Transcript- Getting There Eventually: Finding Equilibrium in Uncertain Times – Resilience is the North Star Listen Protiviti has published a two-part series on finding equilibrium in uncertain times. In this podcast, Protiviti Managing Directors Dolores Atallo and Jim DeLoach discuss key points from Part 2, “Resilience is the North Star.” Listen Kevin Most discussions concerning the COVID-19 global pandemic aspire to a path leading to some form of normalcy – a new normal. That pathway is often framed in terms of phases, with each phase leading to an equilibrium of sorts. In other words, the state of equilibrium will be defined differently with each phase. This is Kevin Donahue, senior director with Protiviti, welcoming you to a new edition of Powerful Insights. There is no roadmap for what is about to happen soon or next, but each iteration requiring a search for equilibrium results from changes in market and individual behavior, as well as adjustments in business processes to address those changes. That is why resiliency is the North Star that will guide the most successful companies forward. Protiviti has published a two-part series on finding equilibrium in uncertain times. I recently spoke to Protiviti Managing Directors Dolores Atallo and Jim DeLoach about part two in this series, Resilience Is the North Star, which can be found at Protiviti.com/Bulletin. Dolores, based in New York, is a leader with Protiviti’s Risk and Compliance and Enterprise Risk Management groups. Jim is based in Houston and heads Protiviti’s Global Thought Leadership Program and is a member of the firm’s Global Solutions Leadership. Dolores, thanks for joining me today. Dolores Thanks, Kevin. Kevin Jim, great to speak with you as well. Jim Glad to be here, Kevin. Thank you. Kevin So, Jim, to get things started off for us today, let me ask you this. What do we mean by “North Star,” and why is resilience the North Star? Jim Well, this is a concept Dolores and I talked about a lot, and for all of you stargazers out there, Polaris is the North Star, because the Earth’s axis is pointed almost directly at it. So, during the course of a night, Polaris does not rise, nor does it set, but it remains in very nearly the same spot above the northern horizon year-round while the other stars in the sky circle around it. So, said another way, if you were standing at the North Pole, the North Star would be directly above you, so true north lies directly under the star. The meaning of the North Star, as Dolores and I had intended it, is that it facilitates navigation. To find your latitude, for example, using the stars, you only need to find the North Star. You can do that by locating the Little Dipper constellation. Metaphors around true north, and the northbound train, are very common in business as a focusing concept for creating the vision and meaning that can energize an organization and propel it toward its success. So in terms of navigating through these uncertain times, we’ve chosen to reference the North Star, and in that context, resilience is the North Star. It’s the North Star to propel an organization forward in these unprecedented times. In our prior podcast, Dolores and I set the context for resilience by discussing the reality of companies having to face the need to seek equilibrium now, soon, next and eventually. And the idea we were trying to articulate is that companies must be resilient enough to achieve equilibrium again and again as the market and circumstances change, and because no one can reliably predict the future in this current fluid environment, an organization’s capacity to recover quickly from difficulties and its toughness under fire and its ability to change and adapt will likely do more than anything else to determine the strength of its positioning in the marketplace when we all finally emerge on the other side of this terrible pandemic. So, this is the concept of resilience, and it is, in our view, the North Star for navigating through these times. Dolores? Dolores Thanks, Jim. I think we all have our personal North Star in terms of how we want to operate in this pandemic environment. And I think we are truest to ourselves, and to the value that we bring to our organizations, when we follow our own North Star, and that makes us resilient in very tough times. Jim True. Kevin Thank you both. Great insights there. Dolores, in your view, why is it so important that organizations be authentic to be successful, and where does a trust-based culture fit into this? Dolores Well, as Jim was talking about the North Star, the North Star helps us stay on course and be authentic. We don’t have the time, the patience or the extravagance of being anything but authentic right now to be resilient. It’s very important to be the organization and the person that you want to be, and hope to be in the future, so that you can set a tone for your organization to continue to be successful. This is really a seize-the-day kind of opportunity to demonstrate behaviors, and leadership, and tone at the top – to show the world, show your competitors, your customers and your employees, who you are, and that you can be trusted to do what you say you’re going to do. Part of that is the demand for social awareness in our environment, to basically say, “We understand what’s going on in our culture, we understand what’s going on in our business, and we see a view to the future that combines those to be our true and authentic self, where we trust each other and can talk about challenging issues together to solve business problems, and to be a more resilient organization.” Certainly, this goes to enhancing reputation, but more importantly, it goes to building trust. If someone you know and trust tells you something or asks you to do something, you do it with very little reservation, if any at all. And if somebody you don’t trust asks you for something very simple, you can be highly suspect of it. In these pandemic times, we really have to think about who we want to be, and how we want to be with each other to prosper going forward to be a better culture going forward, and to think about things in a way that will help us continue to grow and evolve – not only to have the vision to do it, but to have the bravery and the authenticity to have the actions to do it so that we get the results that benefit everyone. Kevin Dolores, a quick follow-up for you. This is so important for a company’s customers or clients, but it’s just as important, if not more so, for an organization’s employees. Isn’t that right? Dolores Absolutely. Employees want to be associated with authentic companies where they can trust that their contributions are valued, where they can trust that they are valued as human beings, as individuals, and also that they can trust that they have the professional freedom to be their true self, and to be recognized for differences in a very constructive way, and to be recognized for aligning around organizational goals together, but maybe from different perspectives. It’s always great to have different kinds of input into an organization to be able to understand how your different customers might perceive you. I mean, not everyone likes the same shirt or the same food. I mean, you need differences in order to really cover the marketplace, and when you trust each other, you can express those differences comfortably. Kevin That’s great. Thanks, Dolores. Jim, let me ask you. With markets in a state of flux, and the uncertainty around community spread of the COVID-19 virus, how do companies navigate this unprecedented environment? Jim Well, Kevin, I think that a pandemic experience strongly suggests the need to prepare for disruption. Interestingly, according to a recent survey, over 70% of companies indicated that their primary business continuity concern is further disruption from a second wave of the COVID-19 pandemic. In addition, 21% of companies reported that they still did not have a pandemic plan and process in place, and there was also an indication of concern over mental health issues posing a major threat in the coming year due to people having to work at home, being isolated and the stress of the unknown taking its toll. It strikes me that when we’re talking about 70% of companies, we’re not just talking about our own organization. We’re talking about customers, suppliers, third-party service providers and channel partners too. Don’t forget that we’re learning big-time that today’s business ecosystem is built on third-, fourth-and even fifth-party relationships, sometimes referred to as second-, third-and fourth-tier suppliers in the supply chain. So, bottom line, the economic and business disruption wrought by COVID-19 are not going to end any time soon. The good news is that the pandemic and transition to a remote workplace has elevated the general level of knowledge of these dependencies. So, going forward, companies are going to be asking smarter questions, not because they’re required to, but because they know how important it is to do that. And paradigms are changing as well. For example, third-party risk management is now being thought of more as a business enabler rather than a compliance requirement. So, companies are realizing that getting better information from and about their third-party vendors, and getting that information faster, enables them to make better business decisions and continue to serve their customers securely and without interruptions. So, I think the point is that leaders need to reimagine their crisis management, business continuity planning and even their wellness programs to prepare for simultaneous natural disasters, widespread power or technology outages, civil or political unrest, and other events that could conceivably threaten business operations in a larger scale. This goes beyond traditional continuity risk assessment, incident response planning and crisis management plan development because companies need to focus on developing a flexible and resilient culture, as Dolores was talking about, that is capable of responding to upheaval with a business-as-usual approach. I guess what I’m saying, Dolores, is that until further notice, we almost have to expect disruption as a matter of course. I mean, we certainly don’t have to like it, but we need to expect it. Dolores Well, Jim, as you wisely point out, we have to be agile and adaptive because there is no playbook. I mean, you’ve said that many times. There is no playbook, and you must remain agile and adaptive, so I’ll quote you in that case. I’d also like to say, many companies are used to launching products, or responding to changing business environments, and this is kind of an exaggerated version of that. After the initial wave of change, there is learning, and there is adaptability that can be put into the process to help push equilibrium along the continuum of what’s next. So, Jim, you brought up a lot of great examples of how companies are doing that, because they now have the awareness that they can get this information, and be less impacted by the change, if they plan accordingly. Jim You know, given that Kevin’s question refers to “How do companies navigate this environment?” it occurs to me there are some tactical and strategic considerations. So, given that many companies have announced their intention to extend remote-working initiatives to the end of the year, and some have announced plans to allow employees to work from home permanently, or even decentralize their workforce, they also need to adapt their response plans to incorporate how a permanent remote or distributed workforce will react to a different crisis, or to multiple crisis events. For example, we’re seeing companies do things like conducting more frequent meetings between incident response and crisis management teams, and integrating after-action reports into a continuous improvement program. We’re seeing a lot of companies evaluating their supply chain disruptions that they experienced and identifying alternatives for critical supply chains, and, at the same time, evaluating their reliance on third parties providing critical business services and ensuring alternatives in case of a loss of these providers. We’re also seeing companies plan when and how to ramp up alternative operations in response to specific events, and, in that respect, evaluating how they’re digitizing work to ensure that employees can access what they need remotely. I think of something that I’m seeing and reading about from different vantage points: the importance of workers being able to access these crisis management plans on their mobile devices from anywhere in the world, at any time, to be fully prepared. So, these are some tactical considerations companies are looking at, and beyond those, companies should also assess their business model’s resilience, including its ability to adapt and recover from disruptions and manage future crises by reducing cost as necessary in the short and intermediate term. This will entail a review of how crisis command centers are responding to COVID-19, and identifying areas that need improvement, and addressing and correcting shortcomings that have been experienced. I think, to sum it all up, what it all means is that crisis response plans should include the critical components of speed and flexibility which allow organizations to quickly adapt to rapid change, and that’s the key. Flexibility, adaptability and speed will differentiate in this environment. And with emphasis on giving executive leaders and employees fact-based information and tested alternatives to enable good decision-making, a comprehensive approach will help build operational resilience and prepare the organization for future disruption of any kind. I think that’s the world we’re living in right now. Kevin I certainly agree. Great thoughts from both of you. I want to close out our discussion today to tie some of these issues back to environmental, social and governance approaches and reporting for companies. Both of you can respond to this. Dolores, I’ll ask you to respond first. How is the current situation an opportunity for organizations to better articulate their perspective on ESG? Dolores I think Jim brought up so many relevant points that are opportunities for organizations to think about how they did things prior to the pandemic, and even the earlier part, and how they want to address the ESG-related issues in the future. It’s an opportunity to build this into their reopening plan. It’s an opportunity to build it into their strategy. It’s something that Jim can speak to – the role of the board – from his many publications in this area around how this is so much on the mind of the board, but when you are redesigning your workplace, considering your carbon footprint, considering your workplace design, you have an opportunity there to think about your environmental considerations. Certainly, a very significant emphasis on the social aspects of employment, and social justice issues, that are very much in the forefront of our culture currently and should remain at the forefront of our culture as we consider going forward – employment practices, and evolution of policies, and the choices that we make in organizations. This makes us more sustainable as an organization to appeal to a broader menu of issues that need to be covered under the S in ESG. Really, from a governance perspective, it’s an opportunity to come back better, and come back more aware of ESG issues and potentially greener as we all enjoy a cleaner environment due to the absence of commuting right now. Jim, I’d be interested in your thoughts, particularly in the area of the board. Jim I agree completely with that. Dolores, I think to your point, as the pandemic eases, I think there are going to be choices to be made around the cost of safeguarding the environment versus the return to pre-pandemic norms and behaviors. Issue eight of The Bulletin, where we talk about resilience as the North Star, we gave some examples of that, and so we talked about, for example, how will marketplace expectations evolve for ESG initiatives, and is management proactively considering ESG-related objectives, targets and strategy-setting? How can organizations derive value from their ESG efforts, and does the company’s sustainability reporting provide enough insight into its nonfinancial activities related to ESG matters? Most importantly, is the company sufficiently focused on the ESG criteria that investors and asset managers following the industry use? They are speaking with loud voices, the institutional investors, asset managers, that are using ESG criteria to screen trillions of dollars of investment assets. I think what this all boils down to is making sustainability and ESG reporting a strategic imperative. Each company, to your question, Kevin, has its own unique story, so senior management and the board should focus on telling that story. ESG reporting should be viewed in that light and approached as a continuous narrative, what I call a story line – a story line, so to speak, that portrays the company’s continuous journey to become and sustain a business committed to delivering value to customers, employees, suppliers, communities and shareholders. So, the question now is, does the market get the story the company attempts to tell – does the market get it? That is a question every CEO and his or her board needs to ask themselves. Kevin Thank you for listening today. I hope you enjoyed this discussion with Dolores and Jim speaking about organizations’ need to find their equilibrium in these uncertain times. I want to remind you that you can visit Protiviti.com/Digital to take our complimentary Digital Maturity Self-Assessment, which is a key to establishing organizational resilience. You also can find part two in this series, Getting There Eventually: Finding Equilibrium in Uncertain Times – Resilience is the North Star, at Protiviti.com/Bulletin. Finally, I encourage you to please subscribe to Protiviti’s Powerful Insights podcast series wherever you find your podcast content.