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​Update: Tough Years Ahead

A global forecast sees an array of intense challenges.

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​The world is facing intense and cascading global challenges over the next decades, according to the National Intelligence Council. The council, which advises the U.S. Director of National Intelligence, released Global Trends 2040, the seventh edition of its quadrennial global outlook report.

These challenges will repeatedly test the resilience and adaptability of communities and countries, as well as the international system of organizations, alliances, rules, and norms, according to the report. The international system "is poorly set up to address the compounding global challenges facing populations," the report says.

Propelling the disruption are climate and economic change, the pace and reach of technology, and changing demographics as population growth slows and the median age increases. Declining, older populations will cause problems in developed countries, impeding progress in education, health, and poverty reduction, the report says.

The report presents five scenarios for the world in 2040. First, rapid technological advances by the U.S. and its allies lead to a resurgence of democracy. Second, the world becomes directionless, chaotic, and volatile, with China taking advantage of the West's troubles to increase its influence. Third, the U.S. and China establish a robust trade relationship, but compete for political influence, governance models, technology, and strategic advantage. Fourth, the world fragments into rival economic and security blocs, including the U.S., China, the European Union (EU), Russia, and a few regional powers. Fifth, a global food catastrophe caused by climate change and environmental degradation brings together the EU and China, plus nongovernmental organizations and multilateral institutions, to implement sweeping changes to address climate change, resource depletion, and poverty. — G. Nordhoff

Cultivating a Workforce Ecosystem 

New strategies are needed to manage internal and external workers.

The definition of an organization's workforce is changing, with contractors, gig workers, service providers, and external developers working alongside full- and part-time employees. In a survey of more than 5,000 managers from 138 countries, 87% say their workforce encompasses more than just their employees. One-third say they expect to increase their dependence on external workers over the next 18 to 24 months, according to the Workforce Ecosystems report by Deloitte and MIT Sloan Management Review. 

The report says being able to manage and engage such a flexible workforce can help drive success and innovation. Internal auditors should be aware, though, that there are risks involved in the looser affiliations of a workforce ecosystem, such as reputation implications when contractors represent the brand, changing international labor laws, and a sharper societal focus on diversity, equity, and inclusion. 

The new workforce ecosystems may require new leadership practices. "You have to think about it holistically, and you have to really harness the power that is your entire workforce to be successful," says U.S. Army Maj. Gen. Ronald Clark, who oversees military, civilian, and contracted personnel for the U.S. Indo-Pacific Command. — C. Janesko

Racial Equity Audits on the Rise

Pressure mounts for independent reviews for discrimination.

Many boards are having heated debates on how to promote racial equality and equity. One element of this debate centers on performing racial equity audits, and not every organization is taking the same path, Bloomberg reports. 

Racial equity audits are conducted by outside groups, which analyze companies' business models — from policies to products and services — to determine whether they cause, reinforce, or perpetuate discrimination. The audit consists of background research along with a review of strategic plans, job postings, performance reviews, and other materials that reflect the corporate climate. It also includes interviews with staff and stakeholders, as well as surveys. After the process is completed, auditors share the findings with organizational leaders and recommend improvements. 

These kinds of audits are not new, with Airbnb and Starbucks conducting them in recent years following accusations of discrimination, Politico reports. Today, many investors and advocacy groups are pressuring businesses to consider them in the wake of U.S. protests against social injustice. 

Corporate response to this pressure has been mixed. Wealth manager BlackRock has said it will have an independent racial audit of its operations conducted in 2022, but companies such as Amazon and Morgan Stanley have said they will review equity internally. 

The fact that these conversations are being had at all represents a shift in the role organizations have played in racial equity. According to a recent JUST Capital survey, all of the 100 largest U.S. employers say they plan to address racial equity through anti-discrimination policies. Of these companies, 98% plan to do so through education and training programs, and 91% plan to do so through community investments. — L. Wamsley

The Post-pandemic Workplace

A flexible work environment can create strategic opportunities, says John Rodi, leader of the KPMG Board Leadership Center.

As workplaces begin to reopen, what should organizations consider in determining how to reopen and what the work environment should be? 

The COVID-19 pandemic drastically accelerated the shift toward flexible work arrangements. Now, as health risks begin to fade, directors need to understand how management is capitalizing on the digital innovations that empowered virtual work. Recognizing that only about one-third of U.S. jobs can be done entirely remotely, strategies will vary widely by industry and business.

Organizations should consider flexible work arrangements as a strategic opportunity and determine where individuals perform best. The concepts “work from home” and “remote work” should be removed from our vocabulary. Work is what needs to get done, not where it gets done.  

By focusing on “strategic work flexibility” — encompassing place and time — management, boards, and professionals can reimagine a future of work that’s empowered by virtual technology and based on a new mindset. This will allow organizations to capitalize on the digital innovations that empowered flexible work during the global health pandemic. For strategies to be successful, organizations need to pay close attention to their culture and tone at the top, as well as opportunities for talent development. 

What are the risks and opportunities of a more flexible work environment? 

Culture, tone at the top, and talent development may all be put at risk if not appropriately considered and nurtured in a flexible, remote work environment. But there also is great potential for opportunity. The current environment has created a historic moment for companies to reimagine a future of work that boosts productivity, better engages people, nurtures workforce well-being, and potentially drives sustainable growth for the long term.

While the discussion must shift to how a company optimizes work flexibility, leaders must recognize that there are specific areas that benefit from in-person interaction. For example, virtually maintaining relationships is easier than virtually creating new connections. And management should understand when developing in-person relationships is important and evaluate whether the company is properly leveraging face-to-face meetings.

Effectively onboarding people and ensuring they become part of a team may require entirely new approaches. Likewise, training often has been in person and hands-on. How do we support training in a virtual environment, especially as companies move toward a model focused on continual learning and development?

But these challenges also create new opportunities to attract, retain, and motivate a diverse, knowledgeable workforce.

How does such a work environment impact the work of internal audit? 

Internal auditors had to pivot quickly when COVID-19 hit. A survey we conducted last year found that, by and large, internal auditors successfully shifted their focus to the critical risks posed by the pandemic — reviewing management's risk assessments and related remediation plans and controls. So, internal audit plans have generally proved flexible, and internal audit's experience with auditing remotely over the past year will prove valuable going forward.

The challenge in the post-pandemic world is identifying emerging risks that are critical to a company's operations, strategy, and reputation, while ensuring that audit plans are risk-based, flexible, and dynamic. That requires a solid understanding of the business strategy and operations at all levels of an organization. It also requires understanding the expectations of a company's key stakeholders, an ongoing assessment process, and integration and collaboration among internal audit, second-line functions, and functional and business-unit leaders.

A number of questions will be key for internal auditors, including: What's changed in the operating model? What risks are posed by a company's digital transformation and its sourcing, outsourcing, and sales and distribution channels? Is the company sensitive to early warning signs regarding safety, product quality, and compliance? What long-term impact will accelerating megatrends have on the new business and risk environment?

1,830 of the world's biggest companies say they face or expect regulation that places a price on carbon emissions.

60% of them do not identify it as a substantive risk to their business. 

"Companies need to start anticipating these inevitable policy shifts, taking action in their value chains, and disclosing these risks to their shareholders," says Nicolette Bartlett, global director of Climate Change, CDP.

Source: CDP, Nearly Half of World's Biggest Companies Factoring Cost of Carbon Into Business Plans

Blockchain Beyond Cryptocurrency

The digital ledger could be a boost for supply chains.

Blockchain is gaining acceptance as a technology for recording data and ensuring integrity in supply chains through the ability to track and trace materials, products, and services, according to a PwC Strategy + Business article. Current uses of the public digital ledger range from ensuring the safe and swift global distribution of COVID-19 vaccines to creating accountability in environmental, social, and governance claims among manufacturers and retailers. Blockchain also can help identify fraud and contamination quickly and accurately.

Implementing blockchain should be part of a wider digitization strategy, writes Hadyn Jones, a senior blockchain market specialist and director with PwC U.K. To determine whether the organization can benefit from blockchain, Jones advises leaders to consider whether its transactions are time-sensitive and depend on two or more parties to record, update, share, and view common data. 

Also, Jones says they should determine whether transaction records must be verified by intermediaries. In each of these cases, collaboration among industry peers may increase efficiencies and reduce costs. — L. Nelson

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