NEDs Rethink Webinar Q&A

NEDs Rethink Webinar Q&A: considerations in a crisis

At our recent NEDs rethinking the crisis webinar we discussed what ‘the new reality’ might look like and what this means ways in which businesses used to operate? Below is an abridged transcript from the questions answered during the session, and some we didn’t have time to cover. As we continue to face further lockdown measures, we are all aware of the effects on employees, customers, suppliers – and the economy as a whole. The discussion is as relevant today as it was 6 months ago. We hope you find it useful – you can watch the full discussion here.


This high-level strategic discussion used ‘Rethink’, BDO’s global framework, which has been designed around the following ‘stages’ to encourage a broader review of original business models and commercial assumptions that can be used to manage business priorities, address issues and leverage thinking:

  1. React - ensure that measures are taken to secure business survival in the short term
  2. Resilience - safeguarding vital elements of a company where necessary throughout the prevailing business environment
  3. Realise - future benefits of sensible business decisions taken calmly and pragmatically

These three stages can be considered separately to help you as a Non-Executive Director to guide management through COVID-19 over the medium to long-term. 


FAQS


1. How can NEDs help businesses move from ‘Transact’ to ‘Transform? Many people talk Transformation but they don’t really transform - should we take this more seriously and what can NEDs really do to influence that?

Tim: Many organisations are not very good at transforming and tend to tweak around the edges of ‘Transact’, either making it a little smarter, or a little bit different. What organisations really need to understand is that for some, this is going to be a wholesale change. To do that, they need to understand the different scenarios to take into account, then step back and get strategic about it by looking at their underlying models.

So how to do businesses move from Transact to Transform? For many clients, we’re really seeing a root and branch change. Businesses need to ask what do we do as an organisation, what is our purpose? This means thinking about culture, strategy, and to some degree values. Organisations are going to have to start shaping what their business will need to be in the next 12-18 months. Those that are being more successful are the ones that have started that process of thinking around it. Do some scenario planning, really get challenging, and experiment with what the different scenarios might be for your organisation. Look at all the different areas, look at your supply chain, your operations, and look at your people profile. Start framing your approach to risk and using that for the bedrock to determine where the key areas of focus will need to be.

In terms of the role of NEDs, boards and board members should be driving that change, along with review and scenario planning for engaging with third parties. If you need to help start thinking about what that might be - whether it is regulators, whether it is your membership and industry groups, start talking amongst peers. In the last 3-4 months we have seen greater openness between organisations in understanding sector issues. Previously, it was still quite rare for organisations to talk to other similar organisations about what some of their challenges might be; we are now seeing those barriers being knocked down because whole sectors are being affected.

The takeaway for NEDs is to really challenge the business, stretch them in terms of their thinking, or their ‘ReThinking’ with regards to what that new reality will look like for them. It is about making sure there is absolute clarity in what that roadmap for that change will be, and making sure that there are regular touchpoints throughout the delivery of that roadmap so that we absolutely know we are going to be on track. It also needs to remain flexible if the scenarios that you’ve used as part of your transformation planning don’t stay true.

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2. Given the fact that risks are changing quite frequently at the moment, at what point should a business take a deep dive and really look at its core risks, given the state of flux at the moment. Should it be doing it now or wait until we’re out of the current phase of this crisis?

Tim: Given hindsight, it should have been done a couple of months ago. Now is the time to be looking at what the risks and challenges are and getting into some depth behind. It is not about playing lip service to the fact we’ve looked at what our top 20 risks might have been as those top 20 risks from 12 months ago may not even exist now. I think you really need to get into some brainstorming about what those risks and challenges are now, and making sure you’re planning effectively for it.

Do it now, use the risks as a core part of your scenario planning, understand what is happening within the economy, but also what impact that will have on you as an organisation and using that to profile where you need to be in the next 1-2 years.

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3. Is it your experience that businesses are using the current disruption to move all transformation programs up the priority list? Is there a risk that what some might consider longer term factors, such as sustainability and the environment, are moving significantly down the investment priorities list and being side-lined by more immediate issues and efforts to maintain reported medium-term performance to listed markets?

Matt: From a BDO Board Perspective I am responsible for climate change. Do I think it is dropping down the agenda for businesses? Quite possibly. As a member of Chapter Zero, we understand climate risk and build that into our thinking. Certainly, the current crisis has been a double-edged sword for us because it has given us the ability to stop and rethink all our travel plans, where we have previously jumped on planes and going overseas we have stopped all our travel plans. The current situation has allowed us to increase the priority on that risk so that we change behaviours now while in lockdown.

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4. Given that there are lots of business, environment and political challenges that you cannot control, what tips do you have to enable boards to identify, and monitor the measures that matter? What processes are needed ensure that boards are proactive in management and not reactive?

Zoe: I am a NED on a small board and found we have just connected a lot more in recent months - we had regular board meetings scheduled but now have much more informal catch-ups in addition to these to ensure we are connected, asking the right questions, we’re getting the responses that we think that we should. Interestingly, also in my NED capacity I have been coaching a couple of individuals in that business and that has been really helpful to provide a bit more insight into the granular.

We have adopted a similar approach at BDO, the Leadership Team again had a very formal structure around when they would meet. That has been enhanced in recent months with regular weekly, even daily ‘COVA-calls’. They are very informal and set-up on a needs basis. When I was talking to leaders across the business, I found it had been replicated and surprisingly, what has been interesting is the feedback - teams feel more connected now than when they were physically in the office. As we emerge from this I think there is something there that we should try to take with us into the longer-term future.

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5. What are the risks of considering global expansion in the current situation? What could be the benefits?

Tim: It is quite interesting because most conversations with clients that do have a global footprint are probably erring more on the side of reviewing that structure and possibly bringing a lot of their supply chain and operations closer to home.

I think because initial reactions of countries like India closing down overnight, and other countries being impacted in very different ways with regards to COVID-19, it affected supply chains and local operations. When you look at continuing global expansion, it is a tricky one as you are going to have to start looking at it from a country-by-country perspective - how effective are they are at managing the pandemic? Does it look like the impact of the pandemic might stretch out for longer in that particular country? Local regulations are changing, even our customer profile around the world is changing – supply and demand is very different. We are seeing a quite a lot of movement in that supply and demand picture from around the world.

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6. Most of the conversations we have been having with clients have been more around either reshoring back to the UK or even in-housing  in a lot of cases where they may have been using third party shared services or joint ventures. It is a good point to think about as part of the transformation plan.

Matt: I think with the unstable geopolitical situations that’s going on, you add Brexit to the crisis and it’s an almost perfect storm. What I have seen is more partnering -we are seeing some businesses saying I don’t want to go there myself but actually I will look for a local partner and use their local knowledge and leverage their access to the market.

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7. Just how important is it to get back to the office and to what extent is lack of face-to-face connection having a commercial impact?

Zoe: It’s an interesting question and I don’t think there is a simple answer. You need to look at it from an individual’s perspective, at a team level and at a business level. All of those play a factor in terms of getting back to the office. It is very much our experience at BDO that we have been concerned with our people’s wellbeing.

One of the comments is that that ultimately it is your people who will drive your business and I couldn’t agree more in terms of making sure your people and their wellbeing is looked after and that’s where it comes down to thinking about the individuals. There will be pockets of people who will have found working from home incredibly difficult due to the environment that they find themselves in if they are working from surrounded by just a few small walls or if they are sharing a small space with lots of different people. Just having the opportunity to get out of that environment and into the office can really be very helpful.

I recently came into the office for a strategy meeting and it was refreshing just to have a different environment to work in and to connect with people as we are all human and connectivity is important. We need to be conscious that there will be some individuals who may be concerned about travelling in that environment. If they have loved ones at home that might be in a vulnerable position and the impact that that may have. We need to respect there will be different approaches to this and at BDO we see that as a huge opportunity.

Under our transformation agenda at BDO, we are looking at agile working. I think longer term there will be a better balance between work and home life. Commercially, I think we need to continue to ask ourselves how is that going to impact some of our clients who are reliant on that footfall to larger cities and the impact that may have on retail clients, restaurants and bars. I know that has been picked up by the government and it will continue to be a difficult one to navigate.

To what extent is lack of face-to-face connection having a commercial impact?

Tim: there will undoubtedly be an impact of us having to work differently. Interestingly, I feel that we are experiencing more face-to-face connectivity; whilst not physically in the same space, we are doing this even more so virtually. We have become, or have had to become, more accessible to clients, suppliers and stakeholders. In fact, it sometimes feels that we have gone too far the other way. We are ‘expected’ to be on hand more readily.

The limitations of travel and physical access have largely been removed. We are squeezing more into our days which means there is greater potential for overworking given our increased accessibility. That could lead to the need, or expectation, for faster thinking, which could influence our commercial decision-making. The pace of business and decision-making has changed over the last 6 months. Whilst we need to be thinking further ahead, and sooner rather than later, we need to do this properly; so there is a need to make sure we make time for some slower, more deliberate thinking. If done right, and by the right people, this shouldn’t affect our ability to quickly adapt, in fact it should help us remain more agile.

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8. Given the stated importance of ‘resilience’ for sustainable business growth, in terms of new/transformational thinking re business practices, how are businesses focussing on implementing resilience competencies at an individual and team level? Ultimately, your people will drive your business.

Tim: this is an excellent question. In all honesty, I don’t think this has been given much priority over the last 6 months. The majority of work to date has been reactive, focusing more on safeguarding operations and resources, ‘keeping the lights on’ as it were.

Those that are more ahead of the game have been thinking harder about Resilience, whilst mainly around infrastructure, finance and supply chain, some have been equally focused on their people.

It isn’t surprising that the initial focus around people has been centred on employee wellbeing. More recent activity has been moving to workforce productivity and flexibility to adapt to changing needs; and that has meant looking at rightsizing the workforce, scaling up capacity and upgrading talent. We have seen more companies making strategic hires to improve organisational agility, especially around change, and tapping into external sources of expertise in transformation. Some of this has been for training/upskilling purposes; some has been to refresh leaders to those more aligned to change.

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9. Should Boards and Senior Leadership Teams (SLTs) rethink the way they select and develop senior leaders, and has the pandemic created a skills gap? Alternatively, do you think by adopting your rethink approach it can plug any gap? Often SLT’s are looking at the now, not the future state.

Tim: I think it is an interesting question and it’s not one that has been posed to us too often. We do need to make sure we have the right leaders. I think it will come down to the organisation – you may be an organisation which actually has had the right leaders 6 months ago which would have been more around steady state operations and doing all the things that we normally do - more custodian type leadership. With the sheer scale of transformation, we need to make sure we have got the leaders with the right skills to effectively make that change who can think more broadly, who can think strategically but are also well versed in transforming organisations and understand and are open to transformation, agility and adaptability. It’s a good question because when I step back and think more broadly, I think there is going to be a need to develop leaders with that in mind.

Zoe: I think leaders are going to need to be able navigate the new workplace with more of that flexible and agile workforce in mind – being able to reach people, not just physically office but also remotely and connect teams. This requires a special skill set that I think will be more important as we go on into the future.

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10. Any advice as to who should be on the transformation team? You may be trying to encourage new thinking, not simply doing what you’ve always done, just better. Who is on BDO’s transformation team from roles perspective?

Matt: For me, the advice is that you’ve got to have someone who is equal who is able to speak up and challenge the thinking of existing C-suite. They are there to be annoying and to challenge the existing business model and therefore you need someone who is relatively strong willed. We have a main board position for that so the Head of Transformation sits on our Leadership Team because it is so fundamental in terms of how we do business. What we’ve also found is by actually populating it with cross-streams from a business point of view and getting some younger thinkers to look at this from a new pair of eyes creates the ideas and challenge. It really is giving them the ability to go wherever they want to go within the business and challenge existing thinking.

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11. Without making excuses for the Government could you comment on the problem of quality and reliability of information you are working with and thereby the appropriateness of actions short term and long term.

Tim: It has been hard for businesses to make critical decisions because of changing Government information, and in some cases, the information/guidance has been unclear. These are unusual times, and so unusual measures have had to be adopted around the world. However, constant changes in rules and advice has meant that some sectors have struggled significantly in the short term, and for many this will have a long-term impact. Further to this, there is a longer-term knock on effect in our ability to predict the future, which is, and will, make it a lot harder to plan. We can make assumptions based on customers’ behaviours, challenges around international trade and other risk areas, but they could all change dramatically, and at short notice. So companies need to work around a set of likely scenarios for their businesses. For example, we have been looking at a worst-case scenario, a mid-point and a best-case scenario. That gives at least some logical set of parameters to work within.

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Our speakers

If you would like to contact our speakers please find their details below. And if you would like to discuss any of the issues raised in this article or if BDO can support your business please get in touch.

Speakers

Matthew White - Matthew is BDO’s Senior Partner and Chair of BDO LLP’s Partnership Council, which is the elected body charged with governance and equity matters. He is also an assurance partner in our professional services group and has significant experience in advising professional service firms in the legal, accountancy and consulting sub sectors.

Zoe Bailey - Zoe is a Senior Business Leader, Board Advisor and Strategic Development Specialist, expert in influencing the delivery of commercially-focused business strategies. She coordinates and delivers the firm’s strategic framework at BDO working across business streams to ensure identification and delivery of priorities. Zoe also manages major change programmes aligned to the firm’s strategic framework and is a NED at Nelson Croom.

Tim Foster - Tim is a Risk Advisory Services Partner, with over 20 years’ track record of successfully leading and delivering risk advisory and assurance assignments for large corporates throughout the UK and around the world. He has extensive experience in setting up and running value adding assurance and internal control functions, and managing large, complex process and control improvement projects (including SOX, SOX-Lite and COSO).

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Key Contact

MATTHEW WHITE
Senior Partner