Perspectives from Channel Islands NEDs Forum

Posted: 19/04/2017

JohnClacy_NEDsToday’s boards, wherever they are located, must be able to identify and assess the risks and opportunities of global developments to their business. John Clacy (pictured), moderator at the recent Channel Islands NED Forum, heard business leaders’ views on the issues boards face today
   
The panel 
• John Clacy (moderator), Lead Partner for Deloitte in the Channel Islands
• Simon Osbourne, Chief Executive, ICSA
• Andreas Tautscher, Channel Islands CEO for Deutsche Bank
• Paula Williams, NED, Channel Islands Co-operative Society 

The panel kicked off with a discussion over the need for awareness of global developments, threats and opportunities. Typically, said John Clacy, the Channel Islands investor is off-island and this is often where the primary business activity is - the investment managers and investments themselves. So it’s vital boards understand and appreciate life outside the islands.
 
Simon Osbourne underlined the importance of asking: what’s the role of the board and the purpose of the business? The board must understand its customers, business purpose and values, and that there are operational and HR policies to match.
 
There was still a tendency to be complacent about the range and degree of risk to the businesses overseen by boards, and to themselves, delegates agreed. Commercially, a company's licence to trade is fragile, reputation risks are growing all the time, and whilst globalisation continues to bring challenge and opportunity, the islands also face issues from the US re-trenching and Brexit.
 
Adequately mapping the skills required and ensuring an appropriately broad range of knowledge and experience on the board is essential to being prepared for global risks.
 
The difficult reputational issue of offshore tax and how the islands are perceived from outside was also raised. John said we should not be nervous – the islands are here to facilitate investment. If anything, we need to "bring critics into the room".
 
Cyber security
 
Paula Williams spoke of the ever-growing IT risk, with cyber security being top of the agenda for many companies today. The challenge in the boardroom is that directors have not grown up around the level of technology in use today, she said. They may not fully understand issues such as security between mobile devices, so the budget allocated to those security requirements is inadequate.
 
The nature of cyber threats requires boards to be ready to respond quickly when a situation occurs and that’s only possible if planning has been done in advance.

Paula challenged delegates to ask whether they had adequate plans in place. She cited the threat of reputational damage through social media – customers can be publicly demanding and reputations quickly damaged.  

As Rick Cudworth, Crisis Management Consultant with Deloitte, and Adam Moorshead, Managing Director of JTC Group in Guernsey, later illustrated, pre-prepared response plans to risks and potential issues are important at both board and management level.
 
John Clacy highlighted that cyber security was one of the top three risks identified by the Deloitte Boardroom Survey, but less than 50 per cent of boards believed their organisation was adequately prepared for such risks. 

The statistics pointed to a huge risk that many boards needed to face up to, and which represented a huge risk to the islands. This includes businesses where boards are responsible for managing outsourced solutions as well as for in-house teams, which is particularly relevant to funds and fund administration.
 
Simon pointed out that GCHQ was sending out people to educate boards about technology, indicating that many still don’t fully understand its implications. 

Andreas encouraged delegates to reassess the balance between putting trust in the executive and their teams who rely on controls and processes within the business, and being an enquiring NED who must constantly challenge everything they see and hear.
 
Increased regulator demands
 
Regulators are making individuals much more accountable in their board roles for what’s happening within the organisation, said panellists. The industry is seeing more and more enforcements, with directors being held to account for failings within their model. 

Global business models, which are common in financial services, mean there are multiple sets of regulations to consider, making it a difficult risk model to manage. John called for NEDs to question how comfortable they were with the uniqueness of processes and models within their business.
 
Increasing diversity on boards
 
Boards must map out the challenges they will be facing and look at the gap in skills. Greater skills diversity will limit the blind spots and help to future-proof the board.
 
Andreas emphasised the need to take measures to avoid the pitfalls of groupthink – often the lawyers and accountants who commonly take up board roles have studied at the same universities, trained with the same firms and come back together with very similar life experiences. The need to attract people from different backgrounds to offset that danger was universally agreed by the panel.
 
The panellists discussed the need to look at people outside those career routes and outside our industry. Instead of lawyers and accountants, consider NGOs, design and marketing people, as well as professionals from the operational side of the business - who can see risks and identify how to deal with them. 

Candidates from building societies and mutuals or co-operatives were also cited as having potentially relevant experience.
 
The need to be able to not just manage threats, but also harness disruption as a business opportunity was also discussed. Customer advocates were needed on boards, the panellists said, as, with so much regulation and change, the focus can be pulled away from the customer.
 
The key actions boards could take to ensure adequate diversity centred on broadening the field of search included:
• Ensuring the nomination committee process involves all the NEDs to get a full spectrum of views
• Not relying on the same head hunter that you use all the time, and not being afraid to advertise
• Embracing the Equality and Human Rights Commission proposal that there should be open, competitive selection for NEDs. Not many companies do this but it can generate good candidates if you have the courage and appetite.
 
The impact of regulators on recruiting an adequately diverse board was also discussed. The minimum qualifications and experience they demand, whilst positive in terms of policing board competency, can inadvertently reinforce the standardisation of people around the board table.
 
Wrap up
 
John wrapped up the panel debate by challenging delegates to encourage people from different business backgrounds to take the next step towards non-executive directorships. He reaffirmed the importance of encouraging people to make that step into the boardroom and to support them in taking on what is a very challenging role.


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