March 28, 2018

EIU Report Explores How Brexit Will Affect Trade, Regulations and Jobs Within Six Sectors of the UK Economy

To my surprise (and disappointment), the United Kingdom electorate voted in 2016 to leave the European Union. In March 2017, Theresa May, the UK prime minister, informed the European Council president Donald Tusk of the UK's intention to leave the EU in March 2019 in accordance with article 50 of the Treaty on the European Union. Several of my friends and colleagues have asked for my opinion on how Brexit will affect the UK's economy in general as well as its impact in specific sectors.

Admittedly, I have yet to formulate a definitely response. To date, so many variables are undetermined, which carry terms such as "hard Brexit," "soft Brexit," "EEA" or European Economic Area, "Norway minus," just to name a few. Therefore, I read with great interest a report, A Year To Go: How Brexit Will Affect UK Industry, published by The Economist Intelligence Unit (The EIU) that explores how Brexit will affect trade, regulations and jobs within six sectors of the UK economy.

The report provides the latest update about negotiations between the UK and EU by noting that "a summit of EU leaders on March 23rd agreed the terms of the transition agreement reached by the UK and EU negotiating teams on March 19th. Talks on the substantive issue of the future trading relationship have yet to start in earnest and a deal is supposed to be done by October 2018 to allow time for ratification."

Moreover, "With a year to go before the UK leaves the EU and the 21-month transition period begins—during which time the UK will maintain access to the single market and will be bound by the obligations of membership--this report analyzes the possible impact on six sectors of the UK economy. The transition agreement provides businesses with some certainty that they will have time to adjust to the new UK-EU relationship. However, Brexit will nevertheless entail some disruption. In three sectors, we expect the impact to be direct and difficult to manage—financial services, healthcare and life sciences, and automotive. In consumer goods and retailing, telecoms and energy, the impact is likely to be more diffuse but still disruptive."

The first part of the report discusses The EIU's "current core forecast for Brexit, which involves the UK agreeing to a Canada-style free-trade-agreement (FTA) with some special terms for sectors that are particularly important to the UK economy." The report adds, "this so-called Canada-plus-plus deal will probably emerge during the transition period. We then outline a 'hard Brexit' or 'nodeal Brexit' scenario that involves talks breaking down during the transition period, and the UK leaving the EU without a trade agreement. Using the usual modelling techniques that underpin our industry forecasts, we compare how the economic growth projections for these two scenarios would affect key indicators for our six sectors, unless policies are adopted to mitigate those effects.

"The second section of this report is more qualitative and focuses on how Brexit will affect companies and other organisations operating in our six sectors. The issues at stake mainly involve trade, regulation, employment and skills and access to investment with much riding on how the UK coordinates its policies with those of the EU and its institutions."

The issues at stake mainly involve trade, regulation, employment and skills and access to investment with much riding on how the UK coordinates its policies with those of the EU and its institutions.

The EIU's key forecasts are:

"We expect the UK economy to carry on growing in 2018-22 under our core scenario of a Canada-plus-plus deal and our hard Brexit scenario. However, if the UK leaves the EU without a trade deal we estimate that by 2022 the UK’s nominal GDP will be 2.7% lower than in our core scenario. Given that inflation would also rise under a no-deal Brexit, real GDP growth in 2020-22 would probably be halved. However, our long-term outlook for the UK economy remains positive, regardless of the terms of the UK’s departure from the EU.

"After Brexit our view is that London will retain its status one of the world's leading financial centers, along with New York and Singapore, and that it will also remain Europe's leading financial hub after Brexit. There is also a large degree of inter-dependence between the UK and EU financial services sectors, just as there is for the trade in goods between the UK and the EU. This inter-dependence matters and means that there is to some degree a mutual interest in achieving a deal that works for both sides. Even under the core scenario, however, a financial services deal will be partial and some financial institutions will consider relocating some personnel and parts of their business after Brexit. The sector is more reliant on global than on EU trends, and will remain a robust driver of the UK economy.

"The healthcare and life sciences sector is likely to see exports shrink under our core scenario, but the worst-case scenario—a shortage of much-needed medicines—will be avoided through regulatory agreements. The slower economic growth predicted under a no-deal Brexit scenario would dent tax revenue and consumer spending. Unless policies are adopted to mitigate the effect, this would result in total health spending per head being £90 (US$125) lower in 2022 than it would be under a softer Brexit. However, the UK government could potentially use some of the fiscal savings from ending contributions to the EU budget to mitigate the impact on these sectors.

"The automotive sector faces a huge challenge: without a UK-EU FTA, large-scale production in the UK would become difficult. UK vehicle-makers will try to expand in other export markets, but will also need to stimulate domestic demand. Under a no-deal Brexit, we forecast that vehicle sales would be 13.1% lower by 2022 than they would be under our core scenario. Cumulatively, the industry would sell around 840,000 fewer vehicles between 2019 and 2022 than under our core scenario.

"The loss of EU workers and disputes over regulation will affect most consumer goods manufacturers, as well as the food sector. Unless agreements are reached over mutual recognition, the effect is likely to push down exports and push up the prices of imports still further. The biggest impact of a no-deal Brexit would be on retail spending, which could be 13.4% lower in nominal terms in 2022 compared with our core scenario.

"In terms of energy policy, the UK will continue to forge ahead on emissions reductions and decarbonization. However, the task will become more difficult and energy costs may rise if it exits Europe's internal energy market. Energy consumption would be 2.9% lower by 2022 if the UK leaves the EU without a deal and the economy slows as expected.

"The UK's exit from the 'digital single market' will primarily affect telecoms operators with significant business on the continent. However, there may also be an effect on investment in innovation, as well as on the prices that UK consumers pay when using their mobile phones abroad. Investment in mobile technology could be 3.5% lower by 2022 under a no-deal scenario."

Based on my readings as well as conversations with experts in financial services, I agree with The EIU's assessment that London will retain its status one of the world's leading financial centers and that it will also remain Europe's leading financial hub after Brexit. I expect, however, to see financial firms grow their operations in key EU cities such as Dublin, Frankfurt, Madrid, and Paris in the coming years. Doing so will mitigate any work permit issues employees from countries outside of the EU may encounter working in the UK. Furthermore, companies, including those I manage or consult, may develop a two-pronged European strategy with a unique approach for tailored for doing business in the UK and a separate strategy for the EU.

As far as Brexit's impact on the other five sectors covered by the report, I remain attentive to negotiations that will lead to formal agreements in the months ahead. I think the UK electorate made a mistake in voting to leave the EU. Nevertheless, I, along with several U.S.-based business executives, am hoping for a solution that will provide minimal negative impact to the UK economy.

How do you think Brexit will affect trade, regulations and jobs within the aforementioned six sectors of the UK economy?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 16, 2018

10 Interview Questions to Help Find the Best Hires

Whether it is for a business that I help manage or for training clients of CareerLight, a company that provides customized career training for international students to help prepare them for a successful career, I regularly seek advice and resources on how to identify the right individuals to join the corporate team. The Society for Human Resource Management (SHRM) published an article, "10 Classic Interview Questions and the Best Responses," on Nov. 27, 2017 that helps employers and hiring managers find the best hires. This article is also helpful for job candidates to gain a better understanding on what employers are looking for during the interview process.

The article explains that "a proven approach to uncovering how people have performed in the past and what they really think about the available opportunity is to make three assessments during interviews":
  • Recognize candidates who are great interviewees but not much more.
  • Gauge which person will be the best fit based on experience and temperament.
  • Identify which individual really wants the job and can excel in it.
Tony Lee, vice president of editorial for SHRM, interviewed Wendy Enelow, an executive resume writer and author in Coleman Falls, Va., for the article. Ms. Enelow correctly says, "One of the typical mistakes made by smart job candidates is to think they can just 'wing it' because they're smart, and they'll get away with it if interviewers let them. The truth is that nothing beats preparation. Truly committed candidates will rehearse answering tricky career-related questions so that they can respond to them confidently, but it usually takes a series of good questions over time to separate people who interview well from those who will fill the position best."

I cannot overemphasize the notion that "nothing beats preparation." When I interview a job candidate, I equate their level of preparation with their seriousness of wanting to join the company. Those candidates who are not well-prepared for the interview are not truly interested in joining my team.

To help interviewers, the article provides ten questions, which are segmented in five subjects, that should be posed "to each job candidate, regardless of the position they're trying to fill, as well as tips on how to interpret the answers and follow up effectively."

Personal/Work History 

1. Can you tell me a little about yourself?
"Many interviewers start this way not only to gather information but also as a way of assessing each candidate's poise, delivery style and communication ability."

​2. Why did you leave your previous employer (or why do you want to leave your present job)?
"Look for honesty and transparency in the answer. Many talented employees lose their jobs in layoffs, so suppress any desire to stigmatize those who were part of a downsizing."


3. What are your greatest strengths?
"This is an interviewing stalwart (along with the next question) that every applicant should be ready to hit out of the park. ... Look for answers that briefly summarize work experiences and the strongest qualities and achievements that are directly related to the duties of the open job. Make a note of candidates who cite skills such as self-motivation, initiative and the ability to work in a team."

4. What are your weaknesses?
"Of course, few applicants are so honest and self-aware that they’ll share an accurate overview of their deficits. Smart interviewees try to turn the question around and present a personal weakness as a professional strength. For instance, micromanaging workaholics who drive their colleagues crazy may present themselves as meticulous, dedicated workers. Ask for detailed, specific examples of their workplace interactions with colleagues to get a sense of whether they’re hiding a difficult personality."


5. What can you tell me about our company and industry?
"Nothing should eliminate a person from consideration faster than a lack of research into the employer's business lines, locations, customer base and company culture."

6. What do/did you like most and least about your present/most recent position?
"Look for answers that are specific and relevant to the open position. Job seekers who say 'it was an easy commute' or 'the benefits were great' will likely be job hunting again soon. Instead, identify people who value the same workplace qualities that your company has, such as those who are seeking opportunities on the cutting edge of technology or those who can create teams with strong camaraderie."

​7. What isn't on your resume?
"Applicants who prepare well for interviews and are smooth enough not to sound too rehearsed can be thrown by this inquiry since it requires them to talk about something other than work experiences."


8. Aren't you underqualified/overqualified for this position (depending on their past experience)?
"Smart interviewees who might technically be underqualified focus on the experiences and skill sets they'll bring to the position and the value they’ll deliver. However, this is a question that often leads to lengthy explanations that can offer real insights into a person’s true motivations, good and bad, for seeking the job, Enelow says.

"Conversely, as highly qualified Baby Boomers age, it’s not uncommon for them to seek a position with lesser responsibilities where they can be a strong team player and a mentor to younger employees. So, depending on the position, don’t automatically count overqualification against a candidate."

9. Do you have any questions? Can you think of anything else you'd like to add?
"Beware of candidates who say 'no' or that everything has been thoroughly discussed, Enelow says. Now is the time for them to re-emphasize why they're the most logical choice for the opening by asking key questions they've prepared and haven't had a chance to voice. Those who want to learn more about the company’s professional development opportunities or ask what you personally like best about working there are looking for insights to help them decide whether to accept an offer if it's extended."


10. Has your perception of this opportunity changed based on our interview?
"Too many recruiters have been lured into thinking that a candidate who fared well in an interview is ready to take the job. And even worse, they’ve been burned by people who accepted an offer but later changed their minds or even failed to show up on day one. This question is designed to help weed out those who weren't serious to begin with or who heard something during the interview that didn’t sit well with them."

What question do your ask to help determine whether or not the candidate will be the best hire?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

March 12, 2018

Report Explores How Best to Prepare K-12 Students for the 21st Century Workplace

The previous post on this blog focuses on a report published by The Economist Intelligence Unit (The EIU) and sponsored by Google for Education that addresses the need to prepare students with the necessary skills for a successful future. This post focuses is on a subsequent report, Fostering exploration and excellence in 21st century schools, by The EIU that "discusses the results of a study that explores how to best prepare primary and secondary school (referred to in this report as 'K-12') students for the 21st century workplace ('the modern workplace'), where a mix of hard and soft skills are crucial for success. The research, sponsored by Google for Education, draws on a survey of 1,200 educators in 16 countries. It looks at the strategies most effective in developing 21st century skills and how technology can support such efforts."

The EIU's "latest study suggests that a holistic approach, integrating different educational strategies and techniques, is most effective for developing the skills needed for success. Among these, it includes empowering teachers by giving them greater autonomy to innovate and applying teaching strategies that engage students through hands-on and collaborative activities. Implementation of these initiatives faces numerous complex challenges, including resource limitations, but failure will leave many of today's young students unprepared for the life and work challenges they will face as economies and societies develop." Listed below are the research's key insights:

A range of teaching strategies is needed to effectively deliver the types of learning needed to prepare students for the 21st century workplace.
"A large majority of educators surveyed (79%) believe that soft skills need to be developed alongside foundational literacies. Educators most frequently cite the following teaching strategies as 'very importan;” in developing the skills needed in the 21st century workplace: active learning (51%), project-based learning (45%), cognitive activation (42%) and personalized learning (40%). Educators also consider these four strategies as proven to be the most effective in developing needed skills."

Technology can support the effective execution of teaching strategies by promoting interaction, engagement and communication.

"Four in five (82%) educators agree that technology is a valuable tool for developing skills for the modern workplace. Technology is seen as most effective in enhancing the top teaching strategies for developing 21st century skills, as it can be used to promote interaction, engagement and collaboration."

Teacher quality is key. Teacher autonomy also matters and is a significant factor in shaping schools’ preparedness to teach 21st century skills.
"Good teachers need a supportive framework to make the most of their talents, including adequate resources, training and a well-planned curriculum. There is a strong correlation between the degree of autonomy teachers enjoy and schools' readiness to teach 21st century skills. Educators who assessed their schools as having 'much better' teacher autonomy than other schools in their country far more often report being 'very well equipped' to teach both foundational literacies and soft skills, such as communication (48% v 25% for the rest of the sample)."

Budget limitations are the most frequently cited obstacle in adopting new strategies and technologies.
"Educators most frequently cite budget limitations as by far the most significant barrier to adopting both new teaching strategies (51%) and technologies (53%). A lack of technology access in schools and policy gaps are also notable challenges. On a regional level, budget constraints remain a top challenge for innovation, with North American educators most often reporting these as an obstacle to adopting new strategies (59%) and technologies (61%)."

Educators most often favor a cautious approach to adopting new teaching strategies and technologies.
"Opinions vary over how quickly schools should innovate within the classroom. However, educators most often advocate a cautious approach for implementing new teaching strategies (39%) and technologies (40%), allowing for each to be investigated and tested before adoption."

I spend a significant amount of time learning about a variety of topics including future technology trends, successes and failures of businesses across a wide array of sectors including lessons learned by leaders of those businesses, and changes in various risks that may impact, positively or negatively, the performance of any business's. Being a lifelong learner is essential for any individual irrespective of their career stage.

Therefore, I appreciate the opening paragraph of the report's conclusion: "In the light of the transformational nature of new technologies on the world's economies, and the rapid pace of evolution of the technologies themselves, K-12 students of today have an urgent need for a new range of skills. As well as continued emphasis on fundamental literacies, they must develop critical thinking, creativity, collaboration and problem-solving skills, among others. Students will also need to learn how to continue learning as they progress through their professional lives. Their ability to do so is crucial for entire economies, as well as individuals."

Moreover, I concur with the concluding paragraph: "Crucially, teachers themselves are a vital resource with great potential for preparing young students for their working lives. But they need to be supported with resources such as relevant technologies and well-tested policies, as well as the time and space to learn themselves and plan activities geared towards fostering 21st century skills. Given the right tools, they can do the job of preparing the young students of today into becoming the successful working adults of tomorrow."

What strategies and techniques can educators implement in the classroom to support the development of essential skills K-12 students will need to succeed in the modern workplace?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 11, 2018

Problem Solving, Team-Working, Communication, and Critical Thinking: Preparing Students with the Necessary Skills for a Successful Future

"Evolving business needs, technological advances and new work structures, among other factors, are redefining what are considered to be valuable skills for the future," says a report published by The Economist Intelligence Unit (The EIU). "Determining what these are, however, is far from straightforward."

Sponsored by Google, Driving the skills agenda: Preparing students for the future summarizes the findings of a program embarked by The EIU "to examine to what extent the skills taught in education systems around the world are changing. For example, are so-called 21st-century skills, such as leadership, digital literacy, problem solving and communication, complementing traditional skills such as reading, writing and arithmetic? And do they meet the needs of employers and society more widely?

"To investigate these issues," the report explains, "The EIU convened an advisory board meeting of education experts and conducted a series of in-depth interviews. In addition to comments from the advisory board and the interviews, this report draws on data from global surveys of senior business executives, teachers and two groups of students, aged 11 to 17 and 18 to 25. The key findings are listed below."
  • Problem solving, team working and communication are the skills that are currently most in demand in the workplace;
  • Education systems are not providing enough of the skills that students and the workplace need; and
  • Some students are taking it into their own hands to make up for deficiencies within the education system.
The correctly notes that "the lives of today's students are very different from the lives of students for whom the existing education systems were developed. How can education best prepare young people to navigate their way through an increasingly interconnected and complex world in which factual recall will perhaps matter less than their ability to understand differing perspectives?"

Source: The Economist Intelligence Unit
Moreover, "Teachers, students and executives surveyed for this report all list problem solving as the most important skill for students' future. This emphasis is most pronounced among executives, fully 50% of whom place it at the top of the list for potential employees, while 70% expect its importance to increase over the next three years. Teachers appear to be acting on the growing necessity of problem solving, with 59% saying they have placed more emphasis on it in the classroom over the past five years."

As an employer, problem solving, communication, and critical thinking are the critical skills I find most valuable in those whom I consider hiring. The report explains that "if problem solving is to be prioritized as an educational goal, it needs to start early to be effective, teaching the most basic foundational skills with an eye to their practical application."

In addition, it pleases me to learn that "businesses surveyed for this report concur: employers from both developed (US, UK, Canada…) and developing countries (China, Brazil, Mexico…) place problem-solving at the top of their list of critical skills.

"By encouraging students to work out answers for themselves and to think of the applications and consequences of a theory or decision rather than accepting an answer they are given, schools can build problem solving skills into the way students learn throughout their education. Across the curriculum, students can be encouraged to identify a problem and generate potential solutions through discussion and evaluation, a method which ensures that they fully understand the answer they arrive at."

While I agree team-working is an essential skill, I equally value my colleagues' ability to work independently. Self-motivation and self-regulation are additional skills that I appreciate. This article by Northeastern University provides a good discussion on working independently.

With respect to communication skills, the report importantly notes communication "means different things to different people. Effective oral communication is a fundamental tool to function in both work and society more broadly, but some employers fear that equally vital written communication skills are being lost." Sir John Daniel, a global leader of education, poignantly says, "Communication as it's referred to today tends to mean oral communication, but then you have employers complaining that people can’t write a coherent sentence."

I consider written communication to be an effective tool for thoroughly analyzing a problem and developing a viable solution. I find myself increasingly frustrated that people have become more dependent in creating PowerPoint presentations for written communication. Bullet points are an inadequate method for effective communication.

What is more, effective team-working, in my experience, is derived from thorough oral and written communication by each member of the team.

On the question of how are skills of the future best taught, "According to experts interviewed for this report, 21st-century skills cannot be taught in isolation. In order to be effective, they must be integrated into every subject area, so that skills development becomes inseparable from the sharing of knowledge."

What are the most critical skills should employees possess today and in the near-term? What is the best method to teach these skills?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 10, 2018

EY's Report on Top Priorities for US Boards in 2018

This website provides a good definition for the board of directors as "the group of individuals who are charged with running the corporation." Importantly, "The primary duty of the board members is to care for the finances and legal requirements of the corporation. In addition, they must set the mission and vision of the corporation, and set policy for corporate officers and employees to follow. Board members do not participate in day-to-day operations of the company."

At the time of writing this blog post, I serve on the board of directors of four companies. I take my responsibilities as a director seriously (as all directors should) and encourage my fellow board members to take the time to understand the purpose of the board and their responsibilities to shareholders and management, respectively. I regularly seek resources to help me improve my skills as a corporate director.

A report published by EY, a consultancy, says, "In this time of uncertainty, disruption and economic growth, companies are challenged to achieve short-term objectives while taking steps to survive and thrive in the long term. Accordingly, boards of directors are expected to understand and provide oversight of new risks and strategic opportunities." Top priorities for US boards in 2018 further says, "Investors, employees and customers are calling on companies to demonstrate their values and explain their positions on an array of issues. These forces and topics — such as emerging technologies, capital and talent allocation, shareholder engagement and board composition — are complicating and expanding the board's agenda."

Listed below are a list of priorities anticipated by the EY Center for Board Matters that will be top-of-mind for board members in 2018 (the report also presents questions the board should consider for each priority):

1. Understanding technology's impact on strategy, business models and cybersecurity
  • How is the board staying current on new and evolving technologies and their potential impact on the company’s industry, strategy and business model?
  • Is the board overseeing strategy to continually reimagine the future of the company’s business model and considering ways to see the upside of disruption?
  • Does the board engage in tabletop exercises to simulate a response to a cyber incident or a natural or man-made disaster?
2. Anticipating and planning for geopolitical and regulatory changes
  • How is the company monitoring the evolving geopolitical landscape and pending regulatory proposals? How is this information collected and communicated to the board?
  • How do you convert geopolitical intelligence to actionable business initiatives?
  • How has the company modeled and considered the effects of US tax and other regulatory reform proposals from a financial reporting, treasury, supply chain, human resource and investor perspective?
3. Aligning risk management with strategy and operating performance
  • Is the company's enterprise risk management (ERM) framework aligned with strategy to improve performance and more clearly inform decision-making?
  • Has management clearly articulated the risks to achieving its strategic goals and properly applied the company's risk tolerance levels to determine risk-management priorities?
  • Do the company's ERM practices incorporate forward-looking insights and data analytics to determine trends and predictive indicators?
4. Balancing short- and long-term capital allocation pressures from shareholders
  • How confident is the board that the capital allocated for innovation, digital transformation, acquisition and other growth initiatives is sufficient for achieving the company's strategic priorities, particularly relative to peer companies and potential new entrants?
  • How does the board balance the need to invest in the company for the long term with pressures to return capital to shareholders through buybacks and dividends?
  • Given the growing attention of institutional investors on capital allocation decisions, is the board validating that the company is clearly communicating the rationale for allocation decisions and the alignment with long-term strategy?
5. Overseeing culture and talent in a time of innovation and transformation
  • Does the company have a compelling purpose, and do the board, management and employees understand what the organization is working toward and why?
  • To what extent is the board engaged on the company’s talent strategy and embracing the new global digital leadership competencies to drive innovation, growth and competitiveness in the digital age?
  • How can the company optimize its workforce assets (traditional, virtual, contingent and digital robotic technologies) to attract and retain the best talent, achieve its short- and long-term strategies, and mitigate risks?
6. Engaging with stakeholders on long-term governance and environmental and social issues
  • Does the company have a long-term strategy that incorporates sustainability concepts? Does the company make public disclosure on these topics in a way that is responsive to investor and stakeholder concerns?
  • Does the board understand the views of key investors and stakeholders regarding their priorities, and positions on governance and environmental and social matters?
  • Are the independent leaders of the board and key committees prepared to engage with the company's key investors and stakeholders, if requested to do so?
  • Does the company have processes in place to review and consider alignment of its publicly stated positions on environmental and social matters and its actions?
7. Accelerating board effectiveness through composition, structure and assessments
  • How does the board view its current structure? Is workload effectively allocated between the board and its committees? Should any work be reallocated or any structures changed to optimize oversight?
  • Are individual board members positively contributing to the board's oversight responsibilities? Does each board member take the time and collaborate to understand the issues he or she is charged with addressing?
  • Does the board assessment process result in the identification of concrete action items to enhance board composition, structure and effectiveness?
  • Do the disclosures concerning the assessment process build trust, secure support and address concerns of investors and governance stakeholders?
With respect to understanding technology's impact on strategy, business models and cybersecurity, I agree that "boards must provide the necessary support for management to invest in longer-term strategic priorities." Moreover, on the topic of anticipating and planning for geopolitical and regulatory changes, the report accurately notes that "given the potential implications of geopolitical and regulatory issues, it is important for boards and management to work together to take a proactive approach."

I also support "the need to balance near-term opportunity with long-term value creation is one of the more difficult objectives for management and the board." Furthermore, the report correctly notes: "The potential for shareholder activism related to short-term results remains high and will continue to be an issue. The ability of management to convey and execute a long-term strategy, backed by an investment strategy mixed between asset replenishment, reskilling of staff, innovative R&D (research and development), and strategic M&A and JVs (joint ventures), should compel investors to stay the course for the long run."

As for accelerating board effectiveness through composition, structure and assessments, I concur that in order "to enhance board effectiveness, boards should conduct annual assessments of the board, its committees and each of its members. Detailed action plans should be prepared from the results of the assessments to ensure renewal and continuous improvement. High-level insights into the assessment process, along with resulting actions, should also be disclosed, given the growing interest of shareholders in such process. Such disclosures highlight how board members are the best qualified to guide the company and why they represent a critical advantage to the company as it continues to navigate toward long-term growth."

Lastly, the report concludes that "boards and management must work together to balance short-term objectives with long-term sustainability and growth. The considerations in that balancing act are complex, numerous and interconnected. From the impact of technology on strategy to risk management and from workforce talent to board effectiveness, investors and other stakeholders are paying close attention to how companies govern for the future.

What actions should boards take "to help management successfully navigate risks and capitalize on opportunities while living up to stakeholder pressures"?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 3, 2018

The EIU Report Identifies Top Ten Risks to the Global Economy

"There has arguably never been a greater disconnect between the apparent strength of the global economy and the magnitude of geopolitical, financial and operational risks that organisations are facing," says a report published by The Economist Intelligence Unit (The EIU). Entitled Cause for concern? The top 10 risks to the global economy, the report identifies and assesses "the top ten risks to the global political and economic order. Each of the risks is not only outlined, but also rated in terms of its likelihood and its potential impact on the global economy."

The report explains that "when measuring risk to the global economy it is of little surprise to see many potential challenges emerging from the world’s largest economies. The Economist Intelligence Unit sees a number of risks, with their roots in the US, China and the EU. However, these risks are not limited to those geographies alone, and how they could morph into threats that destabilize large parts of the world is detailed in the following pages. In addition, there are risks that either come from smaller regional hotspots, or are global in nature. Again, we look at how they could evolve in the coming years and what that would mean for transnational organizations."

Each risk, ranked in order of intensity, is listed below followed by The EIU's conclusion of its analysis (I recommend reading the report in its entirety for The EIU's complete analysis of each risk):

1. Prolonged fall in major stockmarkets destabilizes the global economy

"The global economy is moving into a new phase, where more and more central banks will begin to wind down or reverse their loose monetary policy positions in response to vigorous growth rates, giving rise to significant uncertainty."

2. Global trade slumps as US steps up protectionist policies

"Any ramp-up in protectionism would certainly have repercussions beyond North America and China. Prices and availability for US and Chinese products in the supply chains of companies from other nations would be badly affected. Consequently, global growth would be notably curtailed as investment and consumer spending fall back."

3. Territorial disputes in the South China Sea lead to an outbreak of hostilities

"Were military clashes to occur, the economic consequences would be significant. Economic growth would suffer, and regional supply networks and major sea lanes could be disrupted."

4. Global growth surges above 4%

"A broad-based acceleration in growth would not only provide welcome relief to slow-growing countries elsewhere but could also assist in any longer-term economic rebalancing in China, making the whole process less painful. An improvement in global demand would provide further support for commodity prices, adding to an economically virtuous circle for commodity exporters in Latin America, the Middle East and Sub-Saharan Africa."

5. A major cyber-attack cripples corporate and government activities

"Were government activities to be severely constrained by an attack, or physical infrastructure damaged, the impact on economic growth would be even more severe. On the positive side, the recent attacks have highlighted that in many cases the impact can be mitigated by fairly basic cyber-security techniques. However, if these attacks represent a test bed, worse could easily follow."

6. China suffers a disorderly and prolonged economic downturn

"If the Chinese government is unable to prevent a disorderly downward economic spiral, this would lead to much lower global commodity prices, particularly in metals. This, in turn, would have a detrimental effect on the Latin American, Middle Eastern and Sub-Saharan African economies that had benefited from the earlier Chinese-driven boom in commodity prices. In addition, given the growing dependence of Western manufacturers and retailers on demand in China and other emerging markets, a disorderly slump in Chinese growth would have a severe global impact—far more than would have been the case in earlier decades."

7. There is a major military confrontation on the Korean Peninsula

"The US's position is the most fluid. A pivot from aggression to containment is likely in the medium term, but before then the risk of a US attack aimed at damaging North Korea’s military capabilities is growing."

8. Proxy conflicts in the Middle East escalate into direct confrontations that cripple global energy markets

"In the worst-case scenario, these proxy battles could lead to wider conflict in the Gulf region, potentially pitting Saudi Arabia and Iran directly against each other, shutting down the Strait of Hormuz and crippling global energy markets. In a period when we already expect global oil stockpiles to be falling, any disruption to supply from the Gulf would quickly translate into a surge in prices and would consequently hit global economic growth prospects severely."

9. Oil prices fall significantly after the OPEC deal to curb production breaks down

"Having only recently started to recover from the 2014-16 downturn, oil prices would be hit hard by a sudden, large increase in crude production, and some countries would face serious balance-of-payments shocks. Developing nations, including Nigeria and Angola, would face serious debt distress, and possibly also political and social instability."

10. Multiple countries withdraw from the euro zone

"If more countries were to leave the euro zone, the global economy would be destabilized. Countries leaving the zone under duress would suffer large currency devaluations and be unable to service eurodenominated debts. In turn, banks would suffer huge losses on their sovereign bond portfolios and the global economy could be plunged into recession."

I was asked by a colleague about which of the ten risks worry me the most. "It depends" was probably not the answer she was looking for. As reflected in the image above, The EIU does not rate each risk with the same intensity. A business's specific sector focus or geographic market, however, may be vulnerable to certain risks.

Multiple countries withdrawing from the euro zone will post a significant risk for businesses operating in the the monetary union of 19 of the 28 European Union member states which have adopted the euro as their common currency and sole legal tender. Given China's economic importance to the global economy, a slowdown in the Middle Kingdom's economy will have a negative ripple effect in developed and developing markets alike.

Any military conflict or cyber-attack will adversely impact the global economy in ways that many cannot anticipate. And while they may curry favor with a specific political electorate, protectionist policies will certainly not produce the desired results. In fact, such policies could reduce investment and consumer spending.

Which of the ten risks concern you the most with respect to your business?

Aaron Rose is an advisor to talented entrepreneurs and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

March 2, 2018

Driven by Developing Countries, the Number of Unique Mobile Subscribers Will Reach 5.9 Billion by 2025

According to a report. The Mobile Economy 2018, published by GSMA Intelligence, "The number of unique mobile subscribers will reach 5.9 billion by 2025, equivalent to 71% of the world’s population." Furthermore, "Growth will be driven by developing countries, particularly India, China, Pakistan, Indonesia and Bangladesh, as well as Sub-Saharan Africa and Latin America."

The report further explains: "The speed of growth is slowing though, with most of the developed world approaching saturation. The more significant growth opportunity will lie in mobile internet – a market that will add 1.75 billion new users over the next eight years, reaching a milestone of 5 billion mobile internet users in 2025."

Importantly, "Mobile internet adoption will increasingly become the key metric by which to measure the reach and value created by the mobile industry, including its contribution to the UN’s Sustainable Development Goals (SDGs). It also contributes to developments in the wider digital ecosystem, as mobile internet users are the addressable market for e-commerce, fintech and a range of digitally delivered services and content."

On the topic of 5G, the report asserts, "A number of mobile 5G commercial launches are expected over the next three years in North America and major markets across Asia and Europe. China, the US and Japan will be the leading countries by 5G connections in 2025, while Europe as a whole will continue to make progress with 5G deployments. In total, these four economies will account for more than 70% of the 1.2 billion 5G connections expected globally by the end of the forecast period."

Moreover, "By 2025, two thirds of mobile connections (excluding cellular IoT) across the world will operate on high-speed networks, with 4G accounting for 53% of total mobile SIMs and 5G at 14%. To support customer migration and further drive consumer engagement in the digital era, mobile operators will invest $0.5 trillion in mobile capex worldwide between 2018 and 2020."

For those companies developing Internet of Things (IoT) products and solutions, they will appreciate the report's assertion that IoT "connections (cellular and non-cellular) will increase more than threefold worldwide between 2017 and 2025, reaching 25 billion." What is more, "While IoT is rapidly becoming a mainstream technology in some consumer markets such as consumer electronics and smart homes, the industrial IoT segment is still in its infancy – but is set to be the largest source of connections growth going forward. Globally, the industrial connections base will overtake consumer IoT connections in 2023."

Investors and entrepreneurs alike will rejoice knowing that "growth in IoT will be driven by a proliferation of uses cases for smart homes, cities, buildings and enterprises, as well as rising investor financing and a supportive ecosystem for innovation.

With respect to mobile contributing to economic growth and addressing social challenges:
In 2017, mobile technologies and services generated 4.5% of GDP globally, a contribution that amounted to $3.6 trillion of economic value added. By 2022, this contribution will reach $4.6 trillion, or 5% of GDP, as countries around the globe increasingly benefit from the improvements in productivity and efficiency brought about by increased take-up of mobile services and M2M/IoT solutions. In 2017, the wider mobile ecosystem also supported a total of 29 million jobs (directly and indirectly) and made a substantial contribution to the funding of the public sector, with almost $500 billion raised through general taxation and $25 billion through mobile spectrum auctions.
As well as contributing to economic growth, mobile technology is increasingly used for disaster preparedness and response, and to help address the challenges of access, cost and quality of service in key industries, including healthcare, agriculture, utilities, education and financial services. Two years into the 2030 Agenda for Sustainable Development, the mobile industry is increasing its impact across all the 17 SDGs as a result of wider mobile reach and better networks. There is also growing adoption of mobile-based tools and solutions that aim to spur the digitization of systems, processes and interactions across a number of industries, especially in low- and middle-income countries. Agriculture and healthcare are notable examples.
Regarding the investment side of the mobile technology industry, "Globally, private equity companies, venture-capital firms and corporates have invested $1.2 trillion over the last five years to finance tech start-ups and emerging companies in a range of sectors, with an all-time record level of financing in 2017. This continues to support innovation and development in technology areas such as IoT, augmented reality (AR), virtual reality (VR), networks, autonomous vehicles and the wider area of artificial intelligence (AI)."

Knowing that entrepreneurs, irrespective of where they reside, are always in need of capital as well collaborative partners to scale their business, I appreciate that the report says "recent trends and initiatives also show increasing corporate venture capital (CVC) activity among operators in both developed and developing markets, to drive innovation and in some cases moves into new business lines such as media, content and fintech. Across Asia Pacific and Africa, collaboration between mobile operators and start-ups is gaining momentum as operators have the scale and reach that start-ups lack, while start-ups have the local innovation that operators need."

Addressing the important topic of artificial intelligence, I support the assertion that "there is widespread recognition that AI will be key to future business and digital transformation as well as driving increasingly autonomous and intelligent networks and improving the customer experience through better understanding of customer behavior."

Finally, the report points out that "as emerging technologies – including AI, IoT and advanced data analytics – converge, 5G could play an enabling role in realizing their full potential. For example, IoT will require both more pervasive intelligence and a ubiquitous connectivity layer to allow devices to communicate and to support the provision of data analytics and intelligence on-demand. Looking ahead, we expect this convergence to intensify, with AI increasingly integrated into a growing number of IoT applications and services as well as networks."

Inforgraphic: GSMA Intelligence

How are you positioning your business to take advantage of emerging technologies such as IoT, AR, VR or AI?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.