Tariff terror

Boards everywhere are scrambling to figure out the impact of the current tariffs-on / tariffs-off crisis emanating from the White House. There’s much to consider, not least, whether goods will still be bought by US clients and consumers, how much it will cost and whether the tanking US stock market is going to ruin the next board meeting.

It’s an unprecedented moment though advice is starting to emerge. Rania Bejjani, a consultant an former chief audit and risk officer suggests companies may need to diversify their supply chains, markets and products to succeed. She adds they should should think about: innovating with new technology to reimagine value chains, resources and internal processes; adjust mindsets and culture; better partnerships with suppliers, industry players and even governments; prioritise and long-term focus with short-term executive.

“This is not a time to fear risk,” she writes, “but to lead through it. To think beyond the next quarter and seize the opportunities. And to ensure that boardroom conversations rise to the moment. Uncertainty may be our new reality, but it comes with a unique opportunity to reinvent, reimagine and renew.”

Los Angeles-based Steven Wolfe, chief executive of AI-governance advisory firm Alpha, argues the current forced realignment of trade relationships may mean a redrawing of governance approaches.

He proposes: introducing committees specialised in geopolitical strategy, technology and AI; pushing executives to engage in “multi-regime strategic planning” with an increase in “strategic planning rhythm”; a recalibration of capital allocation; new AI governance frameworks for speedy decision-making; move to serious retraining of staff to deal with AI.

“The convergence of protectionism and AI advancement creates a strategic inflection point that will separate organisations that merely survive from those that thrive.

“The determining factor will not be management execution alone but the sophistication of board governance in identifying emerging opportunities, allocating capital toward strategic resilience and monitoring implementation with evolved oversight frameworks.”

Time to put away the tariffs terror and start planning.

Slow progress

The House of Lords appears to be impatient to see the government audit reform bill, which officials still appear to be working on.

In a debate last week, Lord Lemos asked for assurance that “we will not have to wait another seven years before we make progress”.

Those of you following the progress of audit will know it kicked off in 2018 with the collapse of Carillion. That’s the seven years Lord Lemos is referring to.

Lord Leong, the government’s spokesman on audit in the Lords, said that their Lordships should “take heart” that audit reform was a government manifesto pledge and would come along in “due course”.

Lord Davies of Brixton replied that “my heart sinks when [Lord Leong] talks about presenting the Bill ‘in due course’ and when he will not even tell us what is actually going to be in it.”

Ladies and gentlemen: seven years—that is the current status of audit reform.

Failure to challenge

Eyes watering over at EY this week after regulators imposed a fine of £6.5m (discounter to £4.8m for early admissions) over the audit of family holiday favourite Thomas Cook.

The Financial Reporting Council also fined audit partner Richard Wilson £140,000, discounted to £105,000.

Thomas Cook Group went into liquidation in 2019 after efforts to save the company failed.

Investigators looked at the audits of 2017 and 2018 and found that EY and Wilson “failed” to approach a “goodwill balance” of £2.6bn with “sufficient professional scepticism”. On the going concern statement for 2018, Wilson “failed to adequately challenge management”.

Claudia Mortimore, deputy executive counsel at the FRC, says: “EY and Mr Wilson’s failure to challenges robustly and to apply sufficient professional scepticism in these crucial areas led to significant breaches of auditing standards in both audit years.”

The artificially intelligent boardroom

How will artificial intelligence affect boardroom work? Stanford profs David Larcker and Amit Seru, and researcher Brian Tayan have some ideas.

In a paper for the Harvard Law School governance blog, they write: “As artificial intelligence is introduced to the boardroom, boards will be able to conduct real-time analysis—whether led by management, advisors, or board members themselves.”

But they have this warning: boards will have to fact-check AI output.

“AI monitoring will also likely generate a high number of red flags related to internal and external practices or threats. Boards will have to weigh materiality risk in determining which risks required additional investigation, how to prioritise them, and how not to create a paper trail that increases the board’s own liability.” Gritted teeth emoji here.

Rest assured?

The UK government has launched a Cyber Governance Code of Practice to help boards deal with the threat of cybercrime on their companies.

The code is designed to highlight board responsibilities for cyber, such as agreeing ownership of the issue and defining cyber security risk appetite.

There is also advice to gain a lot of assurance. Assurance of critical systems, assurance of suppliers, assurance of risks assessments, assurance of a cyber strategy, resources, effective delivery, cyber culture, cyber literacy, metrics etc etc… In fact, the more assurance the better.

The IoD’s Erin Young says: “With cyber attacks becoming more frequent, harmful and costly, cyber resilience is now a crucial boardroom responsibility.” Better start that assurance. There’s a lot to do.