Suits The C-Suite

SGV thought leadership on pressing issues faced by chief executives in today’s economic landscape. Articles are published every Monday in the Economy section of the BusinessWorld newspaper.
20 March 2023 Joseph Ian M. Canlas

Accelerating sustainability with emerging technology (Second Part)

Second of two partsThe most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from respondents across 1,325 global firms from various industries, found that organizations are increasingly relying on these emerging technologies to advance their sustainability initiatives. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future and demonstrates that emerging technologies provide advantages that include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.Findings from the study demonstrate significant convergence between business technology and sustainability strategy. The first part of the article discussed emerging technology as sustainability drivers, sustainability-related benefits of modern technology, environmental, social, and governance (ESG) as a key factor in emerging technology investments, enterprise sustainability strategies already benefiting from 5G and IoT, and how sustainability imperatives are changing perspectives towards industry ecosystems and technology suppliers.The second part of this article discusses differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation.DIFFERING INDUSTRY PERSPECTIVESEnergy efficiency and business circularity expectations at the sector level showed notable differences when respondents were asked how they perceive the sustainability benefits of emerging technology. Despite the fact that 46% of respondents across all industries cite decreased energy usage as the top benefit, only 38% of the healthcare sector mentioned this benefit compared to 54% of the automobile sector. Only 35% of executives in government organizations mentioned reduced waste output, compared to 50% of executives in the manufacturing sector.The two industries most likely to point to benefits from emerging technology in gauging the environmental effect of their organizations were government and healthcare with both at 44%. However, evaluating the environmental impact of suppliers is seen as significantly less critical in government and healthcare but as a significant advantage among manufacturing and energy respondents.This is because reporting Scope 3 emissions makes it more necessary than ever. Industries are aware of the potential for new technologies to aid in measuring performance and advancement, but the scope of their ambition varies depending on whether they are concentrating on their own organization or expanding to include their supplier chain.CONSIDERATIONS FOR LONG-TERM VALUE CREATIONESG factors are already influencing the technology investment decisions of several businesses, and sustainability requirements are expected to overpower other considerations when selecting technology vendors.However, CIOs are able to do more to ensure that high expectations result in the production of long-term value through the following points of action:Long-term sustainable advantagesAlthough businesses are aware of the variety of sustainability advantages offered by emerging technologies, it is crucial that technology leaders concentrate their ambitions. Technology leaders have to carefully consider the combined impact of many technologies before prioritizing and phasing the important ESG outcomes they are seeking and selecting the best technologies that can deliver them. Another consideration is including ESG risks as part of the assessment, as ESG risk should be embedded in a company’s enterprise risk management process. In certain instances, these ESG risks can be resolved by utilizing appropriate technologies.Assessing environmental implicationsOrganizations can examine the carbon footprint and energy efficiency of their portfolio of emerging technologies, and make sure their approach directly ties into the overarching goals of the organization for lower IT energy use. They will have to be sure to consider how upgrading their IT to newer standards and technologies will improve sustainability, particularly in how it will impact their carbon footprint and energy efficiency.Sustainability agendas informed by techWorking closely together with other leadership roles and responsibilities will make sure that everyone in the organization is aware of how new technology can accelerate ESG goals. Discussions with the Chief Sustainability Officer (CSO), or equivalent role, will contribute to the proper assessment of the acquisition and use of new technology. This will ensure that existing digital transformation roadmaps continue to serve their intended purposes while sustainable principles take on greater significance as motivating factors.Sustainability as a guiding concept for relationships with technology suppliersCIOs are already giving sustainability capabilities priority when looking for qualities in technology companies. It is critical that businesses prioritize sustainability in their conversations with wider partner networks. Although decisions about vendors and technology investments are currently being made with sustainability in mind, there is still room for more cooperation in the future regarding circular business models and shared ESG objectives.Technological use cases created with sustainability in mindSeveral firms already have established IoT projects, and the rapidly expanding deployment of 5G and edge computing is progressively enhancing these initiatives. Sustainability-aligned results must be incorporated into use cases and deployment methods. To do this, CIOs must think about how new technology use cases might benefit partners, customers, and employees alike. They must also establish the proper feedback loops with technology vendors to make their vision a reality.Using emerging tech to drive sustainable outcomesWith sustainability goals coming under even more intense scrutiny, organizations will have to keep prioritizing the sustainability capabilities and credentials of their technology vendors in the future. CIOs will have to assess the benefits and drawbacks of developing technologies in achieving sustainability goals, creating long-term value and ultimately building a better working world. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.

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13 March 2023 Joseph Ian M. Canlas

Accelerating sustainability with emerging technology (First Part)

First of two partsWith sustainability and digitalization increasingly becoming a business imperative, organizations are relying more and more on 5G, the Internet of Things (IoT), and emerging technologies to advance their sustainability initiatives. The advantages these technologies provide include improved measurement, increased efficiency, and the capacity to create virtual goods and processes.These are some of the key findings of the most recent EY Reimagining Industry Futures Study, which examined executive attitudes and intentions toward 5G, IoT, and other emerging technologies from 1,325 global firms across a range of industries. The study offers Chief Information Officers (CIOs) crucial solutions and steps to help their organizations rethink their future, with findings demonstrating significant convergence between business technology and sustainability strategy.EMERGING TECH AS SUSTAINABILITY DRIVERSMore than half of surveyed businesses at 54% believe that emerging technology can significantly speed up their path toward sustainability, while 41% agree that new technologies play a mostly positive function but with some risks. This knowledge of potential drawbacks is in line with a 2021 study by Science Direct indicating that information and communication technology (ICT) as a whole accounts for 1.8% to 2.8% of greenhouse gas emissions and an even larger percentage of electricity usage.Interestingly, organizations in Asia are more likely to emphasize the importance of new technology than businesses based in Europe (62% versus 49%, respectively). This regional variation may be a result of the historical attention paid by European governments to the potential energy consumption problems posed by data centers and cloud computing.SUSTAINABILITY-RELATED BENEFITS OF EMERGING TECHRespondents believed that emerging technologies such as AI, automation, 5G and IoT can provide a variety of beneficial contributions to long-term sustainability plans. Topping the list of these benefits are decreased energy use, improved measurement and planning, and decreased waste output. The use of virtual services and workforce tools is another significant trend.Only around a quarter of respondents highlighted the advantages of adopting circular business models and renewable energy sources, suggesting that these might be areas that require more attention from the CIO community in the future. Nonetheless, the variety of positive results highlights the multifaceted potential of these technologies from a sustainability perspective.ESG A KEY FACTOR IN EMERGING TECH INVESTMENTWhen considering all emerging technologies, 35% of respondents identified environmental, social, and governance (ESG) as a leading factor in their decision-making, while 41% saw it as important. 5G investments were most likely to involve ESG as a key factor, with IoT close behind.ENTERPRISE SUSTAINABILITY BENEFITING FROM 5G, IoTCompared to other emerging technologies, the ESG implications of 5G and IoT tend to weigh more heavily on business investment decisions. Organizations investing in these two technologies are more likely to already see current benefits compared to other organizations who looked at a broader scope.As a result, 5G and IoT are even more directly tied to many of the ESG advantages associated with emerging technologies as a whole, with 48% highlighting the increased productivity benefits from 5G and IoT, compared to just 22% for all developing technologies. More than half (55%) of those currently investing in 5G and IoT said that these investments assist in improving sustainability planning and forecasting compared to 39% of organizations who believed that the same could be said of emerging technologies in general.SUSTAINABILITY IMPERATIVES CHANGING PERSPECTIVESThe qualities that businesses are looking for in their IT vendors are evolving as sustainability takes center stage in the technology strategy of many CIOs. More than 75% of businesses claimed to give priority to vendors who can explain how emerging technologies affect the environment. Companies also considered that suppliers need to do more to include sustainability into their service offerings.These viewpoints are reflected in the qualities that businesses look for in their technology vendors, where respondents prioritized speed of deployment and execution, end-to-end solution capabilities and sustainability credentials and capabilities. However, corporations predict that sustainability credentials and competencies will be even more sought-after in the future.Business ecosystem strategies that facilitate the acquisition of new skills and competencies through partnerships with vendors and other businesses will also be able to provide sustainability benefits. Eighty percent of businesses concurred that, over the next five years, working with other groups and sectors to develop circular business models will become significantly more crucial.The second part of this article will discuss differing industry perspectives on emerging technology and sustainability, and considerations organizations can make to ensure expectations translate into long-term value creation. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Joseph Ian M. Canlas is a consulting partner and part of the Climate Change and Sustainability Services team of SGV & Co.

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06 March 2023 Luisa Anna E. Hebron

Championing social equity on International Women’s Day

The 2023 International Women’s Day campaign theme on equity seeks to help forge conversations on why “equal opportunities are no longer enough” in today’s world. In recent years, the debate has grown significantly and the words equity and equality are often used interchangeably. In order to champion social equity, it is important for organizations to understand and acknowledge the difference between the two.EQUALITY VS EQUITYEquality is defined as the state of being equal while equity takes the element of justice or fairness into consideration. When conditions and circumstances differ, it is possible that “equal” treatment does not produce “equity.” This distinction is explained with the famous illustration showing people of different heights using boxes to stand on in order to see over a fence; equality means all boxes are identical, but equity means the boxes are the appropriate sizes to permit the people, regardless of their height, the ability to see over the fence.Equity has become an important focal point in Diversity and Inclusiveness campaigns, changing the former D&I to DE&I as socio-political polarization and social inequities continue to increase. However, it is important to note that while an inclusive group is diverse by definition, a diverse group is not always inclusive. An inclusive organization strives for equity and respects, accepts and values differences. Therefore, equity is the means to achieve an inclusive environment and remove impeding equal outcomes.INCORPORATING EQUITY INTO THE D&I STRATEGYLast year, SGV made a conscious effort to explicitly incorporate equity in our overall D&I strategy. It better reflects who we are and how we work. It shows our commitment to shaping environments that support inclusive experiences for our people to thrive. Equity accounts for the uniqueness we all bring to the firm — recognizing that different individuals and social groups have different needs, starting points and opportunities. We want our DE&I journey to enable a sustainable, inclusive environment that advances our culture by continuously looking for opportunities to close our ‘say/do’ gaps and remove fences within the organization.The firm has introduced a series of actions to ensure a safe environment, fair access for all and to make opportunities more equitable. For example, SGV professionals have access to communication channels they can contact to ensure compliance with ethical behaviors within the framework of our Global Code of Conduct and in accordance with our values. We also have a coaching culture; coaching helps us uncover different perspectives and creates a safe space that enables vulnerable and authentic conversations. We are committed to providing the tools, resources, and environment that our people need to be successful and build meaningful careers.As highlighted in a recent EY article, “How EY is working to uplift social equity through authentic storytelling,” EY, of which SGV is a member firm, has been stepping up its existing commitment with specific focus on social equity. This includes the formation of the Global Social Equity Taskforce (GSET) in 2020, which is made up of 40 senior leaders across geographies, functions, and backgrounds. The GSET has developed a suite of actions to advance social equity in the firm and beyond.A global standard for DE&I measurement across all business units was also developed three years ago in the form of the DE&I Tracker, which was created to hold everyone accountable to progress and covers a range of visible and invisible differences. Moreover, all partners and employees have access to an “Inclusive Leadership for ALL” e-learning course within EY, and can also work towards an Inclusion and Belonging Badge through the global upskilling program, EY Badges.To identify gaps and ensure that hidden inequities are uncovered and addressed, EY launched additional global Self-ID capabilities in 2022. This increased the range of personal information choices that people can select in EY HR reporting systems. In addition, listening tools like the EY People Pulse Survey help EY better understand how its people are feeling and what they need. The survey takes into consideration differentials in responses based on various dimensions such as gender, cultural background, and generation to minimize gaps.SUPPORTING THE EFFORT TO PROMOTE SOCIAL EQUITYOrganizations can support efforts to further encourage social equity by creating a strong sense of belonging for all. When people feel they genuinely belong, they are more motivated and engaged, as well as exhibit lower stress, greater wellbeing, and higher performance. Equitable sponsorships can also boost progression, inspire confidence and transform careers.While everyone has biases — these can be challenged and mitigated by understanding what these biases can look like, what shapes them, and when they’re likely to arise. By questioning whether a decision is a preference, a tradition or requirement in every process, we can uncover different perspectives, remove barriers, expand options, and improve the quality of our decisions.INSPIRING CONVERSATION THROUGH AUTHENTIC STORIESOn Feb. 27, Karyn Twaronite, the EY Global Vice-Chair for Diversity, Equity and Inclusiveness, officially announced the external launching of a short film series featuring EY colleagues from around the world. These films spotlight a range of different experiences and inequities to help our people better connect and understand each other. The storytelling campaign has been internally meaningful, sparking reflections, insights, and conversations. The stories have helped our people to better engage with one another as a community, building greater connections and understanding. These films are shared with broader audiences to create a positive impact beyond our organization.This is one step forward to create positive change through a greater awareness and an invitation to participate in the conversation. It is hoped that by sharing these stories, we make a difference beyond us. Together, we can inspire social equity and create meaningful change towards a more inclusive environment where everyone can thrive. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Luisa Anna E. Hebron is a talent director and the talent leader of SGV & Co.

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27 February 2023 Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (Second Part)

Second of two partsChief Human Resources Officers (CHROs) have always been crucial to the success of an organization. However, as a result of current events, they may now be just as valuable to CEOs as the Chief Financial Officer (CFO). As such, it is imperative to deepen their strategic value.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to fuel strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risks, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.The first part of this article discussed challenges in talent, perception gaps identified with employees, and considerations for boards to make. This second part will discuss three strategies that boards and CHROs can implement to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.STRENGTHEN, SUPPORT, AND ENABLE THE CHRO ROLEOrganizational culture, which includes purpose, well-being, and social inclusion, has emerged as a critical factor in motivating present employees and attracting potential hires. Therefore, choosing who oversees this crucial sector is the first step for the board and the executive team.Once roles are defined, the board should challenge the CHRO (or an equivalent role) on matters that are now within their purview. These include corporate activism and reputational talent risks. Boards must also communicate the significant financial value of having a strong employer brand to investors and other external stakeholders to support the CHRO role.In addition, boards should inquire about whether the HR team has the right qualifications, experience, and support of top management. The CHRO should be subject to the same accountability standards as the other C-Suite members. The CHRO is responsible for engaging the board in important discussions about important issues that include the external market environment and an internal perspective that covers determining what talent the organization has, how to retain key personnel, understanding critical current and future skills, and how to address gaps in talent.They should also draw attention to and thoroughly evaluate the significant developments that have an impact on the firm, and they should exhort the board to adopt fresh and unusual perspectives. In order to accomplish this, the CHRO needs early access to the board so they can establish and show their credibility, trust, and transparency. They will then be able to present innovative, game-changing ideas with assurance when the time is right.And last, the board and the CHRO should keep putting first-class oversight of executive remuneration and C-suite succession planning at the top of their list of priorities. When properly implemented, the former ensures that rewards correspond to the cultural practices the organization wants to promote. Additionally, debates in boardrooms are showcasing the latter more prominently than ever due to evolving talent dynamics.RE-EXAMINE THE RISK FRAMEWORK TO SUPPORT THE TALENT AGENDATalent is frequently at the top of risk agendas for organizations worldwide. However, because risk profiles vary by industry, organization size, and various other criteria, each organization handles its talent differently. In order to determine what is best for them, boards should consult with their respective CEOs and CHROs. These conversations do not have to wait until board meetings; they can take place during routine check-ins with other board members.To avoid the temptation to micromanage, the board should discuss and decide what role it should play in supervising talent concerns as well as determine the best governance structure to support the CHRO. The board will also have to think about how to include the voice of the employees in the governance structure. They must pay attention to what employees want, even if not all requests can be granted.Executive learning is also a key area. Historically, board members tended to have extensive backgrounds in more traditional fields such as law and finance. However, the board will need to supplement these skills with new perspectives in light of new risks and difficulties. By ensuring that the board has access to and is learning from industry best practices, the CHRO can support these initiatives, helping the organization become more performance-driven and purpose-led as a result.SUPPORT CHROS IN DEVELOPING A HUMAN-CENTRIC STRATEGY AND EMPLOYEE VALUE PROPOSITIONIn order to balance the demands of the people strategy and the business strategy, as well as to create and sustain the culture of the organization, boards must narrow their focus on their people, and look more closely into what the employees need from their organization as well as what the organization needs from them.These discussions must be incorporated into the broader strategic talent plan to attract, nurture, and retain the talent required to carry out the organization strategy. The board can help the CHRO carry out this strategy by ensuring that each individual feels heard, appreciated, and supported.Board members do not need to know the specifics of employee insights, but they should be made aware of any potential risks, opportunities, and impact. They can then ensure that the organizational employee value proposition, culture, and overarching strategy all take into account the needs of various employee groups while allowing for customization where appropriate. Culture is a particularly significant factor as well; research shares that businesses which thoroughly understand and reflect their cultures outperform their competitors by a factor of three, while those with serious cultural problems falter or even fail.Boards should ensure that the cultures of their particular organization are in sync with their talent and retention strategies as they assume increased responsibility in managing this vital area. In exchange, the CHRO must thoroughly assess the organization’s employee value proposition with the board and assist in filling in any knowledge gaps.All of these discussions should be supplemented by an effective use of data. It will be easier to engage the board and win their support if they are presented with clear, succinct, and well-researched recommendations.COLLABORATING TO NAVIGATE THE TALENT LANDSCAPEThe constant disruption in recent years has only exacerbated the war for talent, requiring the CHRO role to be even more strategic as people-related risks rise to the top board agendas across the globe. In order to overcome challenges in talent, CHROs and boards must collaborate to enhance the CHRO role, supporting as well as challenging each other to navigate the talent landscape and remain competitive.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

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20 February 2023 Lisa Marie T. Escaler

Deepening the strategic value of the CHRO (First Part)

First of two partsOrganizations have been undergoing wave after wave of transformation since disruption is now a modern-day constant, and managing talent plays a key role to overcoming every obstacle that organizations encounter. The war for talent continues to heat up in today’s uncertain business landscape.In order to support and counsel the CEO on their transformation and growth strategy, Chief Human Resources Officers (CHROs) and their equivalents have had to go well beyond traditional human resources territory. However, in order to recruit, keep, and utilize the best talent now and in the future, organizations must acknowledge that talented workers have a significant amount of negotiating power.The CHRO is responsible for all things related to people in an organization, including the development and implementation of a people management strategy. This includes how to attract, onboard, engage, develop, reward, and retain the talent necessary for the organization to succeed. It also includes succession for C-Suites, change management, executive compensation, and diversity, equity and inclusion (DE&I) initiatives.In the current talent landscape, the role expands further to include purpose, culture, and well-being, which are all increasingly important factors for employees. More recently, these factors include access to more flexibility in ways of working as well as development opportunities.Boards must manage the talent agenda in a way that takes the current dynamic into account. This means ensuring that the CHRO role is elevated from business function to strategic collaborator, and that talent management continues to be a primary business focus. Additionally, it entails helping the CHRO listen to employees and influence the company to develop a human-centered culture and a more tailored employee experience.In order to better understand why the connection between the board and the CHRO is becoming more crucial, insights from EY thought leaders and clients were gathered to further uncover the strategic value of the CHRO role. These insights fueled strategies to improve the board and CHRO dynamic along with the ways of working. Instead of merely reducing potential risk, organizations can find opportunities in current, unheard-of labor trends to gain a competitive advantage.CHALLENGES IN TALENTThe responsibility of the board is to ensure that management provides the organization with the key talent it needs to execute its strategy. However, in recent years, a depleting talent pool and rising employee demands have made this difficult. The pandemic and its economic repercussions compounded the issue by creating a shift in what employees value in both their professional and personal lives — and the situation is still evolving.Talent challenges are being exacerbated by a constantly evolving environment. Just three years ago, flexible working was a differentiator or a means of achieving a competitive edge. Now, according to the EY 2022 Work Reimagined Survey, as much as 90% of the respondents said they would think about quitting their current position if flexible working was not an option. Flexibility also has different meanings, as younger individuals might prefer to work from the office more as a result of rising heating and cooling expenditures. However, those who drive or commute to work are more inclined to prefer the reverse to save money on fuel and time.A recent EY survey of graduates and interns looked into what will keep younger generations engaged and motivated due to their tendency to shift employment more frequently. Since flexibility is becoming more and more synonymous with mobility for these groups, governments all around the world need to develop policies that can compete with the attractiveness of traveling abroad for work. This reality is particularly true for the Philippines with our sizable overseas worker population.Meanwhile, since the COVID-19 pandemic started, a sizable number of the population over the age of 50 have quit working in some advanced economies. Organizations have to assess the effects of this shift while monitoring market conditions and, where necessary, think about strategies to entice this group back.Organizations are being forced to react quickly in the short term as a result of this ongoing disruption. One way is by assessing how the cost-of-living crisis is affecting employees and developing assistance strategies. However, focusing on the short term may also keep CHROs and their boards from thinking strategically. The organization must be able to assess the talent it currently has, the talent it will require in the future, and the best way to bridge the talent gap.PERCEPTION GAPS WITH EMPLOYEESBoards and their CHROs must make decisions about how to carry out commitments related to the talent agenda while navigating a rapidly shifting, occasionally contradictory reality. While they are better positioned to do so now than before the pandemic, the EY 2022 Work Reimagined Survey found that employers and employees are not always on the same page when it comes to employee engagement.For instance, when asked why they would change professions, employees most frequently cited career advancement and an increase in overall salary. On the other hand, employers say that learning, skills development, and well-being are some of the key elements to ensuring their employees can thrive. Additionally, there is a “loyalty disconnect” where employers think younger generations are less dependable. However, younger workers claim that they merely have different loyalties and values. Younger workers, for instance, place a higher priority on mental health, the mission of an organization, and its ethical standards than they do on management structures or the actual work.Organizations must act fast to close these perception gaps while maximizing the abilities of each and every worker. Putting humans at the center needs to be a strategic focus for the board and the CHRO to better understand what employees across all demographics want.CONSIDERATIONS FOR BOARDSBoards will need to ask themselves how they enhance both formal and informal talent governance to support and reflect the strategic relevance of the CHRO role. By collaborating with the CHRO, they can make sure the company stays on top of talent issues and can deal with the constantly shifting attitudes of its employees.The management group and the larger employee organization will have to determine how they uphold the culture and values of the company, as well as the systems in place to quantify this. Boards will also have to determine if the company has the necessary expertise and abilities, particularly those for future leadership, to execute its business plan.Lastly, board members must ask themselves what role they see themselves playing in developing a sustainable workforce and advancing the talent agenda. This can range from retraining the workforce and gauging the employee experience to boosting staff retention and integrating hybrid working styles into organizational culture.The second part of this article will discuss three strategies for boards and CHROs to help each other succeed: strengthening and enabling the CHRO role, re-examining the risk framework to support the talent agenda, and supporting CHROs in developing a human-centric strategy and employee value proposition.This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Lisa Marie T. Escaler is the People Advisory Services Workforce Advisory (PAS WFA) leader of SGV & Co.

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13 February 2023 Benjamin N. Villacorte and Erica Nicole D. Gomez

Understanding the implications of the EPR Law (Second Part)

Second of two partsThe circular economy concept has been given more and more attention through the years and has now materialized in the Philippines through the Extended Producer Responsibility (EPR) Act of 2022 and its Implementing Rules and Regulations (IRR). In fact, the Philippines is one of the few countries around the globe with active regulations or national programs on the circular economy, counting itself among Scotland, Canada, South Africa, China, Japan, Singapore, and the European Union.Because of the huge potential of the Act to accelerate the transition of the Philippines to a more circular economy, all companies, not just obliged enterprises, can play a critical role in this ambition.In the first part of this article, we discussed six recovery programs, six reduction strategies and additional steps that obliged enterprises can undertake as part of their EPR programs. In this second part, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance.FROM EPR REGISTRATION TO EPR IMPLEMENTATIONThe EPR registration with the National Ecology Center due on Feb. 13 is just the prelude to a long-term transformation process for plastic waste management. Mobilizing large enterprises in an action-oriented approach would lead to greater positive impact, which can also influence the micro, small and medium enterprises (MSMEs). MSMEs may voluntarily comply with the law by introducing small-scale EPR programs, but the real challenge lies in implementation.Since both reduction and recovery methods are required to fully comply with the law, investment in technology, innovation, facilities and product development are needed. Partnerships with local governments and the informal waste sector are also highly encouraged to ensure the engagement of key stakeholders in EPR programs. Because the EPR requirements set forth in the law may be demanding for some, authorizing a Producer Responsibility Organization (PRO) can serve as a viable additional platform for EPR program implementation.Obliged enterprises are required to have a system in place to account for their plastic footprint and engage an independent third-party auditor to certify the veracity of their reported plastic footprint, recovery and EPR program compliance using uniform standards established under the law. In this case, it would be advantageous to set up an internal auditing system as early as now to avoid delays and setbacks in the future. This will also allow obliged enterprises to thoroughly review the strategies and schemes that best suit their company.KEEPING CONFIDENCE THROUGH THIRD-PARTY ASSURANCEThe initial waste footprint to be submitted in time for the EPR registration can be self-declared by the obliged enterprises. However, after the first-year implementation of their EPR programs, obliged enterprises would need to report their compliance and recovery targets achievement, assured by third-party audit.While the submission of an EPR Law Compliance Audit Report (ECAR) is required for the government to monitor and evaluate the compliance of the obliged enterprises with their respective EPR programs, having third-party assurance provides transparency and confidence to businesses and their stakeholders that their efforts are contributing to a greater purpose.The first ECAR submission is still in July 2024 covering the EPR programs implemented in 2023, and the following should be covered in the report:• Footprint declaration for the volume of the obliged enterprise’s plastic packaging brought into the market during the period covered;• Recovery or plastic packaging waste diversion based on third-party audited diversion or credits;• Determination of the equivalent plastic packaging waste footprint reduction resulting from other EPR programs;• Confirmation of confidential information declared by the obliged enterprise.ADVANCING CIRCULARITY IN BUSINESSESEmbedding circular economy strategies in a company’s overall strategy and shifting to a circular model from a linear model can benefit the entire company and positively impact its operations, growth, and legal compliance. A circular economy is a type of economic structure that aims to reduce waste and unending resource usage. It represents a fundamental change in how stakeholders manage the use of goods and resources at their core. The goal is to maintain resources and their value in the loop rather than the present take-make-waste cycle, and to reimagine future business models suitable to creating a more sustainable society.In advancing circularity, companies can reassess their product designs and material options, and target to reduce waste generation in their whole operations cycle. Businesses that utilize durable, renewable, and recyclable materials can lessen its reliance on scarce and expensive resources as well as reduce their susceptibility to supply chain disruptions. Companies can also employ more sustainable procurement.Essentially, deciding to go with the more sustainable choice in applicable aspects of operations can make a huge impact and take the company a step closer to circularity. Additionally, shifting to a circular economy creates new jobs and revenue sources within the process of looping materials back into the system, including sorting, collecting, refurbishing, and remanufacturing, which is uncommon in the linear economy and opens businesses to new ways to drive growth.BEYOND COMPLIANCE: TAKING STEPS TOWARDS A CIRCULAR ECONOMYTaking into consideration the target timeline in the EPR, companies should now be ready for their plans and strategies on the implementation of their EPR programs for 2023. The first submission of the ECAR will cover the 2023 EPR programs. Obliged enterprises or PROs are required to establish and implement accounting, data recording, and auditing systems for their respective EPR Programs.The implementation of effective EPR programs goes beyond compliance — it also benefits companies through cost and tax reduction, energy savings, and favorable investor and consumer perception of their brands.The EPR Act of 2022 is an opportunity for businesses to contribute to tackling the growing volume of plastic waste in the country, preventing the loss of valuable resources and reducing environmental degradation. Since the IRR has been published, businesses must now step up and act to monitor and evaluate their plastic waste generation. By beginning to build partnerships and strategies for EPR program implementation, they can take a significant step towards a circular economy. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.

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06 February 2023 Benjamin N. Villacorte and Erica Nicole D. Gomez

Understanding the implications of the EPR Law (First Part)

First of two partsWith the signing of Republic Act No. 11898, also known as the Extended Producer Responsibility (EPR) Act of 2022, obliged enterprises are now engaged in establishing their own EPR programs to meet the deadline for EPR registration on Feb. 13.The Philippines is considered one of the top plastic polluters globally. A 2019 study by the Global Alliance for Incinerator Alternatives shared that Filipinos use a material amount of plastic packaging. Moreover, the National Solid Waste Management Status Report revealed that recyclables make up almost 30% of waste in the Philippines, comprising mostly of plastics and paper. Meanwhile, a WWF Philippines’ study showed that only around 9% of post-industrial and post-consumer plastics are recycled. This is relatively low compared to other countries, but with the Act now being implemented, there is this greater anticipation that the country will see a significant increase in its overall recycling rate. Although the Act only covers plastic packaging in the early years of its implementation, the coverage will be gradually expanded to encompass other materials as well. The Implementing Rules and Regulations (IRR) for the law were issued in January. The IRR provides detailed implementation requirements for the obliged enterprises, waste diverters and verification bodies, among others. Having established the need to implement an EPR program, obliged enterprises should explore what steps to take moving forward to comply.In the first part of this article, we discuss six recovery programs, six reduction strategies and additional steps that obliged enterprises can do as part of their EPR programs.EPR MECHANISMS: WHAT OBLIGED ENTERPRISES SHOULD PREPARE FORAs the country moves towards a more circular economy, obliged enterprises have been given the responsibility of managing their products throughout their lifecycles, starting with plastic packaging covered in the Act, with potential expansion of coverage in the future. By the February EPR registration deadline, obliged enterprises are required to submit their EPR programs with both recovery methods to effectively prevent the leakage of waste into the environment, and strategies to reduce non-environmentally preferable packaging products. The law specifies the recovery targets that obliged enterprises need to meet, beginning with a 20% recovery rate by the end of 2023 until 80% by the end of 2028 and every year thereafter. To do this, the IRR presents six recovery programs that obliged enterprises can do as part of their EPR programs:1. Waste recovery schemes through redemption, buy-back and offsetting with the goal of achieving high retrievability, high recyclability and resource recovery of packaging waste;2. Diversion of recovered waste with the intention of diverting packaging waste into value chains or other value-adding useful products;3. Transportation of recovered waste to proper diversion or disposal sites, ensuring proper tracking for traceability and transparency;4. Involvement in waste clean-up in coastal and public areas, with close coordination with local government and communities;5. Investment in establishing commercial or industrial waste diversion or disposal facilities, backed by a business case or pre-feasibility study to justify the insufficiency of existing facilities in the country; and6. Partnerships with local governments, communities and informal waste sectors for waste recovery-related purposes, ensuring the adequate and proper involvement of key stakeholders in the EPR program implementation.On top of the recovery methods, the Act also requires obliged enterprises to adopt measures to reduce non-environmentally preferable packaging products. While the law does not specify reduction targets unlike for recovery, it still provides six reduction strategies:1. Replacing single-use packaging with reusable ones aimed at improving the packaging’s reusability, recyclability and retrievability;2. Including recycled content or recycled materials in packaging, considering the amount of material effectively recycled and the efficiency of the recycling process including energy used;3. Deploying refilling systems for retailers, basing on the amount of single-use containers avoided as a result of the availability of refilling system;4. Establishing a viable reduction rates plan focused on upstream reduction of used material during the manufacturing of packaging;5. Preparing an information and education campaign during the first year and updating annually; and6. Ensuring appropriate labeling of packaging to facilitate recovery, reuse, recycling and proper disposal, following relevant standards and eco-label processes.TAKING ONE STEP AT A TIMESince the EPR programs are relatively new to most businesses, obliged enterprises may opt to implement their own EPR programs or decide to work with others, i.e., other obliged enterprises or Producer Responsibility Organizations (PROs). A PRO refers to an organization that is either formed or authorized by obliged enterprises with the function of supporting them in the formulation, registration, implementation and audit of their EPR programs.To advance the compliance of obliged enterprises with the provisions of the law, the IRR defines certain incentives. These include tax incentives, consideration of EPR expenses as necessary expenses deductive from gross income, and tax and duty exemptions of donations, legacies, and gifts. However, the law also penalizes non-compliance with fines ranging from P5 to P20 million, with an automatic suspension of a business permit for the third offense.Registering EPR programs with the National Ecology Center (NEC), which works under the oversight function of the National Solid Waste Management Commission, by February is the first official deadline under the law. The NEC is responsible for maintaining an EPR Registry containing all registered EPR programs, and will provide technical expertise, information, training and networking services for the implementation of the law. Registration is imperative for obliged enterprises and failure to do so is the first possible offense.With only a few days left before the deadline, obliged enterprises should also consider that the timely submission of their EPR programs would demonstrate their ability to really implement and operationalize these programs in the long-term. Considering that programs are expected to scale-up and be reported regularly moving forward, obliged enterprises must begin to, if they have not yet, incorporate their EPR programs and targets into their corporate strategies and annual plans.MOVING TOWARDS CIRCULARITYA shift in mindset and action is necessary in accomplishing a more sustainable way of doing business. Companies should start thinking of long-term strategies for implementing their EPR programs in order to reach the target recovery rate of 80% by 2028 onwards. More than compliance and incentives from this Act, the implementation of these EPR programs will also reflect upon the values of the company, as well as its shareholders and stakeholders.The transition to a more circular economy in the Philippines still has a long way to go, but the Act serves as a catalyst to encourage collaborative efforts from the government, companies, communities, and informal sectors to make conscious decisions in reducing the generation of plastic wastes in the country.In the second part of this article, we discuss EPR registration, EPR implementation, and keeping confidence through third-party assurance. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the authors and do not necessarily represent the views of SGV & Co.Benjamin N. Villacorte is a partner and Erica Nicole D. Gomez is a senior associate from the Climate Change and Sustainability Services team of SGV & Co.

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30 January 2023 Marie Stephanie C. Tan-Hamed

Digital government: Creating real connections (Second Part)

Second of two partsTo better understand how lives are changing in the connected world, EY launched a new research study with over 12,000 respondents of working age called Connected Citizens. This global study looked at what these respondents value, their top concerns, and how they feel about the impact of technology. The study then aimed to examine their expectations of the function of the government, the provision of public services, and the nature of the interaction between those in power and those under it.In the first part of this article, we discussed the impact of technology in a more pervasive role, broader concerns from citizens regarding the impact of technology, and the seven Connected Citizens personas identified in the study.In this second part of the article, we discuss four key areas government can focus on to better engage with the public: agile and innovative policymaking, inclusive digitization, responsible data use, and public engagement and participation.AGILE AND INNOVATIVE POLICYMAKINGGovernments need to better anticipate the needs of the population and prevent crises before they arise. For example, governments can introduce new social safety net programs (like guaranteed minimum income or universal basic income) for low-income, disadvantaged populations.Case in point, in some countries, clearer rules regarding employment status and rights, as well as portable benefits plans that maintain coverage as employees move geographically, change employers, or experience periods of unemployment or self-employment, are some of the new policies being explored to combat income insecurity for those in precarious work, such as the self-employed and gig economy workers.Other initiatives include more flexible and lifelong education and retraining programs that help workers remain relevant and competitive, skills road maps that assist governments in understanding future-forward skills and jobs, personal learning accounts that provide workers with funds to learn new skills, and active labor market policies (ALMPs) to aid the unemployed and low-income workers in finding employment or retraining.INCLUSIVE DIGITALIZATIONDigitalization is necessary to quickly modernize public services and give citizens the same level of service as the private sector. However, governments must accomplish this while leveling society and making sure that no group is left behind.Broadband and 5G networks, among other investments in high-speed digital infrastructure, are required to ensure connection throughout a nation.Governments can also assist in supplying individuals with online-accessible devices and running programs to increase digital literacy, providing people the knowledge and assurance to connect with digital services. However, companies must also make sure that individuals who are not online have access to services in alternate ways. Citizens already comfortable with technology have higher expectations for the quality, expediency, convenience, and cost-effectiveness of service delivery.Governments can take a number of actions to address these citizens’ needs. The digital National ID system is a step in the right direction to help make it simpler for users to access a variety of services. They can also increase the use of smart websites and mobile applications that offer one-stop access to numerous government services and push notifications with timely information; develop integrated digital platforms that allow data sharing between various government systems so that people only have to enter personal information once; fulfill service demands end-to-end digitally; promote AI-powered chat bots to engage with users and conduct transactions; and create a true omnichannel experience enabling users to access services on various platforms and through various devices.Governments will be able to design their services with the aid of design thinking, customer experience laboratories, and data analytics as they progress toward more proactive and even predictive service delivery.RESPONSIBLE DATA USAGEMore data than ever before is being created, stored, and analyzed for the benefit of society, but there is also debate and controversy surrounding the expanding usage of data. New regulatory, legal, and governance structures are required for nations to take advantage of opportunities while also managing possible risks for citizens. Policymakers will need to carefully consider concerns like data privacy, surveillance technology, the equity built into algorithms, and the integrity of the information ecosystem. The recent controversial SIM Registration Law is one example where people are anxious about the access to their personal data.Governments are already tightening the laws governing how personal data is used. Furthermore, most governments already have laws that grant citizens active control over their data as well as the right to know how it is being used, such as the Philippine Data Privacy Act of 2012.Regulators must take into account how businesses use data in their AI systems. The general public is becoming more aware of the issues with algorithmic decision-making, namely in how it can result in discrimination against particular groups or result in poor decision-making. The regulatory setting needs to increase public confidence in these developing new technologies.Governments, public service providers, enterprises, and other organizations will need open governance systems at the institutional level to show how the data rights of people are protected.Organizations could also pledge to be open about the automated decision-making tools they employ and the safeguards they have in place. Governments will also better manage risks, guard against negative consequences, and foster the necessary trust as more organizations adopt these ethical design and governance best practices.PUBLIC ENGAGEMENT AND PARTICIPATIONTop-down governance methods will no longer be regarded as efficient nor legitimate in the future as many citizens demand shared, transparent, and participatory decision-making. Governments can have the opportunity to interact with citizens on problems that matter to them by gathering citizen feedback on a massive scale, thanks to new digital e-participation tools like social media, smartphone apps, and online digital platforms. Vox populi may take on a new digital meaning in the future.However, governments can ensure that citizens are not just consulted but also able to influence important choices. Many people are experimenting with various engagement methods to find, discuss, and decide on a variety of topics. For instance, Australia, Ireland, and other nations have employed deliberative citizen juries to jointly develop answers to difficult social and economic problems.Initiatives for participatory budgeting which give residents a say in how public funds are spent are gaining popularity. More than 180 policy laboratories have been established globally to foster ideas and serve as a testing ground for policies in areas like education, health, and justice. Additionally, government-sponsored hackathons have proven to be a successful tool to get people involved in developing new responses to pandemic-related economic, social, and technological concerns.Most governments and public institutions around the world are starting open data programs and establishing platforms for data exchange, emphasizing making data broadly accessible to third parties, especially citizens, to support the creation of original solutions to challenging issues while enhancing accountability and transparency. These are all crucial projects that can help governments in a networked world better serve all their citizens.TRUE DIGITAL INCLUSION VIA CONNECTED CITIZENSThanks to advancements in data and technology, governments now have a unique chance to better serve their populations. However, as with any revolutionary possibility, there is an inherent risk: that the desire to digitize as much and as rapidly as possible leads to a one-size-fits-all strategy that actually fits only a few citizens, further separating people from government.The Philippine government in particular has acknowledged the global megatrend of disruptive technologies that pivot transformation in various sectors — augmenting economic development and improving citizen well-being.To address economic recovery, the recently published Philippine Development Plan for 2023 to 2028 takes on the underlying theme of transforming the economic and social sectors and institutions for a prosperous, inclusive, and resilient society, with the digitalization of government services in the forefront of its transformation agenda.Included in the priority bills of the 19th Congress is the passage of the Open Access in Data Transmission Act that will improve competition and promote regulatory efficiencies in the digital market, and the Critical Information Infrastructure Protection Act and Cybersecurity Act that will strengthen the security and resilience of the Philippine cyberspace. These legislative national government agendas will pave the way to more and better programs, resulting in better government services delivery.By understanding that different people have different levels of digital maturity and access, governments will be able to better plan digital service delivery mechanisms that meet all of the needs of their citizens. Governments can do this to increase their effectiveness and efficiency, address digital exclusion to reduce social inequality, and contribute to the creation of more equitable social services for all. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Marie Stephanie C. Tan-Hamed is a strategy and transactions partner, EY Parthenon partner and PH Government and Public Sector leader of SGV & Co.

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23 January 2023 Marie Stephanie C. Tan-Hamed

Digital government: Creating real connections (First Part)

First of two partsAs people increasingly look to the government to defend their lives and means of subsistence during times of crises, most recently under the pandemic, public policy and the provision of services are now under unprecedented pressure. There is widespread demand among citizens for more digitally enabled public services, and many of them want more control over how these services are provided. However, a sizable portion of the populace lacks the ability or resources to use digital services.To better understand how people’s lives are changing in the connected world, EY launched a new research study with over 12,000 working-age respondents called Connected Citizens. This global study looked at what these respondents value, their top concerns, and how they feel about the impact of technology. The study then aimed to examine their expectations of the function of the government, the provision of public services, and the nature of the interaction between those in power and those under it.TECHNOLOGY IN A MORE PERVASIVE ROLEThe increased use of technology in daily life has been one of the most noticeable changes catalyzed by the pandemic. It changed how people work, play, shop, study, and socialize in mere months. According to the study, a majority anticipate using technology even more in the future than they would have otherwise. As much as 64% of the respondents anticipate that the pandemic will result in an increase in the use of technology.Although governments worldwide have sped up the process of digitalizing many public services, many still fall behind private sector offerings like online banking and shopping in terms of anticipated gains in service delivery (although healthcare services are viewed more positively). Over half of the people globally (53%) believe that governments and public services have used digital technology to successfully combat the pandemic. This shows that governments still need to make progress in their digital transformation before they can live up to the expectations of the citizens they serve.We are seeing similar trends in the Philippines, where the government is increasingly focused on implementing and sustaining digital transformation strategies to bring about a true e-government that would strengthen connections with citizens by using digital and technology to achieve economic transformation and more efficient delivery of services to citizens. However, both government and stakeholders alike need to understand the deeper issues around technology in order to truly make the most of it.BROADER CONCERNS REGARDING TECHNOLOGY IMPACTDespite the prevalence of technology, the study found complex attitudes towards it. Most respondents (72%) believe it improves life and will be necessary in the future to help address ever-more complicated challenges. However, there are concerns about its broader effects.  Growing socioeconomic inequality.The most disadvantaged people frequently lack the resources to access new technology and the digital literacy skills necessary to use it. Another issue is the use of algorithms for decision-making, which some believe may be biased. Nearly a third of people worldwide (32%) believe that not all segments of society will equally benefit from technology. And 34% believe that people who are already wealthy and powerful gain more influence as a result of technology.Diminished human interaction.Concerns have been raised about how using communication technology can affect social cohesion, with 32% believing that technology will cause people to feel less connected to their community. Some of the most vulnerable groups may experience increased isolation in a more virtualized society where there is less physical interaction.Digital security and personal privacy.The quantity and variety of data produced and the rate at which it is gathered will grow as more people and devices are linked. This creates public anxiety over personal privacy and a lack of choice over how data is used. More than 4 out of 10 people oppose the sharing of data with both the government and the business sector, while 72% oppose government selling their personal information to the private sector.Additionally, governments can do more to explain the advantages of data sharing and reassure the public that it will be used responsibly. The study reveals some support for data use when people are aware of the use case, and if it presents advantages for them personally or for society as a whole. This is especially true when it comes to matters of public health. For instance, 52% of people worldwide favor utilizing personal data to track and prevent disease, while 47% support using it to set priorities for healthcare.Building trust in government institutions will be crucial in increasing the effectiveness and efficiency of government operations as well as utilizing public efforts to help design and provide better services. The study shows that citizens are willing to participate more in the delivery of public services in the future, with more than a third identifying more performance transparency as one of their top priorities to improve public service quality. Additionally, 42% said they would like to have a greater say in how public services are delivered in their community.THE SEVEN CITIZEN PERSONASWith the study showing how complicated global citizen beliefs, values, needs, and behaviors are, understanding these identities can assist governments in forging more reliable ties with their constituents. It identified seven different citizen personas through survey data analysis: Diligent Strivers, Capable Achievers, Privacy Defenders, Aspirational Technophiles, Tech Skeptics, Struggling Providers, and Passive Outsiders.Diligent Strivers are young proactive self-improvers keen to advance in life. They expect seamless digital government services to help them achieve their aims, are comfortable sharing their data with governments, and strongly believe in equal opportunities.Capable Achievers have an older age profile and are independent, successful and satisfied with their life. Pragmatic technophiles who embrace digital innovation, they trust governments to use their data appropriately but worry about it getting into the wrong hands.Privacy Defenders tend to be older, independent and comfortably off. They value technology and the benefits it provides them, but are extremely cautious when it comes to sharing their personal data with governments or private companies.Aspirational Technophiles are younger, well-educated city-dwellers. Motivated by success and new opportunities, they incorporate technology and data into every facet of their lives. They are excited by the potential for new digital innovations to empower people and improve society.Tech Skeptics are older, on lower incomes and relatively dissatisfied with their lives. Distrustful of governments and skeptical about the benefits of technology, they tend to be opposed to data sharing, even with a clear purpose.Struggling Providers are younger and tend to be in low paying, less secure work. They are above-average users of welfare services and are ambivalent toward technology, lacking the access and skills for it to significantly impact their lives.Passive Outsiders have lower levels of income and education. Detached from the connected world around them and generally reluctant to embrace change, they are relatively ambivalent on data sharing but tend to feel the risks outweigh the benefits. The attitudes each persona has toward technology and their level of access and comfort with digital services are significant. Despite being representative of the online population, the survey participants vary in their comfort level while utilizing new technologies on their own. This indicates that governments should shift away from a one-size-fits-all approach towards service delivery and increase the level of personalization to improve public policy design, deliver more efficient and effective public services, and deepen the relationship between government and citizens.For instance, Struggling Providers, who would require the most assistance, would likely be unable to utilize services and miss opportunities if some services can only be accessed through digital channels. This leads to a worsening of the structural inequality they already experience.We have seen this ourselves during the pandemic particularly in the education sector where students were given the option to participate in online classes, yet a significant percentage did not have access to devices or the internet and had to resort to analog options such as printed learning modules. In the second part of this article, we discuss four key areas government can focus on to better engage with the public: inclusive digitization, responsible data use, innovative and agile policymaking, and public participation and engagement. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.Marie Stephanie C. Tan-Hamed is a strategy and transactions partner, EY Parthenon partner and PH Government and Public Sector leader of SGV & Co.

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16 January 2023 Kristopher S. Catalan

How can private boards be future-fit?

In today’s rapidly-evolving and disrupted business environment, private enterprises need to be resilient and responsive to fast-changing business needs. Boards and management alike should widen their agenda, and continually embrace transformation to keep their organizations aligned with the times.The most recent geopolitical, societal and environmental events force companies to rethink their priorities and revisit their current business agenda. Suffice to say, strategies which worked pre-2020 may no longer be effective. That is why private boards must reframe how the future looks like for their organizations.EY has identified six key actions to test the future fitness of boards and their ability to lead the business.1. Gather new perspectives by asking the right questions from stakeholdersThis helps create a robust dialogue around risk, opportunities, and any impacts on long-term purpose, which enables more informed decision-making. Initiating these discussions with management invites the exploration of alternatives that may not have been previously considered. Inputs from external resources such as business advisors or consultants can be beneficial as it provides new perspectives or provides alternatives to the current problems companies face.Conversations with stakeholders can give boards a better view of current or potential problems to provide organizations with much-needed wisdom. The better the questions are, the better the answers to be found.2. Revitalize board dynamicsDiversity and ongoing self-reflection, along with openness to varied inputs, reinvention and adaptation, builds a stronger, more effective board. A reasonable exchange of ideas can provide different frames of reference that are essential to problem-solving. An active board also provokes difficult but necessary questions.As an example, the Securities and Exchange Commission advocated increasing female representation in the boardroom and that boards should be as diverse as possible, gender-wise. In a study by Harvard Business Review, companies with more than two women on the board outperform others with less in their sector. Clearly, increased diversity in the boardroom has direct benefits for organizations.3. Increase focus on the long termWhile current circumstances have many boards centered on short-term survival, flexible and longer-term strategies based on emerging technologies, trends, new intelligence and industry developments, as well as a clear commitment to putting people first, should also be clearly articulated. Companies are no longer just measured on how well they performed for a year – they are assessed on how well they prepare for the future.Information about sustainable practices, including environmental, social, and governance (ESG) programs, are a staple in investor briefings for large companies. In the not-so-distant future, corporate communications will include sustainability practices and measures alongside financial metrics.With the growing significance of sustainability reporting, assurance of non-financial measures is equally important. Private companies may initially look up to their publicly listed counterparts, which are required to report about their sustainability programs (currently under a “comply or explain” basis). Private boards can include ESG matters as a staple boardroom discussion as well.Future-fit boards are focused on identifying megatrends and guiding management to face new challenges and innovate to seize the upside of disruption. Future-fitness is also about creating an environment for management which provides flexibility to develop better, more innovative business models, new collaborations, and new ways of working, drawing on talent, and incubating new ideas.4. Adapt communication, protect reputationTo maintain stakeholder trust, private boards need to align purpose with action. Communication must be timely and the division of roles for external communication clearly understood. Private boards can set the tone for the whole organization to follow. The policies and guidelines they adapt and approve for the organization should trickle down through formal and informal communication channels to the staff so that frontliners are equipped with the right information to make the right call.In the EY Global Integrity Report 2020, only 58% of junior employees, compared to 70% of board members, agree that employees in their organization can report wrongdoing at work without fear of negative consequences for themselves. Management must build the trust of their workforce through the clear communication of values and transparent compliance with the rules, as well as provide secure ways in which employees can voice their concerns.5. Align and monitor cultureIn his book Start with Why, Simon Sinek said that “Cultures are groups of people who come together around a common set of values and beliefs. When we share values and beliefs with others, we form trust.” It is important that boards have a clear vision of the corporate culture, align it with long-term strategies, and monitor said culture using new metrics to view issues from every angle.Purpose is like a journey, the board and management are pilots and stewards, and the passengers are the employees and other stakeholders. The pilot, the crew and the passengers need to have a common understanding of where their destination is and more importantly, trust that everyone will play their roles in order to arrive safely.6. Enhance risk and compliance oversightTaking a pragmatic approach enables boards to gather external insights, deploy monitoring mechanisms, and think more broadly about emerging risks and how to address them.One of the shifts required is to develop new competencies for finance, risk, technology and compliance. Private boards can organize committees similar to what public companies do to enhance oversight functions of their boards. Private boards may wish to rethink their usual agenda to tackle enterprise-wide risks.FUTURE-PROOFING PRIVATE COMPANIESPrivate companies can become future-proof by reimagining the way things are done and private boards are instrumental to setting that tone. A clear purpose acts as a compass in the journey of an organization to reshape and reinvent itself, setting a clear and inspiring direction that future-fit boards can navigate.Furthermore, with the right information and the proper tools, private boards can lead the transformations of their companies to the next level and beyond. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.Kristopher S. Catalan is an Assurance Partner and the EY Private Leader of SGV & Co.

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