilities. For example, all things being equal the value of a net operating loss carry-forward may drop by 40 percent. At the same time, however, the lower tax rate may increase after-tax earnings going forward for many corporations. There are many less obvious implications of the rate reduction, particularly in conjunction with other changes in the Tax Act.

What Directors Should Do. Directors should commission a study by the corporation’s tax department of potential changes in the corporation’s legal entity and operational structures to take full advantage of the rate reductions in combination with other relevant provisions of the Tax Act. Such a study will also be useful in completing the corporation’s tax accounting analysis of the impact of the Tax Act under GAAP and related disclosures in the corporation’s SEC filings.

3. Reform of Taxation of International Operations. The Tax Act radically changes the taxation of profits earned outside the United States.

  • First, it eliminates the deferral of U.S. tax on foreign earnings. Thus, U.S. income tax now will be imposed on most current earnings of foreign subsidiaries rather than being postponed until earnings are repatriated.
  • Second, as a limited exception, foreign profits amounting to a 10 percent return on certain investments in tangible assets are permanently exempt from U.S. tax.
  • Third, profits from intangible assets earned outside the U.S. can be taxed at a special rate of 10.5 percent to the extent those profits result from certain types of revenues. Profits earned by domestic corporations from certain foreign sales of property or services are eligible for a special tax rate of 13.125 percent. Both of these special rates are scheduled to increase after 2025, but to levels well below the general 21 percent corporate rate.

What Directors Should Do. Directors should request a thorough review of the corporation’s international footprint as part of the study described above. This review should consider the optimal location not only of the corporation’s operations, but its personnel, tangible assets and intangible assets. Unlike GAAP consolidation, tax reporting must generally be made on an entity-by-entity basis (although consolidation of affiliates within a single country is often allowed). As a result, the corporation’s legal entity structure and inter-company contracts must be carefully aligned with its commercial arrangements. Given evolving changes in the tax laws of other member countries in the Organization for Economic Co-operation and Development (OECD), and particularly under the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, structuring operations to accommodate both foreign tax laws and the new U.S. tax regime may be challenging. Finally, in evaluating any structure, directors should consider the prospects for future tax changes in reaction to the Tax Act in jurisdictions where the corporation operates.

4. Changes to Interest and Depreciation Deductions. The Tax Act gives with one proverbial hand—allowing immediate deduction of 100 percent of the acquisition cost for certain depreciable assets—and takes away with the other by limiting deductibility of net interest expense for many corporations. The “immediate expensing” provision applies only to tangible assets like plant and equipment and is phased down beginning in 2023. This new provision is more generous than prior “bonus depreciation” rules because it also applies to used assets, as well as new assets.
The interest expense rule limits certain corporations’ ability to currently deduct net business interest expense amounts exceeding 30 percent of certain thresholds. These thresholds are based on Earnings Before Income and Tax (EBIT) in years through 2021 and—less favorably—on Earnings Before Income, Tax, and Depreciation (EBITDA) after 2021. Disallowed interest deductions generally may be carried forward indefinitely. Interest expense on existing indebtedness is not grandfathered. Regulated public utilities are automatically exempt from these rules. Corporations in a broad spectrum of real property related businesses, farming businesses, and certain other agricultural businesses may elect to have these rules not apply.

What Directors Should Do. Directors should evaluate the impact of these two provisions on their corporation’s capital structure and its investment decisions. They should understand the implications of immediate deductibility of depreciable assets on acquisition structures. For example, acquiring stock may result in a lower internal rate of return than acquiring assets. Regarding the business interest limitations, directors should encourage management to determine whether the corporation is eligible to elect out of these rules and, if not, to explore alternatives to debt repayment, such as preferred equity instruments or other structures, that might mitigate the impact of these limitations.

Visit the NACD Board Leaders’ Blog again for the second installment in this series. 

George M. Gerachis serves as head of Vinson & Elkins’ Tax and Executive Compensation and Benefits department. He represents corporate and individual clients in a wide range of tax planning and tax controversy matters. David C. Cole is a tax partner at Vinson & Elkins and represents corporations, partnerships, and high net worth individuals in a wide range of domestic and international tax matters. Thoughts expressed here are their own. 

Overseeing Executive Pay in a Tumultuous Time

Executive pay has long been a key focus for shareholders, activists, directors, and the media—and there are no signs of that changing. Increased attention on income inequality, corporate social responsibility, and incentive plans that encourage risky behavior has further increased scrutiny of executive pay, making it a critical oversight area for boards of directors.

Compensation committee members should address the following questions to assist in exercising sufficient oversight:

  1. What is the board’s required level of oversight on executive pay? Emerging best practices are pushing compensation committees to go beyond the technical requirements for approving and disclosing CEO pay set by the U.S. Securities and Exchange Committee and stock exchanges. It is now becoming a best practice also to include a broader view of human resources-related issues, including how a company allocates resources toward compensation and benefits, how incentive plan metrics interact with desired behaviors, and the board’s involvement in proactive succession planning.
  2. How can compensation committees operate with the greatest efficiency? Compensation committee agendas tend to follow a similar pattern from year to year across companies, but certain practices can ensure meetings run more efficiently. For example, following an established cadence of pre-calls in advance of meetings between management and the committee chair, the committee chair and the advisors, and among other committee members can help them run smoothly. Many committees also reference the agenda at the end of each meeting to ensure that all parties’ expectations are aligned. Selecting and working effectively with outside advisors can further enhance efficiency and keep the committee as a whole up to speed on potential pitfalls and implications of pay and governance decisions.
  3. How do compensation committees evaluate incentive plan designs and set performance goals? Incentive compensation is an important lever to encourage behavior and align management with shareholders. Recently, goal setting has received increased scrutiny from shareholders and proxy advisors who have raised concerns about significant payouts to management when performance did not yield a sufficient return for investors. Whether goals are set on an absolute basis or relative to peers, compensation committees often review models that stress-test payouts under various growth and return scenarios to avoid windfalls to executives. In defining acceptable target performance levels, compensation committees may consider multiple perspectives of the company’s expected future performance, such as past performance, peer performance, analyst expectations, internal budgeting and planning, financial modeling, and correlation between the company’s share price and the general market.
  4. What are shareholders really looking for in compensation plans? Institutional investors and proxy advisory firms have views on compensation levels and design that are generally well documented. Committees should consider how compensation design features and pay decisions will be perceived by the company’s major shareholders and the proxy advisory firms. Typically their voting guidelines stem from the principal of pay for performance, but subtle changes to a compensation plan design can make it more acceptable to particular stakeholders. For example, investors have different views on acceptable levels of dilution from stock-based compensation. Knowing those levels may steer a company toward cash-based phantom shares for certain levels of employees to avoid triggering a dilution concern from a major shareholder. In addition, directors should be aware of trends in shareholder proposals, litigation risks, and how and when to engage directly with shareholders on issues related to compensation.
  5. What keeps compensation committee members up at night? Succession planning, risk mitigation, environmental and social goals, gender pay equity, board diversity, director pay, and executive employment agreements are just some of the areas that have bubbled up to the compensation committee agenda recently.  US tax reform is also affecting compensation plans and processes. Most notably, the elimination of the performance-based exception to Internal Revenue Code Section 162(m) means that compensation above $1 million paid to certain executives cannot be deducted by a public company, even if it met the former Internal Revenue Service definition of “performance-based.”  The elimination of the performance-based pay exception gives companies more flexibility in how plans are designed (e.g., goals can be set later in the year and subjective judgement can be used to set and evaluate performance against goals). However, companies may not want to abandon the best practices dictated by the performance-based exception since shareholders and proxy advisors may object.

To help directors with their oversight responsibility, Mercer has partnered with NACD to publish the Director Essentials Guide to Board Oversight of Executive Pay. The goal of the publication is to provide directors with a clear and concise reference guide to basic principles that affect design and governance of executive compensation programs. Mercer and NACD are committed to helping directors stay ahead of the curve and aware of evolving trends. We hope you find the guide a useful reference and welcome your feedback in the comments section below.

Teresa Bayewitz is a principal in Mercer’s rewards consulting practice based out of New York City.

Six Concepts for Oversight of Performance Management

Jim DeLoach

Jim DeLoach

Performance management relates virtually to everything that is important to a company’s progress—execution of its strategy, the customer experience, investor expectations, executive compensation, and the board’s oversight itself. In spite of the importance of performance to a company’s success, there is very little literature on board oversight of performance management. Given the complexity of the global marketplace, the accelerating pace of disruptive change, and ever-increasing stakeholder expectations, how should the board oversee the performance management process so that it is effective in driving execution of the strategy and in its efforts to incent the desired behaviors across the organization?

In August 2017, Protiviti met with 18 active directors during a dinner roundtable at a National Association of Corporate Directors (NACD) event to discuss this topic. As the ultimate champion for effective corporate governance, the board engages management with an emphasis on four broad themes: strategy, policy, execution, and transparency. With effective performance management touching each of these themes, many organizations use some variation of a balanced scorecard that integrates financial and nonfinancial measures to communicate what’s important, focus and align processes and people with strategic objectives, and monitor progress in executing the strategy.

Our discussions with the directors identified six important concepts to consider when overseeing performance management.

Return on Expectation

Performance management must embrace the appropriate metrics, given the strategy management seeks to implement and the entity’s expected investments. Alignment with strategic priorities is a challenge. As one director noted, most organizations have yet to bridge the gap between efforts to attract and retain employees and efforts to engage and align them.

The directors agreed that managing the balance between short-term and long-term performance presents particular challenges when determining executive compensation. Executives must be rewarded for performance, and long-term shareholder interests must be preserved. The prevailing view was that performance management should be linked to the storyline articulated in investor communications. However, directors should not allow stock price performance to dominate the spotlight so much that it detracts management from focusing on business fundamentals and strategic drivers.

Structure

Performance management must focus on operational excellence in the structure, or business model, in place to execute the strategy. Alignment starts with defining performance expectations, as set forth by the strategy, and communicating those expectations across the organization. Performance measures should be used to track the execution of the strategy at the organizational, process, and employee levels so that accountability for results cascades down into the organization. Tracking for these measures allows for necessary midcourse adjustments to be made on a timely basis to achieve performance targets. Metrics must be linked the reward system in a manner that ensures people are incented in the right way, consistent with the strategy. The impact of incentive compensation on behavior and risk taking should be a board priority.

Culture

With this topic sparking considerable discussion, several directors noted that while most boards assess and understand the tone at the top, they neither assess nor understand the tone in the middle. One director suggested the use of organizational health and effectiveness surveys to gauge how employees perceive the current leadership culture and compare that perception to the culture they desire. Gaps in perception revealed by such surveys almost always provide informative insights into what’s really happening in the business and what people below senior management really think. They also reveal opportunities for leadership development and improving the tone at the top and in the middle. The consensus of the group was that boards should encourage and, if necessary, push management to consider culture-related measures that make sense for the company. As one director noted, “What gets measured matters.”

Customer Experience

The customer base should be segmented, and metrics should focus on the needs of each targeted segment. Customer experience metrics should address the distinctive attributes of the value proposition underlying why customers choose the company’s product or service over other alternatives and provide insight into what a company needs to do once issues are identified. To that end, these metrics should reach beyond nonfinancial areas and address quality, responsiveness, and other critical aspects of the brand promise, both expressed and implied. Less than half of the directors in the roundtable indicated that their top executives reported on one or more customer experience metrics. Several directors noted that when it comes to the customer experience, and even culture across the company, it is incumbent upon board members to “do some homework.” As one director put it, “Try to do your own research and be a ‘secret shopper.’”

Innovation and Resilience
Metrics should inform the organization’s focus on innovation, changes in technology and the business environment, emerging disruption, and market opportunities. The directors at the discussion dedicated a portion of the evening to innovation as a source of new revenue-generating opportunities and a driver of a positive, thriving culture. Among the key points made, the directors agreed the board should encourage consideration of innovation in the performance management process with emphasis on establishing an “innovation pipeline” with reporting on progress through the pipeline.

Monitoring for “Perfect Narratives”

When it comes to performance management, there is a risk of gaming the system. It is human nature for management to instinctively want measurements to reflect positive results. As one director noted, “Flawed stories are better than perfect ones.” It’s a positive when the performance management process identifies one or more areas requiring attention and improvement. So-called perfect narratives, a term used by the director referenced above, tend to raise questions about the rigor under which performance is measured and monitored, as well as the authenticity of the results.

These points get to the bottom of an essential question: do the CEO and executive team really want to know the unvarnished truth about the culture? The customer experience? Innovation? The effectiveness of the business model?

When executive management commits to managing by fact and earnestly seeks genuine results, the board can stand behind them with confidence when results are communicated to shareholders.

 

Dig into deeper insights from Protiviti by visiting their Board Perspectives piece on board oversight of performance management.

Seven Steps to Minimize Fallout from Crisis Situations

Corey E. Thomas

At some point, your organization is likely to encounter a crisis situation. As CEO of a cybersecurity company, I work with many organizations responding to security crises, such as breaches or disclosure of security issues in their products. How companies respond to these situations can make or break their reputation and customers’ trust in the organization, and impact the cost of the incident. This is also true for non-security-related incidents.

As board members, you can support—or even mandate—a response that will see your business weather the storm as well as could be hoped. Nobody likes to think about worst-case scenarios, but as board members you must hold the organization accountable for doing just that to ensure it is prepared in case disaster strikes.

My seven steps to minimizing fallout through crisis response are as follows:

1. Determine your guiding principle. Before you begin planning for, or responding to, a crisis, determine the overarching goal or guiding principle that drives decision-making throughout the organization’s response. This should be a principle that has been articulated in advance and is well understood by all stakeholders.

Guiding principles can vary greatly, and could include: protecting users, investors, or employees; minimizing disruption or cost to the business; or demonstrating leadership in your community. Spend time with the executive team and other key leaders in your organization to determine what makes the most sense for your business. Be sure to discuss the risks, benefits, requirements, and payoffs of various approaches.

2. Preparation is key. Next, identify a handful of crisis scenarios that could affect your business, and to determine which key players will drive the response. This will likely change from scenario to scenario. Once you know your scenarios and stakeholders, assign an owner to build response plans. These plans should include basic workflows for every scenario and a detailed matrix of roles and responsibilities for all stakeholders. The owner should work through the processes and expectations to ensure that everyone understands their role, and what their teammates will need throughout the process.

As a board member, you can support this by asking:

  • Do we have an up-to-date incident or crisis response plan for the organization? What scenarios are covered? Are there applicable scenarios that have not been included?
  • Who was involved in creating, reviewing, and approving the plan? Do all stakeholders understand what is expected of them?
  • What assets most need protecting to ensure effective business continuity?

3. Practice makes perfect. There is no such thing as perfect when it comes to crisis management, but ensuring that your organization’s response plan has been practiced will help you identify potential kinks in the process before they become significant issues. It will also help your cross-functional team build trust and better understand each other’s processes and needs.

As a board member, you can support this by asking:

  • When was the last time we ran a drill for our crisis response process?
  • What points were identified as improvement areas in our last crisis drill?
  • How frequently does our response team run drills or tabletop exercises?
  • How many different scenarios have been walked through?

4. Build trust among core stakeholders now. If you have followed steps 1 through 3, then you know who your core team is for a variety of scenarios. Depending on the size and complexity of your organization, the key stakeholders may not know each other well and may have minimal experience working together. A crisis is an incredibly challenging time to begin building relationships and trust.

Encourage your crisis response leaders to get to know each other sooner than later, possibly through presenting the crisis response plan to the board. When presenting, ask them to demonstrate familiarity with each other and their alignment. For example:

  • Ask them to explain each other’s role and goals through a given crisis response scenario.
  • Ask how they collectively judge the success of a crisis response.
  • Ask them to explain what they need from each other and the board or leadership team, and what they will provide themselves.

5. Set clear expectations. As much as the crisis response leaders need to build a plan and determine workflows for crisis scenarios, the board should also establish clear expectations and share them in advance. Bear in mind that your role is to help, not hinder, the organization’s ability to respond to a crisis, so whatever expectations you set with the crisis leaders or executive team should be as minimal or efficient as possible.

Consider the following:

  • When do you want to be informed of a potential crisis situation? For example, when it’s first discovered? Once it’s been verified? Once it’s resolved? Are there any industry-specific regulatory requirements for the timing of reporting on a crisis?
  • How do you want to be informed? Do you want communication to be over email, or should everyone get together for a call?
  • Are there categories of incident severity that trigger different responses? For example, will there be situations that you don’t need to know about, some that can just be included in the regular board reporting, and others that warrant dedicated communication?

6. Glide like a swan. As board members, you are no doubt adept at maintaining a professional demeanor in the face of stressful situations. Never is this more vital than during a crisis response. You need to set a tone for the executive team and crisis response team. If you get heated or upset, that will likely perpetuate the same behavior, and a lack of calm generally encourages mistakes to be made and people to become less effective.

Similarly, a lack of calm among responders and executives will likely reveal itself to others, whether inside or outside the organization. This may result in speculation that does more harm to employee or customer morale, or to stock price, than the incident itself. Avoid being the cause of additional stress for those managing the response, and keep in mind point 5 above. It’s fine to want to be kept informed, but take care not to distract or further stress out the core team.

7. Capture learnings and avoid blame. When responding to a crisis, it’s important to enable people to be honest about what happened, what could have or should have been done differently, and what lessons and next steps can be taken away. If everyone is worried they will be fired or publicly blamed, they will be less likely to be honest about what happened. As such, it’s essential during the crisis response that you avoid recriminations and blame.

After the incident has been resolved, ask the crisis response leaders to present key learnings to the board, including what action will be taken to ensure the scenario is unlikely to occur again. At this time, it may be appropriate to discuss accountability; this should be handled privately and with sensitivity.

As board members, you typically will not be on the front line of a crisis response. However, you can still influence its outcomes by encouraging preparation, ensuring alignment, and supporting an open, calm, and blame-free approach. This will enable your organization to put their best foot forward, and hopefully weather crises in the best possible way.

Corey E. Thomas is CEO of Rapid7. Read more of his insights here

Continuing Curiosity: My CES Experience

Kathleen Misunas

I first attended the Consumer Electronics Show (CES) more than 30 years ago and have visited periodically over the intervening years. Rest assured that the creativity and sheer volume of innovation exhibited there never ceases to amaze and impress me. While some of it is developed and showcased by global companies like Samsung and Kohler, the showroom floor is also filled with talent previously working behind the scenes at various brands, or by truly start-up entrepreneurs.

This was the first time that I have viewed the show through the eyes of a corporate director. As I walked more than ten miles through the aisles over the course of CES 2018, I considered the governance implications of what I saw.

To me, one of the benefits of being at CES is being away from daily routines and taking the opportunity to observe and just let your mind cogitate the possibilities. And cogitate I did. In some cases, I wanted to know not only what the product did, but how it was made. In other instances, I wondered how a product could be marketed or sold, what companies would create its competitor products, and what adoption rate was required to make the product financially successful.

So, what did I find exciting? What made the governance wheels in my head turn? Below are a few themes that stood out.

  • Quantum Computers. From a pure technology standpoint, the quantum computer stands out due to its astounding small size yet incredible processing power. Intel, which is one of the leaders of the quantum computing race, kicked the week off by exhibiting its own advancements in engineering one of the most powerful quantum chips yet. The IBM Research group, on the other hand, displayed their quantum computer as a stunning piece of art.
  • Sensors and the Internet of Things. Sensors—which were imbedded in everything from fabrics to headsets, from vehicles to medical products, and in everything else you might imagine would benefit from being connected—continued to impress due to the breadth of their utility.One clever use of sensors was the ShadeCraft patio umbrella whose electronics and robotics allowed it to automatically raise and lower itself based upon current light and weather conditions. This product not only understood sunrise and sunset, but followed the sun throughout the day to properly tilt the umbrella and gauged wind speed or rain to automatically close the umbrella without human intervention. No more worrying about your expensive patio umbrella being turned inside out, upending your table, or taking off as a projectile when you weren’t available to tend it.
  • Autonomous Vehicles. There was an incredible number of offerings around autonomous vehicles. I use the term vehicles instead of cars because the auto-drive implications are also clear for vans, trucks, tractors, forklifts, campers, and other vehicles. Here again the use of sensors was key, and there is no doubt that many of these machines will perform better than the drivers that we currently encounter on the road, human foibles and all.
  • Medical Aids. Regarding other products, I found so many to be interesting. There was an audio system that not only provided a hearing test but progressed to actually construct an ear bud that utilized the results of the hearing test to produce a customized hearing aid. Phenomenal! Anyone who has gone through the rigor of selecting a hearing aid device can appreciate this speedy, streamlined approach, especially when it is at half the price point of today’s offerings.Next, I liked the Gyenno Co., which developed a special spoon that automatically levels its contents to eliminate spilling. This will provide such a caring and practical solution for those with Parkinson’s or other medical issues that have a problem feeding themselves due to tremors.
  • 3D Printing. Another greatly improved invention is 3D printing. Although the method has been around for a while, it is now not limited to plastics or small items. Printers can fabricate in a variety of mediums and to great scale. For example, there was a camper-type van displayed on the showroom floor that was created by 3D printing. It was produced quickly and at much less expense than a traditional van. It is easy to extrapolate the utility of 3D printing to assist various businesses since it permits specialty solutions that previously did not have the volume to be economically feasible from the producer’s perspective, and were not affordable from the buyer’s standpoint.
  • Odds and Ends. Three fun offerings were related to beer, fingernails, and laundry. Although I am not a beer drinker, the PicoBrew easily allows making craft beers at home and would be a hit with many of my friends. And I know those who would like the fingernail machine that can use any photos to create vinyl nails for application at home. Finally I’ll introduce the FoldiMate, a device that folds your laundry when you feed it into the machine. It could be the next best thing since sliced bread for the lazy among us.

It is worth noting that one of the great joys of CES is that everyone is welcome, and that the exhibitors and subject matter experts arrive from many countries. CES makes clear that the desire to innovate transcends borders and creeds, and that the glue holding this incredible meeting together is not so-called “geekiness,” but a superior level of creativity, intellectual curiosity, and desire for business success—and, perhaps above all, the desire by many to improve living conditions around the world.

I’ll close by saying everyone should attend this show once their life time. As a director, I suggest setting the goal of attending every three to five years. CES presents a soup-to-nuts view of developments in products and technology that consumers will anticipate. Even if you are not affiliated with what is considered a consumer business, you do serve customers that will continue to expect innovation. As I absorbed the week’s events and considered the possibilities around every corner, CES opened my mind about what could or should be considered in the boardroom related to strategy and risk. It was well worth my time, and would be for you, too.

Kathleen Misunas is a director of Boingo Wireless and Tech Data Corp., two publicly-traded technology companies. 

Want to learn more about NACD’s CES Experience? Explore dispatches from the event here

Career Partners International Launches Breakthrough Job Search Platform: PowerMyCareer™

Career Partners International (CPI) has released the latest in technology advances to its job seekers and is proud to announce PowerMyCareer™, CPI’s proprietary digital Outplacement system. Combining cutting-edge programs, state-of-the-art technology, and interactive content, Career Partners International prepares Outplacement candidates for the future.

PowerMyCareer™ provides personalized job-matching and job leads, highly competitive and differentiated resumes and CVs, individualized social media marketing plans, and interactive interview training. This system is available in 16 languages for a uniform delivery system across the globe, including over 30 Quick-Talk learning videos on all steps of the job search process.

Career Partners International’s Outplacement candidates develop peer networks and communicate with career experts, while staying current with the latest news and trends in the employment marketplace. PowerMyCareer™ is accessible by any mobile or other web-enabled device and is flexible to accommodate participants’ preferences in their career transition experience.

The PowerMyCareer™ system also includes incredible tools to help individuals attain high quality job offers faster.  These tools include:

  • PowerMyResumeCV™ – allows participants to create competitive resumes, CVs and online interactive portfolios while leveraging social networks and tracking performance
  • PowerMyJobSearch™ – analyzes and aligns resumes and CVs to job descriptions, optimizing keywords for better resume performance on Applicant Tracking Systems (ATS)
  • PowerMyInterview™ – provides interactive interview training utilizing real-time video technology and professional coaching feedback

With its high-tech and high-touch approach, Career Partners International achieves one of the strongest landing rates in the Outplacement industry for its job-search candidates. “Client companies can depend on Career Partners International for their employees’ quick and seamless transition into the marketplace with equal or better placement” said Doug Matthews, President and CEO of Career Partners International.

The post Career Partners International Launches Breakthrough Job Search Platform: PowerMyCareer™ appeared first on CPIWorld.

The Power of Principles

Peter R. Gleason

An old boardroom adage is that directors must be “proactive,” rather than “reactive.” But what does this mean? When disruptive events occur, boards need to respond to them—so isn’t this reaction? I believe that board action must be based on principles, which I define (with Merriam-Webster) as a “moral rule or belief that helps us know what is right and wrong and that influences our actions.”  A board’s response is reactive if directors focus mainly on an event; it is proactive if it stems from their values.

Principles Matter

Principles can make a positive difference in the destinies of enterprises that embrace them. That is why NACD is in the principles business, so to speak. Every year since our first Blue Ribbon Commission gathered to discuss executive compensation a quarter century ago, we have been asserting general concepts that have had a measurable impact on boards. As this past research blog explains, many of our Blue Ribbon Commission reports and the principles they advocate have had a measurable influence on board practices. We know this by comparing the recommendations of our reports, and subsequent changes in practices as measured by our surveys.

And the good news is that a principles-based approach to governance can improve corporate financial performance. While many governance researchers have tried and failed to show a correlation between specific governance practices and financial performance, performance does seem correlated to an overall principles-based approach. Following the introduction in various countries around the world of principles-based governance (e.g., comply or explain stock listing standards), there have been improvements in financial performance. Studies in many jurisdictions, including AustriaCanadaKenyaNew Zealand, demonstrate the evidence.

Principles can also forge consensus. When you boil things down to basic principles, the three main actors on the governance stage—management, shareholders, and directors (the three sides of the so-called governance triangle)—think remarkably alike. Governance pioneer Ira M. Millstein noted this ten years ago in an NACD board discussion. When Ira speaks, boards listen. He was the original author of the first governance guidelines at General Motors Co., and, with Holly Gregory, a drafter of the original OECD Principles of Corporate Governance, another powerful guide to board work.

The NACD board responded to Ira’s idea by urging us to undertake what became the original Key Agreed Principles, which presented all known areas of agreement in principles published by the Business Roundtable, the Council of Institutional Investors, the International Corporate Governance Network, and NACD. NACD principles at the time numbered in the hundreds; they resided in the many Blue Ribbon Commission reports we had published on various governance subjects.

Other Notable Principles Documents

Since then, the Key Agreed Principles document has remained relevant to many boards.  We have seen these Key Agreed Principles affect positive change in many areas, and we have seen other groups seek a principles-based approach to their activities.

In 2015, the Global Network of Director Institutes (GNDI), a group cofounded by NACD, developed and released Guiding Principles of Good Governance intended to be useful for the some 100,000 directors around the globe who belong to the institutes comprising GNDI. Another notable example is the set of “Commonsense Principles”document released in 2016 by a group of major company CEOs and leading institutional investors. In 2017, the Investor Stewardship Group released Principles: Stewardship Framework for Institutional Investors.

In the future, in consideration of the new blueprints from these other groups, as well as developments at NACD itself, we will release a new edition of the Key Agreed Principles. To do so, we will once again compare the principles currently advocated by the original signatories.

Why Principles?

Why keep the Principles document going? I believe that when directors apply sets of principles, rather than a hodgepodge of arbitrary rules, they can engage their minds and wills for action. Some principles in corporate governance prove so true that they operate as powerfully as first principles in science, determining outcomes. It may well have been principles that created our very nation. After all, Thomas Paine noted that “An army of principles can penetrate where an army of soldiers cannot.”

With good principles at hand, boards are always ready to respond to the next crisis, and to prevail with strength and wisdom. We trust that the power of principles will continue to animate corporate governance—and improve firm performance—in the years to come.

Spotlight on Engaging a Global Workforce

Collaboration, agility, transparency, innovation and productivity are the five key challenges facing global companies over the next five years, according to data based on more than five million employees worldwide by global management consultancy Hay Group. However, the research also found that engagement and enablement levels in many global businesses remain a key area of concern.

The business environment is changing rapidly and operating across a number of global locations – including emerging markets – is now ‘the norm’.  However, global operations can introduce a host of additional challenges, concerns and issues when it comes to engaging an organization’s most important asset – its people.   The Hay Group research goes onto confirm that “Firms rated highest for engaging and enabling their staff achieve four and a half times the revenue growth of their lowest scoring counterparts and see up to 54% improvement on staff retention”. These statistics demonstrate just how important a consistent level of engagement is to sustaining performance across the globe.

Challenges for HR can be seen across all stages of the employee life-cycle and include cultural differences, attracting and retaining the right talent and communication issues.  Using an external provider with extensive global expertise and a unified and cohesive approach can alleviate many of these issues and ensure the right, culturally appropriate support for all parties. Situations that can most benefit from globally consistent external support may include:

ONBOARDING

Attracting and retaining the right talent is a challenge the world over.  It’s widely acknowledged that getting onboarding ‘right’ can reap rewards in terms of staff engagement and retention.  New employees form opinions about your organisation through their early experiences – this determines and drives their loyalty and motivation to stay.  An effective onboarding program sets a strong foundation for developing and retaining a happy, productive workforce.

The positive impacts on productivity, employer reputation, staff retention and commercial success are all significant benefits of providing tailored onboarding support and remain the same regardless of where your employees are based.

Just some of the areas of support that may be beneficial include:

  • Candidate Referencing
  • Assessment and Testing
  • Executive Onboarding
  • First 90 days support

DEVELOPMENT

Forward-thinking organisations recognize the value in developing not only their leaders, but employees at all levels. Often, the development of staff within central locations or headquarters is well structured, but those working in other locations or peripatetically are ‘left to their own devices’. A structured career plan and regular career conversations which reinforce global messages are key contributors to engagement and retention and can also help to fill any talent and future leadership gaps.

Support may include:

  • Individual and Group Coaching
  • Leadership Team Development
  • Coaching the Coach
  • Board Facilitation
  • Critical Career Stage programs

CHANGE

Organizational change is a given in today’s volatile, uncertain, complex and ambiguous (VUCA) environment and research suggests that less than 60% of change initiatives succeed. Reasons for failure vary but, typically, they have one thing in common – a focus on the change process rather than the people affected.

By properly managing and supporting both leaders and individuals across all locations and countries,  you can build confidence in the change and help to maximize productivity both during and after the event.

Communication across global sites can be a real challenge at this time – relying on changes to be communicated remotely is often a recipe for disaster. When working with team members who have different native tongues, it’s common for key messages to get lost in translation and for rumors to take over. The globally connected environment in which we all operate means that a message delivered in one country can quickly reach a population in another without any of the relevant context. Fully integrated, global yet personally tailored communication can enhance engagement, resilience, behavior and morale resulting in a better outcome for all.

Support may include:

  • Talent Retention strategies
  • Embedding change
  • Leading teams through change
  • Increasing Resilience
  • Supporting personal transition

OUTPLACEMENT

When consolidations, downsizing, mergers and acquisitions affect your workforce, emotions can run high. However, with the right support, it can lead to a positive outcome for all involved. Good employers want to fully support their employees to move on positively and with confidence to new opportunities as well as minimize business risk in terms of brand reputation and staff morale.

For global staff reductions an outplacement provider who can support a globally consistent approach whilst ensuring in depth local market expertise can prove invaluable.  An understanding of the local job market and local opportunities, as well as offering access to international career options and more varied career paths, is essential to a successful outcome.  Advice around available benefits, taxation, routes to volunteering and retirement options on a country by country basis can make all the difference to affected employees.

Support may include:

  • Individual and group outplacement
  • Skills development
  • Line manager support

 

This article was featured on HR Grapevine Magazine.

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Risks Illustrate Imperative to Balance Corporate Ambition with Resilience

Richard Smith-Bingham

A positive outlook for the global economy notwithstanding, the operating and investment risk for companies in today’s global environment should not be underestimated. Building resilience against a wide and expanding array of potential shocks will be required for sustainable success.

For corporate directors, this is a time for challenging institutional assumptions — and recognizing not just that new risks are appearing on the horizon but that operational risks may become strategic ones, known risks may become unknown, controllable risks may become uncontrollable, and risks assumed to be acceptable may acquire “fat tails.”

The newly released Global Risks Report, prepared by the World Economic Forum with the support of Marsh & McLennan Companies and other partners, evaluates the major threats facing the world over the next decade and provides a rich context to help organizations chart an aggressive growth strategy.

The risk landscape is shifting.

This year’s survey revealed deep pessimism about the direction of international relations. Ninety-three percent of survey respondents from across the global risk community expect that political and economic confrontations between major powers will increase in 2018. There were high levels of concern about an increase in state-on-state conflicts that may draw in other countries. Western respondents also highlighted growing concern about economic protectionism.

Technological risks are seen as a rising global threat. Business leaders in advanced economies consider large cyber attacks to be the number-one risk for doing business in their respective countries, and respondents in most parts of the world anticipate these attacks will get worse in 2018. Societal risk emanating from the increase in media echo chambers and fake news is also expected to grow.

On a longer-term horizon, environmental risks ranked highest in both likelihood and impact. Extreme weather and failure to adapt to climate change showed the greatest leap in concern since last year’s report, perhaps reflecting the hurricanes, earthquakes, and wildfires suffered during September when the survey was open. However, even before the devastating events of 2017, apprehension in this area was strongly reflected in this survey.

Companies are increasingly vulnerable to shocks and disruption.

Positive growth in recent months shouldn’t blind businesses to potential economic fragilities. The debt-to-equity ratio of the median S&P 1500 company (excluding financials) has almost doubled since 2010 and is now well above pre-financial crisis levels. Asset prices in some sectors are at historically high levels. Global debt has risen to a record $233 trillion, and at 318 percent, the global debt to GDP ratio remains near its all-time high.

Persistent low commodity prices continue to rattle exporter countries and their neighbors, which presents political and societal implications. Structural issues such as income inequality, rising health care costs, and diminishing long-term retirement security also show little sign of being resolved.

Against this backdrop, how will investor and corporate confidence fare in the event of a major geopolitical altercation, an aggravated trade stand-off, or a technological catastrophe—none of which are implausible?

A Business Lens

Corporate lifespans are dramatically shortening. The average time companies spend in the S&P 500 index has already decreased from approximately 60 years in the 1950s to 12 years today. The velocity of change in the current environment, creating both new opportunities and new threats, will likely drive this lifecycle down even further. The pressure to define and execute a strategy with both bold ambition and resilience against major shocks has never been higher.

It’s imperative for board members to ensure their company’s leadership makes every effort to reconcile growth and innovation opportunities with risk and security considerations, while rigorously assessing the value of potential initiatives in a wide range of scenarios. A dual focus on prevention and response—given the increased velocity of new and unpredictable risks—is needed.

As our recent paper on Getting Practical with Emerging Risks notes, clarity on the sorts of intelligence expected and opportunities for the board to discuss weak signals will help achieve a cohesive approach to sense-making and alignment with senior management on the way ahead. Boards that engage with complex uncertainties will be best positioned to help their firms negotiate today’s dynamic risk environment laden with potential shocks and disruption.

Richard Smith-Bingham is a director in Marsh & McLennan Companies’ Global Risk Center and leads MMC’s thinking on the evolving macro-level risk landscape and how companies and governments can best anticipate and negotiate rising threats. 

Career Partners International (CPI) Elects Terry Gillis as Vice-Chair of the Board of Directors

Career Partners International (CPI), a leading global provider of Outplacement, Career Management, Executive Coaching and Leadership Development services, has elected Terry Gillis as Vice-Chair of the Board of Directors. Terry will work closely with the Board Chairman, Larry Fisher, as CPI continues to grow at a strong pace.

Terry possesses an entrepreneurial spirit that fostered the growth of a small consulting firm into London, Ontario’s most trusted human resource and talent management company, Carswell Partners, where he is now President and Managing Partner.

With a passion for seeing people and organizations succeed together, Terry’s expertise is in improving organizational culture, developing leadership, and increasing employee engagement. This passion coupled with solid business acumen and rigorous academic training drives Carswell Partners and Career Partners International to leverage only the most recent validated scientific findings to inform the processes used to drive performance and decrease risk in organizations through their people.

Terry is a member of the part-time faculty at Wilfrid Laurier’s Lazaridis School of Business in Waterloo where he teaches human resources to MBA and undergraduate students.  He is an active volunteer in the community including a member of the board of directors of Youth Opportunities Unlimited.  He is also actively involved in Career Partners International as Chair of the Partner Recruitment & Accountability Committee.

“Terry Gillis is an integral part of the Board of Directors and Career Partners International,” says Doug Matthews, President & CEO of Career Partners International. “He is fully committed to ensuring that Career Partners International protects its reputation as the highest quality service provider for the clients and participants we serve.”

Career Partners International’s global network of offices and experts guarantees excellent, personalized services with cutting-edge technology whether in a local market or cross-continent business to improve engagement of your employees that yields impressive business results and reduces unwanted attrition.

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