PreView - January 2018 edition

PreView - January 2018 edition

As organizations continue to evolve their risk governance practices, focused and relevant information about emerging risks is at a premium. The objective of Protiviti’s PreView newsletter is to provide an input for these efforts as companies focus on risks that are developing in the market. We discuss emergent issues and look back at topics we’ve covered to help organizations understand how these risks are evolving and anticipate their potential ramifications.

As you review the topics in this issue, we encourage you to think about your organization and ask probing questions: How will these risks affect us? What should we do now to prepare? Is there an opportunity we should pursue?

Our framework for evaluation of risks is rooted in the five global risk categories used by the World Economic Forum in its annual global risk reports. Throughout this series, we use these categories to classify macro-level topics and the challenges they present.

Inside this issue:

 

 

Gender Imbalance in STEM: A Growing Concern


Emerging Risk Categories: Economic, Technological, Societal

Industries Impacted: Technology, Financial Services, Consumer Products & Services


Women make up half of the total U.S. college-educated labor force, yet they account for just 29 percent of employees in the science and engineering workforce. This imbalance is a growing business and economic risk as the need for these educated resources continues to grow, with an estimated 6.6 million science, technology, engineering and math (STEM) positions needing to be filled in the next 10 years, per the U.S. Chamber of Commerce. This disproportion is even more pronounced at the leadership level, where only 21 percent of executives in tech industries are women, compared to 36 percent in other industries.

More troubling, women’s participation in computer-related occupations has declined steadily from a high of 36 percent in 1991 to approximately 25 percent in 2015, further emphasizing the severity of this risk. Various contributing factors have led to this gender gap, including the lack of women earning STEM degrees; however, education is not the only cause of underrepresentation of women in the STEM workforce.

Percentage of Women in Select STEM Occupations (numbers in thousands)

Source: 2016 data from the Bureau of Labor Statistics. In the 17 occupations listed above, women averaged 25% of the total workforce

Key Considerations and Implications

Disparity in STEM Fields

The level of female engagement in STEM varies across fields. While women in areas like biological and medical sciences are somewhat better represented, involvement in areas like computer science, physics and engineering is much worse. For example, women earn more than half of all degrees in biology, chemistry and mathematics, but less than 20 percent in computer science, physics and engineering. A study performed at University of Washington and Ohio State University attributes the low representation in the latter fields to an even stronger male-dominated culture, insufficient early experience, and large gender gaps in the confidence required to succeed in those fields.

Societal Attitudes

Globally, the number of women engaged in STEM also varies widely. According to a report by the United Nations Educational, Scientific and Cultural Organization (UNESCO), female STEM participation and learning achievement differs across countries, evidencing that social and cultural influences and beliefs also play a part. In countries with greater gender equality generally, women have more positive attitudes toward STEM and greater confidence in their ability to succeed in these fields, and subsequently, the gender gap in achievement in these fields is smaller. On the other end of the spectrum are patriarchal societies with less gender equality. A study from Pakistan, mentioned in the UNESCO report, found that the country’s largely patriarchal society negatively impacted women's confidence in their STEM abilities; worse still, the same study found that fear of sexual harassment in public spaces hindered young women from going to the local markets to purchase materials for STEM projects.

Economic Opportunities

Women’s involvement in STEM is vital for enriching the economy and improving business performance. Emerging research shows that if women do not participate in these fields despite having comparable abilities to men, talent is misused and economic opportunities are not realized.

Organizations committed to gender diversity are better equipped to meet the needs of the marketplace as women are an integral part of consumer decisions. According to the World Economic Forum, remediating the gender gap in employment and entrepreneurship could increase aggregate productivity globally by as much as 16 percent. According to a study performed at the Peterson Institute for International Economics, companies where 30 percent of executives are females can realize as many as six percentage points more in net profits. Another study co-authored by an MIT researcher found that shifting from an all-male or all-female office to one with equal gender representation could increase revenue by roughly 41 percent.

Gender Equality Policies

As evidence grows that gender diversity correlates to increased company performance and higher earnings and revenues, it can become a determining factor for investors, and companies should take this business reality into account as they craft gender equality policies. Universities, colleges and post-graduation associations are already enhancing their STEM environments to improve gender collaboration, provide support for female students and increase the applicability of these fields to women, all in an effort to close the gender gap. Businesses may consider similar tactics to enhance the corporate atmosphere to attract and retain high-quality female candidates in STEM positions, with increased business productivity, profit and investor interest as just some of the apparent benefits.

Spotlight: Closing the STEM Gap in Education Through Effective Policies and Programs

Projected labor shortages underscore the importance of attracting and retaining both students and career-aged women interested in STEM. To bridge the divide, educational institutions are undertaking a variety of measures to promote, appeal to, and maintain female engagement in STEM, and are achieving impressive results.


Carnegie Mellon University School of Computer Science expanded the percentage of women in its undergraduate major from 7 percent to 42 percent in just five years through a deliberate shift in policies. In addition to actively recruiting female candidates, Carnegie Mellon changed its admission requirements to include less prior experience with programming and also transformed the “peer culture” of the major, allowing for more informal mentoring groups and departmental social activities.

Brunel University London implemented a project called Women in Engineering that pairs female postgraduates with senior engineering mentors from the industry for approximately one year. The program aims to provide female students with insight into the entire engineering education and career lifecycle. Furthermore, industry mentors are encouraged to teach leadership, presentation and communication skills in order to help female students succeed in typically male-dominated fields. As a result, female graduates have a better understanding of career paths within engineering, as well as a network of professionals within the field.

Programs aimed to connect women with careers in the tech industry are becoming more widespread. For example, Women Who Code is a global non-profit organization with the mission of inspiring women to excel in technology careers. The organization offers a variety of member benefits, including coding tutorials, leadership opportunities, a global community of engineers, and scholarships. According to the organization, 80 percent of its 100,000 members experience positive career impacts after joining Women Who Code, and 97 percent would recommend the organization.

 

 

Regulating Big Tech: A Tale of Two Continents


Emerging Risk Categories: Technological, Societal, Economic

Industries Impacted: Technology, Financial Services, Consumer Products & Services


The U.S. federal government historically has had a light touch when it comes to regulatory oversight of Silicon Valley and large technology firms. Due to the quick pace and complex nature of the industry, the general assumption has been that the companies themselves are best suited to understand and manage the fundamental risks to their consumers. This attitude could be shifting, with indications that the U.S. government is looking to tighten the regulatory environment for large tech companies. Governments in other countries are already taking action, particularly around data protection and privacy.

In Europe, in some cases, regulations are designed to give local European companies a hand in competing with the dominant U.S. tech firms. Critics of those measures have noted that increased regulation may harm competitiveness in the European Union (EU) and jeopardize international efforts for future multilateral regulation. Global tech firms should be paying close attention to the shifting political and regulatory landscape and give consideration to additional controls and monitoring that may be required to avoid costly fines.

How Far Have the Regulators Gone?

Following are a few specific areas where regulation has progressed beyond talk; they illustrate both a divergence between the U.S. and the EU, and a potential convergence as U.S. regulators and their European counterparts seek to keep major tech companies within their control.

Honest Ads Act/Political Ads in the U.S.

In the U.S., concerns are mounting around the influence of digital platforms on shaping U.S. politics. Tech giants, including Facebook and Google, have the ability to sell political ads without entering a public record detailing who the purchaser is and the purchase price. In addition, online advertising is currently an exception from regulations that require disclaimers explicitly stating the endorser of the advertisement. If required to disclose this information, tech companies could lose part of their current share, which amounts to 70-75 percent of total political digital advertising sales, as they lose their differentiation within the advertising market.

A similar sentiment is echoed in Europe; however, the particular issue of political advertisements is not as pressing as behavioral manipulation of extremist groups to radicalize an online audience. Germany has adopted a hard-line approach to the problem, introducing fines up to US$57 million if illegal, racist or anti-Semitic content is not removed by the social media platform where it is posted within 24 hours. The German law presents broadening requirements for technology companies to limit the spread of disinformation and inflammatory content on their platforms.

The large technology companies have already reacted to talks of such impending regulation. Facebook, for example, announced recent investments to monitor election-related advertisements, while Twitter announced the implementation of stronger internal controls. For the companies, this means bolstering their control environments, or at the minimum, demonstrating efforts to mitigate abuse of these platforms as part of the duty of care owed to their consumers.

Antitrust Efforts

The fact that just a few firms control most of cyberspace has given rise to speculation of anti-trust violations. For example, Google and Facebook alone obtain more than 60 percent of all U.S. online advertising spending. In addition, Google owns 81 percent of the online search market, and Amazon acquires over half of all money spent online. Regulators in Europe have been quicker than their U.S. counterparts to take action on these “tech monopolies” — earlier this year, the European Commission decided to fine Google 2.4 billion euros (US$3.15 billion) for favoring its own shopping service. As a result, Google will create a standalone unit for its shopping service in Europe and require it to bid against rivals for ads shown on the top of its search page, in an effort to comply with the EU ruling.

In the United States, some politicians also have indicated they are in favor of restricting the monopoly of large tech firms — however, these views are not widely shared by the current U.S. Congress.

While the U.S. regulators have yet to take an action commensurate with actions in the EU, the hesitation may soon change, especially as online companies continue to grow in size and scope (e.g., Amazon’s recent purchase of Whole Foods) and populist (and anti-trust) sentiment rises across the country.

Taxation of Tech Firms

As many large U.S. tech firms base their headquarters in EU nations with favorable tax regimes, there have been efforts recently to recoup potential lost taxes and change the tax landscape they’ve enjoyed so far. The European Commission has been discussing ways to modify tax laws to capture additional money from foreign corporations that take advantage of tax loopholes in Europe. Unconventional tax methods, such as a tax on turnover or a common corporate tax base, have been suggested to prevent sheltering the profits from the appropriate tax authorities. This is seen by some as an act of protectionism by the EU, helping its own companies against competition from U.S. firms; nevertheless, the sentiment against avoiding taxation in Europe is strong. Other examples of this include the European Commission’s ruling that online retailer Amazon pay back nearly US$300 million in unpaid taxes after taking advantage of illegal tax benefits in Luxembourg, and last year’s ruling that Apple has to repay Ireland 13 billion euros (US$15.2 billion). Luxembourg currently stands opposed to the most recent ruling, even as it is under EU scrutiny for other tax deals.

Meanwhile in the U.S., the tech industry has spent record amounts in the second quarter of 2017 on lobbying efforts for U.S. tax reform, including changes that would make it cheaper for them to bring back billions of dollars currently kept overseas. The tax reform signed into law at the end of 2017 sets a one-time mandatory tax of 8 percent on illiquid assets and 15.5 percent on cash and cash equivalents for about US$2.6 trillion in U.S. business profits now held overseas. Further, the new tax plan permanently lowers the corporate tax rate to 21 percent. The differences in tax regimes could greatly impact the operations of these global tech firms, as taxation incentives are often seen as a primary point of attraction for a business — illustrated by the bidding war for Amazon’s new headquarters.

Notable Regulatory Fines Against Big Tech Firms in the European Union

Spotlight: GDPR

​One of the current EU regulations that has technology companies scrambling to comply is the General Data Protection Regulation (GDPR). It goes into effect in May 2018, and it affects all companies collecting personal data of EU data subjects, regardless of where the company is located. The European Commission considers the regulation an essential step in its EU Digital Single Market strategy. Monitoring the effects of this sweeping regulation will allow industry observers, and the companies themselves, to assess the impact of other potential regulations and compliance requirements on the technology sector as a whole.

GDPR at a Glance

 

 

A Break From Traditional Assets: The Rising Popularity of Alternative Investments


Emerging Risk Categories: Economic, Societal

Industries Impacted: Financial Services, Consumer Products & Services, Energy & Utilities, Agriculture, Healthcare & Life Sciences


Illiquid, largely unregulated directly held assets have become pervasive among financial institutions of varying types across the globe as a diversification strategy and a break from the traditional portfolio mix of stocks and bonds. Often referred to as “esoteric” investments, cryptocurrency, infrastructure, green technology, gold and other precious metals, farmland and property are all examples of investments that have risen in popularity in recent years. This is largely due to their high rate of return and effective hedging against inflation, counterparty credit risk and bond market defaults. However, the opportunity for high yields comes at a cost, as heightened credit, low liquidity, and legal and compliance risks could threaten the viability of these investments in adverse times.

Participation in Alternative Assets by Institutional Investors*

78 percent of institutional investors have one or more alternative assets.


*Institutional investors include public pension funds, family offices, private sector pension funds, asset managers, insurance companies, endowment plans, foundations, investment companies, banks, and others.
Source: Preqin Investor Outlook: Alternative Assets H2 2017.

Allocation of Alternative Asset Classes by Institutional Investors

The increased appetite for these investments can be traced to two major phenomena over the past decade. First, the mostly stagnant global economic growth and accompanying low interest rate environment have pushed investors to seek alternative assets and higher yields as well as more diversified portfolios. Second, the astronomic rise of big data and analytics technology has allowed esoteric investment deals, which are typically more complex and/or have less of a precedent than other investment vehicles, to be structured more frequently and with higher accuracy.

Key Considerations and Implications

Lack of Regulation

Due to the esoteric nature of alternative assets, financial institutions cannot rely on comprehensive regulatory guidance on how to manage them. The Dodd-Frank Act, and specifically the Volcker Rule, passed in the aftermath of the financial crisis, have so far been seen as prohibitive of such difficult-to-regulate investments.Currently, most investing in these opaque asset classes is done through alternative asset managers, hedge funds and other individualized funds. However, the current U.S. administration has discussed repealing various sections of Dodd-Frank, including the Volcker Rule, which could open the door for unregulated esoteric investments to make their way into mainstream banks’ portfolios. It remains to be seen whether a repeal of this magnitude is politically feasible.

Meeting the Demand

The increased interest in esoteric investments could potentially be signaling to the financial services industry a need for more specific and technical knowledge to cater to consumer demand. If demand for these types of assets continues to rise, so will the need for individuals with the specialized knowledge to manage the risks associated with the variants of this emerging asset class.

Spotlight: Types of Esoteric Investments — Risks and Rewards

 
 
 
 
 
 
 
 
Cryptocurrencies like Bitcoin, which we covered in PreView Volume 3, Issue 2, have emerged as the center of an increasing number of investment funds. In 2017 (through September), 120 companies raised US$1.5 billion through initial coin offerings (ICOs), compared to 43 companies raising US$256 million in 2016. Additionally, as of September 2017, there were at least 68 hedge funds managing digital assets and cryptocurrency investments, indicating that cryptocurrencies have begun to gain mainstream acceptance. Cryptocurrency is also becoming a viable component of IRAs and savings accounts. IRA providers now offer Digital IRAs, a type of self-directed IRA created to allow investors to diversify with digital assets such as Bitcoin.
 
Governments also appear to be bracing for the longevity of cryptocurrencies, and the U.S. federal government has already granted approval for the establishment of the first federally regulated digital currency options exchange and clearinghouse in the nation. Eight separate states have developed bills accepting the use of cryptocurrency in 2017, and two have already passed them into law.
 
Globally, several government commissions have studied the impact of cryptocurrencies and responded with varying degrees of regulation. Notably, the European Central Bank has noted that it is not within its power to regulate cryptocurrencies, while The People's Bank of China, China's central bank, has outlined rules that cryptocurrency exchanges must follow. Japan recognized digital currencies as legal forms of payment in April 2017. Despite the volatility in cryptocurrency markets, increasing government recognition and oversight may provide the stability necessary for digital currencies to become long-term market participants.

 
While infrastructure funds account for just 4 percent of the alternative assets managed by the top 100 managers, the rate of investment into infrastructure exceeded that of investment into all other alternative assets except hedge funds during 2016. Infrastructure can be a safe alternative to bonds, given the hedge opportunity against inflation and low sensitivity to market swings. However, both dollars invested and the number of infrastructure projects have declined in 2017. This is largely due to uncertainty around tax cut proposals, financial deregulation, and federal spending on infrastructure by the current U.S. administration. The uncertainty has helped slow recent deals, but businesses can expect to see a rebound in real estate and infrastructure activity once the political environment has settled.

 
 
 
 
 
 
Green technology may be an industry that could benefit the most from an increased appetite for esoteric investments, as companies have begun to breach the asset-backed securities market with hopes of securing lower-cost capital from more diverse sources. For example, residential solar companies have begun to access financing in the form of the securitization of solar panel consumer loans, helping to create the potential for more scaled and stable growth. Though the industry remains relatively untapped, with only about one percent of U.S. households owning or leasing solar installations, attempts to capitalize on investor interest in esoteric investments has begun to take hold with multiple securitization issuances presenting attractive fixed-interest rates ranging from 4.32 percent to 6.25 percent.
 
However, the lack of historical performance data, as well as geographic concentration risks and political and regulatory risks associated with the future of significant tax credits involved in the green technology industry, make these investments a potentially volatile funding source. Regardless, the increased focus on environmental investing and the demand for esoteric investments could help broaden the ability of companies to access lower-cost funding, in turn helping to expand operations and allowing more consumers to enter the market. This ultimately can help achieve more stable business models and a more energy-efficient world.

 

 

The March of Artificial Intelligence


Emerging Risk Categories: Economic, Societal, Technological

Industries Impacted: Financial Services, Consumer Products & Services, Energy & Utilities, Recruitment, Government


An AI Paradigm Shift

Artificial intelligence (AI) and robotics are no longer buzzwords referring to future potential. In the February 2017 edition of PreView we focused on AI and machine learning as a key aspect of the new industrial revolution, and the picture has continued to evolve since then.

For businesses, the efficiencies of using AI have been made increasingly apparent by its successful application in an ever-expanding range of industries. For consumers, AI has moved beyond being a luxury for the tech-savvy, and become a driving force in enabling an increasingly fast and convenient lifestyle, one to which we have surrendered a degree of personal privacy whether we are aware of it or not.

Business leaders and individuals alike must now ask themselves: What risks does the recent acceleration in AI development and applications pose to our business models, our privacy, and our lives as a whole?

Selected Milestones in the Recent History of AI

Key Considerations and Implications

AI and the Worker: Enrichment or Displacement?

Traditional labor economic theory holds that increased immigration in a country can lead to a drop in wages. However, it is now generally accepted that the impact of immigration on the overall wage level is low, but is felt more keenly in the specific labor markets in which immigrants would settle. Replace the immigrant workforce with the proliferation of a digital one, and it is not a stretch to posit that the digital revolution will advance at the cost of certain labor markets, but not impact wages broadly.

Because the next iteration of AI is characterized by on-the-job learning and adaptation, the roles likely to become vulnerable are those which involve the application of a ruleset and process learning — which casts a wide net. This raises the question whether any job roles are safe from displacement by AI. Traditionally, it was assumed that jobs involving human “soft skills” — jobs requiring imagination, empathy or human interaction — would be safeguarded. This may no longer be a safe assumption. For example, the role of the customer service and support representative — someone historically required to be flexible enough to deal with a wide range of customer complaints and issues and have a degree of empathy to understand the customer’s position — has been boiled down to an algorithm by Cogito Inc. Most importantly, Cogito’s algorithm learns; its efficiency and human likeness will only improve.

The counterargument to the worker displacement theory is worker enrichment, which posits that workers will be moved into more rewarding and socially beneficial roles. Research from MIT categorizes the new human roles it predicts will be created from the advancement in AI into “Trainers,” “Explainers” and “Sustainers.” These will be roles to teach AI systems how to operate, teach people what AI can be used for, and develop and research AI further, respectively. The key for individuals, therefore, is to be as adaptive as the learning algorithms which are replacing their jobs, and for companies to provide the education and training needed to adapt.

AI Applicability

For many businesses, the first AI challenge is to identify where it can be implemented successfully — and the answer does appear to be moving toward “almost anywhere.” A London brewery, for example, has deployed AI to read through customer reviews and make automated alterations to the brewing recipe based on the feedback. However, as with any new technology, adoption of AI suffers the risk of being deployed in the wrong place, causing more problems than it solves. The now-infamous case of Microsoft’s customer-service robot called “Tay,” which turned to making sexist and racist remarks having learned them from website users, is a prime example. Business leaders need to understand which parts of their company are best suited to a binary workforce and which to a human one. It is important to realize that algorithms, at least for now, lack emotional intelligence and the ability to determine context, rendering them ineffective in generating emotional responses to marketing efforts, or even a turn off to customers in certain situations. This has given rise to the field of AI consulting as a way to mitigate these risks. See the Spotlight on page 15 for examples of some current implementations of AI technology.

AI and Privacy

These days, data is gathered on every aspect of our lives, and interpreting these huge data sets is the mainstay of learning algorithms. One particular clause of the General Data Protection Regulation (GDPR) stipulates that “[individuals] shall have the right not to be subject to a decision based solely on automated processing, including profiling, which produces legal effects concerning him or her or similarly significantly affects him or her.” With the growth of AI applications, this clause should play a significant role in shaping the governance around corporate data gathering and determining how this data is used. Further, governments need to ensure that privacy regulations are flexible enough to address a fast-shifting AI landscape. A more general concept of privacy protections may need to be developed to protects individuals from AI bias while also not stifling growth in the AI industry.

Spotlight: AI Applications — Opportunities and Risks

Industry
Advantages
Risks
Auto Finance: Motor loan finance companies, such as MotoNovo, are increasingly turning to complex learning algorithms to expedite credit decisions.
Higher volume and faster pace of completed credit decisions.
Lack of accountability for the credit decision.
 
Could run afoul of regulations if the decision is based on an algorithm that is so complex it can no longer be explained by a human.
Recruitment: AI startups, such as Headstart, are turning to the self-learning power of AI algorithms to tackle the high volume of resumes received by recruitment companies. AI can pick out key traits and automatically match these against available jobs. For prospective employees, the concept of having been denied an opportunity at an interview by a computer may not be palatable, especially if no one at the company can justify the decision-making logic.
More efficient allocation of job-seekers to available jobs. Faster pace of employment decisions.
Reputational risk from inappropriate candidate proposals and lack of decision-making accountability.
Consumer Lending: Companies in the quick-access consumer lending industry are making credit decisions faster than ever. This is enabled, in part, by the use of so-called “metadata”: information that algorithms are able to pick out from the browsing history of the applicant, information stored by cookies, social media and other trails left online. All this information is interpreted to drive the credit decision, and may affect the interest rate as well.
More informed and tailored lending offers.
Regulatory risk if the use of consumers’ private data in the credit-making decision is deemed inappropriate or discriminatory.
Social Media Data Mining: Technology giants, notably social media platforms or search engines, have long been reliant on data mining to generate their real value. Now, as Alexa feeds product information directly back to Amazon and Facebook “learns” users’ life preferences, the question is, how intrusive are these convenience technologies on consumers’ private lives?
AI-driven data mining can provide immense value for businesses founded on the use of customer data for focused marketing.
Regulatory fines from inappropriate use of personally identifiable information (PII).
 
Customer frustration and/or blowback from misuse of their private data.

 

An algorithm-based decision-making capability is similar to outsourcing in that the company choosing to deploy it is ultimately accountable for its consequences, whether intended or not. Regulators treat flawed decisions the same, whether made by humans or a machine. That is why algorithms should be designed to provide transparency to the companies that use them. With today's litigious environment predicated on personal accountability, it is difficult to imagine a "black box" environment being sustainable. For that reason, algorithmic decision-making processes introduce a new dimension to establishing accountability. As companies pursue the opportunities AI presents, company executives, regulators, policy-makers and other stakeholders also must consider the unique challenges posed by this new technological frontier.

LEARN MORE: AI and the Digital Future of the Insurance Industry

 

 

On the Radar

How Are Smartphones Affecting the Next Generation?

As technology becomes an increasingly prevalent part of our lives, the impact it has on people is becoming clearer and more widely researched. Certain effects are better known than others; most people are aware, for example, that the blue light generated by screens can make sleep more difficult, but recent research now suggests that technology can also affect our mood and the way we behave, often for the worse.

While the effects of television on small children are well understood by scientists, more research is required to fully understand the effects of portable technologies, such as tablets and other smart devices, which immerse the user more completely than any other medium so far. A few studies that have already occurred suggest that the results are significant: One study of girls between the ages of 8 and 12 found that those who spend considerable amounts of time with technology are unhappier than those who use it less.

Research also suggests that teenagers today are not driving, hanging out with their friends or dating as much as older generations. Consumption patterns also appear to be changing rapidly, and the full implications of technology on our behavior remains to be seen. As the “iGen” generation — those who were born between 1995 and 2012 and never lived without the internet — comes of age and begins to enter the workforce, what effect will they have on workplace dynamics, future consumption habits, and even demographics?

Modernizing Elections With Technology

The role of social media in political campaigns burst into the spotlight following the U.S. presidential election of 2016, and continues to be the subject of intense scrutiny. There is a growing concern among internet users and politicians alike about how users’ political views are being influenced online. Interestingly, in a 2012 survey of American voters, 85 percent of responders said they would feel angry if they received Facebook ads for political candidates based on their private information. Whether those users were aware they were being influenced by other social media means is a different matter.

However, technology can also change elections for the better, and possible ways of doing so appear to be on the horizon. Although online voting certainly won’t be taking over in the next few years due to security concerns, technology could be used to improve the voting experience, and thus increase participation in the voting process. For example, the interactive element of social media already allows politicians to communicate with their constituents directly, presumably increasing the representative aspect of democracy.

In addition, technology is being utilized in some countries as a way of implementing more transparent systems. For instance, earlier this year, Kenya tested a technology to reduce voting fraud by transmitting real-time numbers from polling locations through a secure smartphone. Biometric voter identification is also considered to reduce “ghost” voting.

There are several risks presented by the increasing digitization of elections, particularly with respect to cybersecurity, voter fraud and influencing the electorate. Distributed networks such as blockchain present a huge opportunity, but remain largely untested. However, any steps encouraging more accurate and transparent elections are an exciting opportunity for the future.

 

 

Continuing the Conversation

The risk areas summarized above will continue to evolve, and there is no question that new risks will emerge and affect organizations globally. We are continuing the discussion we’ve started in this newsletter on our blog, The Protiviti View (blog.protiviti.com). Our blog features commentary, insights and points of view from Protiviti leaders and subject-matter experts on key challenges and risks companies are facing today, along with new and emerging developments in the market. We invite you to subscribe and participate in our dialogue on today’s emerging risks. You can also find additional information on our microsite: protiviti.com/emerging-risks.

About Our Risk Management Solutions

Protiviti’s risk management professionals partner with management to ensure that risk is appropriately considered in the strategy-setting process and is integrated with performance management. We work with companies to design, implement and maintain effective capabilities to manage their most critical risks and address cultural and other organizational issues that can compromise those capabilities. We help organizations evaluate technology solutions for reliable monitoring and reporting, and implement new processes successfully over time.

Contacts

Cory Gunderson
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Jim DeLoach
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Jonathan Wyatt
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