Rapid technological change ‘is disrupting leadership’

By Gavin Hinks

Mark Braithwaite, Odgers Berndtson

At a recent gathering in London, a group of chairs, chief executives and senior managers came together to talk about a book. Written by Mark Braithwaite, the Asia Pacific managing director for global headhunting firm Odgers Berndtson, Leadership Disrupted argues that the pace of technological change is creating a level of complexity that is “overtaking our ability to process and make effective decisions”.

More brutally, the book suggests that up to half the people currently on leadership teams may be unsuited to coping with the current accelerated rate of technological change and the demands it makes of their skills. In addition, boards may in fact be blocking some companies from coming to terms with the strategic transformation needed to keep up.

This conclusion came from interviews with 70 leaders from multinational corporations—63 Asia Pacific leaders of global companies and seven chief executives of Western multinationals headquartered in Asia.

Braithwaite’s book is not about technology, but the thorny topic of leaderships at a time when change is so fast it has become the “biggest disruptor of all”.

A flexible mindset

Braithwaite focuses on three core areas: strategy, talent and leadership, how they work together and the challenges each presents.

Strategy is particularly tricky, because “the five-year plan is obsolete, and mature companies are really struggling with this”. One leader told Braithwaite: “Our business plan from 2016 is not worth the paper it is written on.”

Talent management is also being transformed. Employees seek a more personal and direct relationship with their bosses, want their employers to be good for society and have a sense of purpose, and they want investment in their own professional development.

In terms of leadership, the Asia Pacific region throws up specific challenges as customers demand change faster than companies can adjust. Leaders, according to Braithwaite, need a new mindset to cope with the flexibility needed to keep up. And that is hard to achieve across all levels of an organisation.

“To operate in a diverse environment, one has to let go of what we believe and agree with other people, listen to something new and make a transition”

—Mark Braithwaite

The rest of the book is an exploration of those themes and the measures companies are taking to cope. But the warnings about managers ill-suited to disruption and boards proving an obstacle to change sound off like sirens.

First boards. Braithwaite draws his observations from comments made by Belgian leadership consultant Rik Vera when addressing the need for a new mindset.

“Boards are the biggest problem,” says Vera in the book. “They still look for long-term, rigid plans.

“In some sectors they are so stuck on old business models and assets that they will not need in the future, that I predict 50% will not survive.”

That’s a disturbing thought—and Braithwaite adds some detail to the diagnosis. He describes the issue as possibly explained by non-executives who have been away from the front line for a number of years and have not had to directly confront the technology changes that today’s executives face.

“They’re one step removed from that,” says Braithwaite, who goes on to cite the changes made by Adobe as an example of a company and leadership that changed its mindset. When confronted with a changing marketplace the software provider decided to dump software on a disc in a box for a subscription service based in the cloud. “That took a lot of courage,” says Braithwaite.

But does that mean changing the mindset of those chairing boards and their non-executive teams? “Absolutely,” says Braithwaite, and he goes on to argue for “cognitive diversity” in the boardroom. “To operate in a diverse environment, one has to let go of what we believe and agree with other people, listen to something new and make a transition.”

New interventions

As for the 50% of leadership team members currently unsuited for coping with disruption, Braithwaite describes it as an “amazing statistic”. But, he quickly points out, chief executives suddenly sacking their leaders and recruiting replacements from the opposition would be a “disaster”. “There aren’t enough leaders as it is,” he says.

So, there has to be another solution. “I think there’s going to be—and I’m seeing this within the companies I interviewed—a much greater emphasis on training and retraining mindset,” says Braithwaite.

And this may come in new and diverse forms rather than the traditional short-term stay at a business school.

Braithwaite anticipates “different kinds of interventions to open minds”. This might include visits to fast-moving companies in other sectors, such as Silicon Valley; job interviews might include new techniques such as “gaming” simulations. There will also be pressure on recruiters and headhunters to develop new tools.

Braithwaite is at pains to stress that his book is not doom-mongering for the business world. However, it is unquestionably an abrupt wake-up call.

“When there isn’t a crisis, or a crisis potentially coming, that’s when it’s hard to actually invest in doing something new, like the Adobe story.

“That’s where the challenge is… But from my interviews, I’m confident that a lot of those companies [interviewed] are going to do quite well through this.”

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‘Single all-encompassing framework’ needed for sustainability reporting

By Gavin Hinks

sustainability reporting, ESG

When it comes to sustainability reporting, corporate accounting departments are confronted with a plethora of choices; a huge number of systems that could be used to report a company’s environmental, social and governance credentials. This perhaps explains why one key finding from a recent research project was a call for “a single all-encompassing framework”.

It wasn’t the only finding. Undertaken by the Better Alignment Project, a working group established by the Corporate Reporting Dialogue (CRD), the research also found that connections between different reporting frameworks are poorly communicated to users, while the frameworks also differ in the language and taxonomy they use.

Participants in a series of roundtables told researchers that there was also confusion between frameworks over definitions of materiality. Others worried that much of the current activity on corporate reporting is focused on large, listed companies while offering little focus on the needs of SMEs. There was also a call for more attention to sector-specific reporting.

This all provides food for thought for the alignment project, which brought together the providers of five different reporting systems—the CDP, the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB)—to see how they could work together to harmonise their own reporting systems with the climate-related disclosure guidelines published in 2017 by the Task Force on Climate-related Financial Disclosures (TCFD), a project of the G20’s Financial Stability Board.

The Better Alignment Project seeks to uncover how the systems overlap—where they are essentially asking for disclosure of the same information—and how it will help fulfil the demands of TCFD reporting. They also aim to highlight the gaps that need filling.

Growing pressure

Not all reporting systems are the same. They may differ on the information they require disclosed, the definitions they use, the measures that are valid and, as already mentioned, the language they use to mean much the same thing. It’s enough to cause your average corporate reporting specialist to throw it all in and seek a new career.

It’s important that the preparers of company reports have form of alignment because it will only make it easier to make disclosures relevant to the planet’s biggest issue: climate change. Indeed, companies are under growing pressure to comply with TCFD’s reporting requirements to disclose their climate-related risks and opportunities.

A recent TCFD status report encouraged companies to speed up the pace at which its guidelines are implemented. According to the report: “Given the urgent and unprecedented changes needed to meet the goals of the Paris Agreement, the Task Force is concerned that not enough companies are disclosing information about their climate-related risks and opportunities.”

Will framework providers get together to form a single organisation delivering an “all encompassing” one-stop shop for sustainability reporting? That’s unlikely any time soon, despite requests. Current systems are designed to serve different audiences in different jurisdictions with different objectives. Pulling them together would be a much bigger job than aiming for better alignment.

Wim Bartels, programme lead at the CRD, told a briefing this week that though informal conversations had included talk of a single organisation with a single reporting framework, the obstacles were too high.

“It’s easy to say that. It’s very difficult to do it,” he said.

In September the CRD will produce a report that will include a map laying out where the five reporting frameworks help with TCFD reporting, and where there are gaps. Bartels foreshadowed publication by saying there was less “misalignment” than many in the market believe. That at least should provide some aid to corporate reporting departments.

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Cybersecurity: how to close the knowledge gap

By Ruth Sullivan


As cybersecurity becomes a mainstream business risk, boards are coming under increasing pressure from customers, regulators, investors and the government to understand and oversee potential breaches effectively. Concern grows as the frequency and sophistication of high-profile cyber-attacks rise across industries.

In September, British Airways revealed that hackers had stolen the personal and financial data of 380,000 customers from its mobile app and website a few weeks earlier. Faced with customer anger, the airline had to promise to compensate passengers whose information had been stolen.

Tech giants have also been at fault over failure to protect user data. Google+ shut down its social media network in October, following its non-disclosure of a user data leak. At the end of September, Facebook revealed that hackers had accessed the data of 50 million users’ accounts, including those of its CEO Mark Zuckerberg and COO Sheryl Sandberg. The social network group is still under scrutiny after an earlier data protection leak, where research firm Cambridge Analytica obtained the data of 87 million Facebook users.

Failure to protect personal information and to be transparent about how the data is harvested by others shocked social media users, sent Facebook’s share price plummeting and incurred a £500,000 fine from the UK watchdog.

Companies also face cybercrime attacks from hostile states. In June 2017, Reckitt Benckiser, Moller-Maersk and FedEx suffered a NotPetya ransomware attack, which disrupted their operations and cost each company millions of dollars. Russia has been accused of the attack. A month earlier WannaCry ransomware, perpetrated by North Korea, disabled the operations of thousands of companies in about 150 countries, and also UK hospitals.

Corporate leaders need to “understand cyber-risk in the same way they understand financial risk or health and safety risk”

—Ciaran Martin, NCSC

At a September CBI cybersecurity conference, Ciaran Martin, CEO of the National Cyber Security Centre (NCSC), stressed the urgency of cyber-threats and called on boards to become more cyber-literate to make company defences stronger.

“This means closing the knowledge gap between the board and the technical team … so that the people on the board and the people in IT can talk about the risks and people on the board can ask challenging questions of their teams.”

Corporate leaders need to “understand cyber-risk in the same way they understand financial risk or health and safety risk,” he added.

Board oversight

The shift of responsibility for cybersecurity oversight to boards is becoming increasingly clear. At the same conference, Matthew Fell, chief UK policy director of the CBI, said that as cyber-threats pose one of the biggest risks to a company’s finances and reputation, companies needed to recognise that digital security was no longer the sole responsibility of the IT team.

Given the barrage of cyber-attacks and the ensuing impact of disrupted business operations, financial, legal and regulatory risks, a thorough approach to putting in place robust protection and tackling breaches efficiently is vital. But just what is the state of boardroom oversight on cybersecurity?

Despite the urgency and gravity of threats, board management of cyber-risks remains patchy and is not always at the top of the agenda.

The UK government’s FTSE 350 report, Cyber Governance Health Check 2017, showed that just 54% of boards view cybersecurity as a top risk compared with other risks. More than two-thirds (68%) had no training to deal with a cyber-incident, while 57% claimed a clear understanding of potential impacts of a loss or disruption of data. The statistics are sobering.

Source: FTSE 350 Cybersecurity Health Check Report 2017

Investors are also looking to boards for oversight. “Investors increasingly expect cybersecurity issues to fall within the remit of company boards and their sub-committees, given the potential physical and economic implications of a cybersecurity incident on business operations,” says Fiona Reynolds, CEO of the Principles for Responsible Investment (PRI), whose global signatories represent $80trn of assets under management.

So, what do boards need to do to be in control?

There is no shortage of guidance from institutions and governments on how to tackle the problem. The NCSC has published advice to help boards better understand and prepare themselves to deal with cybersecurity issues. The Bank of England, the Financial Conduct Authority and TheCityUK also provide guidelines on how boards of financial companies can tighten cybersecurity resilience.

Cybersecurity experts advise boards to make sure that clear policies and procedures are in place to tackle cybercrime and protect personal data. A good starting point is to ensure that all members have a clear understanding of the basics of cybersecurity and how the company can be affected by different types of cyber-attacks. Management and the chief IT officer need to explain clearly to the board, in non-technical language, the protection systems in place and vulnerability levels.

Gaining the right information is a two-way exercise and directors, particularly non-executives, who are not involved in the day-to-day running of the business, must ask tough questions to get a clear picture.

“It is the board’s job to ask the right questions and get the right answers from management about the company’s cybersecurity position,” says Peter Swabey, head of policy and research at ICSA: the Governance Institute.

Directors are often deterred from asking questions by IT specialists who say it is too complicated to explain, but boards must push back to get clear, up-to-date information

Questions from the board should include how the company will withstand a range of cyber-attacks, existing cyberprotection measures, identifying weak spots, and asking what is being done to mitigate risks. Quality, comprehensive information is needed for the board to assess the situation.

Directors are often deterred from asking questions by IT specialists who say it is too complicated to explain, but boards must push back to get clear, up-to-date information. This may seem obvious, yet less than a third of boards surveyed in the FTSE 350 Cyber Governance report said they received comprehensive information.

Systems and procedures

What systems and procedures should be in place, then? Savvy boards will insist that “management clearly explain the cybersecurity system in place, what it does and why it is a better system than others,” says Swabey. This step is essential for executive and non-executive members to review and evaluate management approaches to cybersecurity strategy, policy and procedure.

Making sure that management tests the systems and procedures through regular crisis runs is another important task for boards. If there is doubt about effectiveness, then external expertise should be brought in. It is up to senior management to convince the board that the protection measures and response plan are sufficiently resilient. It is also essential for the board’s overview to receive internal audit reports on the state of cybersecurity.

“The ultimate decisions on whether the cybersecurity framework, policy and procedure are robust enough lies with the board,” says Swabey. As part of its oversight role, the board must also decide whether the level of risk is in line with the risk appetite of the business.

Many boards, particularly those of larger companies, appoint a non-executive director with cybersecurity experience or technology skills. This can be helpful for members, including the chair, to gain a better understanding and oversight of the risks involved. The trend is changing the traditional mix of board recruitment and pushes search executives to broaden their talent pool to draw in suitable candidates.

As the cybersecurity threat rises, there is some evidence that boards are spending more money on resources and infrastructure in order to boost awareness and defences. According to the summer Boardroom Bellwether survey, by ICSA and the Financial Times, 88% of FTSE 350 companies said their boards were increasing spending to mitigate cyber-risk.

New data protection rules, the General Data Protection Regulation (GDPR), which came into force in May, are reforming the way companies collect, use and store personal data. The aim is to make sure companies are protecting the personal data of EU citizens by managing security risk and minimising the impact of breaches when they occur.

The GDPR provides clear guidelines for companies that are breached, and boards must have a clear post-breach plan of action in place. Reporting the breach to regulators and stakeholders within 72 hours of discovery is essential, as failure to do this can result in big fines.

The task of overseeing good, timely communication on the state of cybersecurity also falls to the board and includes ensuring good standards of corporate reporting. Poor disclosure on cybersecurity in corporate reporting often prevents investors from assessing a company’s vulnerability to breaches.

“Lack of disclosure makes it difficult for investors to differentiate between those companies that are proactively developing, monitoring and managing cyber-risks versus those failing to prioritise these risks”

—Fiona Reynolds, PRI

Recent research carried out by the PRI, which studied 100 global companies on aspects of cybersecurity management, showed that nearly 60% did not indicate that their board or its sub-committees were responsible for cybersecurity-related issues. Almost two-thirds of companies provided little or no information about the frequency and channels of communication to the board.

“Although companies are increasingly recognising cyber-risks and their impacts, corporate information in the public domain does not reassure investors that companies have adequate governance structures and measures in place to deal with cybersecurity challenges,” says Reynolds.

This is a problem because “the lack of disclosure makes it difficult for investors to differentiate between those companies that are proactively developing, monitoring and managing cyber-risks versus those failing to prioritise these risks,” she adds. Reynolds’ comments come as the PRI steps up its engagement on cybersecurity with boards and management.

Keeping up

The route to becoming a board with good cybersecurity oversight is not without difficulties. One obstacle hindering progress is the “it won’t happen to us” mentality, which can result in members brushing the problem aside. The danger of groupthink on the issue can lead to cybersecurity not being at the top of the board agenda or, in some cases, not on it at all.

Keeping up with the speed of fast-changing cyber-attacks is also difficult as cyber-criminals continue to invent new attack methods. Many boards have already increased the amount of time they spend in the boardroom and find it difficult to chase management and the CIO for regular cyber-updates.

Investment costs in resources—from infrastructure to expertise and compliance with new regulation—can also be heavy, particularly for small companies. However, boards are beginning to realise that the steep cost of data losses and the ensuing damage to operations and reputation is even bigger.

Effective board oversight of cybersecurity is still a work in progress, with “some doing more than others,” says Swabey. The task is enormous but signs of directors attempting to safeguard information assets are emerging.

“You can’t manage risk you don’t understand. So we need to demystify the topic”

—Ciaran Martin, NCSC

“Business boards are stepping up to the challenge of improving their cyber-literacy but firms recognise more progress is needed,” says the CBI’s Matthew Fell. It is, at least, a step in the direction of strengthening cyber-defences, according to the NCSC’s Ciaran Martin, who had this to say in his speech to the CBI in September last year:

“There are three misconceptions we often come across. The first: that ‘cyber is too complex so I won’t understand it’. The second: that ‘cyber is sophisticated so I can’t do anything to stop it’. And the third: that ‘cyber is targeted so I’m not at risk’. None of these are really true and these misconceptions are damaging. You can’t manage risk you don’t understand. So we need to demystify the topic.

“At board level, this means closing the knowledge gap between the board and the technical team. That’s why it means board members becoming a little bit technical. So that the people on the board and the people in IT can talk about the risks, and people on the board can ask challenging questions of their teams. You don’t need to know everything. Just enough to make your own defences stronger.

“No-one in government is asking you to be able to take on the best hostile nation state on a good day on your own. No-one in government is asking you to make cybersecurity your top priority. Your core business is your top priority. We do expect you, however, to be good enough at cybersecurity to take care of the things you care about. And that means you have to understand what they are, and what you can do to protect yourselves.”

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Climate reporting: TCFD urges companies to disclose data

By Gavin Hinks

climate change, global warming

Last week climate emergency protestors from Greenpeace disrupted the annual Mansion House speech of the UK chancellor, Philip Hammond. A pep talk to the financial world’s great and good, this year’s event saw the chancellor remind the gathering that the UK government is in the process of legislating for a target of net-zero greenhouse gas emissions by 2050.

Mark Carney, outgoing governor of the Bank of England, also spoke at the event, highlighting the work of the Task Force on Climate-related Financial Disclosures (TCFD), and its efforts to persuade companies to report publicly on their climate emergency risks. He echoed the TCFD’s conclusions that companies must up the pace on revealing how the climate emergency could affect them. “Disclosure must become comprehensive,” said Carney. “Risk management must be transformed. Sustainable investment must go mainstream.”

The TCFD is a project of the G20’s Financial Stability Board chaired by Michael Bloomberg. In 2017 it released guidelines for companies to disclose their climate-related risks. That advice has been fermenting inside accounting and sustainability departments in listed companies around the world since then. It was never mandatory but pressure from the G20, politicians, regulators and NGOs has been mounting steadily. A recent report on progress welcomed efforts made so far, but also called on companies to increase their pace.

“Given the urgent and unprecedented changes needed to meet the goals of the Paris Agreement, the Task Force is concerned that not enough companies disclosing information about their climate-related risks and opportunities,” the report says.

Climate-related risks

What the TCFD wants to see is more data on climate-related risks and opportunities. Without more information financial markets will lack “sufficient information about the potential financial impact of climate-related issues on companies”. According to Mary Shapiro, special adviser to the TCFD chair, the disclosures guidelines encourage companies to develop approaches that are climate friendly. “A company that communicates its climate resiliency to its investors will have a competitive advantage over those that don’t,” she says.

Notwithstanding the business imperative, the TCFD also makes plain the environmental context for getting on with climate disclosures. As the TCFD points out, a report from the UN’s special scientific body, the Intergovernmental Panel on Climate Change, says limiting global warming to no more than 1.5℃ above pre-industrial levels requires “rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings and industrial systems”.

There are other warnings. According to the UN Environment Programme’s Emissions Gap Report 2018, the production of greenhouse gases must peak by 2020 to hit the 1.5℃ target, but current trends mean it will hit its high-point ten years later in 2030.

“Further improvements in the quantity, quality and comparability of disclosures are urgently required to meet the needs of investors and other stakeholders”

—TCFD status report

That’s a sobering thought, and explains the emphatic nature of the TCFD’s message. As it happens, the Task Force is not the only body pursuing a climate disclosure agenda—the European Commission too has stressed the urgency of action. A report out last week, Guidelines on Non-Financial Reporting, is aimed at targeting capital towards sustainable investment. It too sees published information as a pivot point in encouraging green investments.

“Corporate disclosure of climate-related information has improved in recent years,” says the report. “However, there are still significant gaps, and further improvements in the quantity, quality and comparability of disclosures are urgently required to meet the needs of investors and other stakeholders.”

The TCFD’s review found while climate disclosures have increased, only 46% of companies fully report using TCFD guidelines. Another 45% have implemented TCFD reporting “partially”, while almost one in ten companies says they have not implemented any TCFD recommendation.

As those figures suggest, there is also an issue with how many of the TCFD guidelines are used by companies. Just 25% of companies published information addressing more than five of the Task Force’s 11 recommended disclosures. Only 4% of companies made disclosures aligned with 10 or more of the guidelines.

Delays in climate reporting

There is also concern about the number of companies using “scenario analysis” as part of their TCFD reporting. Indeed, almost half the companies preparing reports said it was difficult to undertake scenario analysis without revealing commercial sensitive information. Companies in Europe do better on most reporting issues than companies elsewhere in the world, with those in North America closely behind.

There are a number of reasons for the hold up on climate reporting. The top reasons cited include: information is published using other reporting frameworks; investors have not requested information; climate is not considered a strategic issue; and peers are not disclosing climate information.

According to Jon Williams, partner at advisory firm PwC, one of the organisations that contributed to the report: “We have always said this is a three to five-year journey.”

Williams says some sectors are more prepared for scenario analysis than others. Bank stress-testing is a similar process, while insurance companies should also find the process relatively comfortable. Williams says energy companies have been working on scenario analysis for decades. Others sectors, such as retail, will be brand new to the exercise and will find it hard.

There are also companies whose domestic legal regimes make it problematic. Williams suggests some companies may be holding back for fear of publishing errors that could prompt legal liabilities.

There is also a possibility that some boards have yet to face the right kind of pressure from investors to get on board. “They should be going to the board and saying they should disclose under TCFD,” says Williams.

Other frameworks

Diverse reporting frameworks are a long-standing issue for companies reporting on sustainability topics. Yen-Pei Chen, a member of the Professional Insights Team at accountancy association ACCA, says many companies may already believe their disclosures under other reporting frameworks may clash with the approach of the TCFD.

According to Chen, TCFD reporting is internally focused, with a concentration on the climate implications for revenues, cost of operations and profits. Other reporting schemes, such as the Global Reporting Initiative, and the EU’s Non-Financial Reporting Directive are externally focused, concerned with implications for stakeholders, such as local communities, employees and suppliers. This means a lot of extra effort.

“It doubles the work,” says Chen. “I’m hearing companies saying that they are going to have to create two different reports to comply with TCFD.”

Chen too has come across companies struggling with the demands of scenario analysis, but agrees with Williams that it should not prevent any organisation from tackling some elements of TCFD reporting. Indeed, Williams advises boards to push on with narrative descriptions in which the company reports on its governance arrangements for climate and then go on to build a quantitative picture of the impact.

With the backing of the G20, TCFD reporting isn’t going away—and nor is the climate emergency. Companies will be under continued pressure to report their climate-related risks. That’s good for investors, companies’ strategies and the planet.

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‘An unprecedented cover-up’: More than 400 pilots join class action against Boeing

By Alan Weedon

More than 400 pilots have joined a class action against Boeing, seeking damages in the millions over what they allege was the manufacturer’s “unprecedented cover-up” of the “known design flaws” of the latest edition of its top-selling jet, the 737 MAX.

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Greece tops list of most complex international jurisdictions

By Gavin Hinks

Greek flag, Athens, Greece

Greece tops the list of the most difficult countries in which to do business, according to new research into business complexity, with some of the world’s biggest economies—Brazil, Germany and China—not far behind.

The research from TMF Group, a provider of international administrative services, also concludes that big compliance variations continue between countries despite globalisation and the growing importance of international standards. The report comes as many UK companies consider expanding business operations outside of the EU as a result of Brexit.

TMF Group’s Global Business Complexity Index ranks 76 jurisdictions, analysing how difficult and unpredictable countries are for multinational firms wishing to operate in them. The report found that Greece was the most complex jurisdiction for business, followed by Indonesia in second place, while Brazil ranked third, and Germany at seven, with China placed ninth. The UK came in mid-table at 43, and the US at 66.

According to the report, the easiest country to set up and trade in is the Cayman Islands, just ahead of Curaçao at 75, and Jersey at 74. Mark Weil, chief executive of TMF Group, said: “The findings confirm that the business landscape has become more challenging. Any business looking to expand into new territories faces a formidable array of potential hurdles.

“Trade disputes, tariffs, rising nationalism and political unrest point to a shift from globalisation to economic fragmentation. This has made some of the world’s most commercially attractive countries among the most complex to operate in.

“More than ever, businesses with global ambitions must have a good understanding of the rules and regulations that prevail locally, and how to manage them.”

Europe: a mixed picture

The research ranks countries according to their performance in three areas: rules, regulation and penalties; accounting and tax; and hiring, firing and paying employees.
The findings were then statistically weighted. Europe offers a mixed result. Four of the top ten most complex countries for business are in Europe, though the continent also provides four of the easiest countries in which to trade: Netherlands, Denmark and Switzerland, in addition to Jersey.

A complex tax system and issues stemming from Brexit took the UK to its position in the table.
 Weil said that for one in three countries, local rules, regulations and penalty systems “present major challenges”. This is exacerbated by frequent and significant changes in their rules.
 The research found that 57% of jurisdictions had time-consuming processes for opening bank accounts. A quarter of the jurisdictions surveyed require directors of a company to be “native” or resident locally.

That said, trends in technology and regulation are simplifying processes, and the TMF Group report strikes an upbeat note. “Overall the global trend toward international compliance standards is good for business. While sometimes adding to the workload, it increases uniformity across jurisdictions, boosts transparency and reassures potential investors that a jurisdiction is a safe and secure place for businesses to operate,” it states.

Tax and accounting

A major business complexity issue to look out for is the difficulty of managing tax and accounting. A hefty 70% of jurisdictions impose their own formats for accounting. In 63% of locations there is no means of postponing a tax audit, while in 67% extended deadlines for tax or statutory filing is impossible.

Global pressure to fight tax fraud has, according to TMF Group, produced “harsh penalties” for those that fail to register for tax or fail to comply with regulations. In 45% of jurisdictions company directors face prison sentences for these offences. Many governments are attempting to make life easier for companies: 63% allow accounting to be maintained abroad while more than half—52%—allow tax to be paid from overseas bank accounts.

More importantly, digitisation is in the process of transforming reporting requirements in many locations. Of the jurisdictions examined, 51% allow accounts to be submitted electronically, while 39% require invoices to be digital. TMF Group’s report says: “New technology frequently suffers from teething pains and its takes time for businesses to learn how to company with new processes. In the long term, however, as platforms are refined and developed, the shift to online should benefit businesses by reducing complexity.”

Difficulties also stem from employment issues. TMF Group found that in 42% of jurisdictions business hit obstacles when trying to hire before establishing a local legal entity. Local employment laws can be difficult to understand, and often encourage local recruitment while inhibiting hiring from overseas.

In almost a third of jurisdictions, 29%, unions are highly influential, forcing companies to “establish and manage relationships”. TMF Group says that disciplinary procedures and firing underperforming employees is considered “complex” in more than half the jurisdictions.

TMF Group concludes: “Our experts believe their respective jurisdictions are moving in the right direction, creating opportunities for businesses. Even seven out of the ten ranked most complex predict they will develop more attractive businesses environments over the next five years.

“Businesses looking for overseas opportunities should cast their nets widely for the best expansion options.”

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