For the Board

The Metaverse has been positioned as the next phase of the internet. It makes use of several innovations in technology, from extended reality (XR) to artificial intelligence (AI), to enable new digital experiences.With the increasing focus on how to appropriately regulate data and the use of AI, digital governance is becoming even more crucial. Similarly, in the future of the Metaverse, effective board oversight will be just as essential and serve as a significant difference between firms that thrive and those that struggle.As mentioned in my previous article, “The Metaverse beckons: Is it time to explore?” published in this column in June 2022, the Metaverse can be defined as a virtual world where people can take on digital identities. The key characteristics of the Metaverse include (1) Persistence: where your central digital identity is maintained even as you enter and leave the Metaverse; (2) Ownership: where everything you earn or purchase in the virtual world is certified and attributed to be truly yours; (3) Interoperability: where you can carry what you own and use it in other virtual places, and (4) Decentralization: where there is no central organization that dictates the rules of the space, and is instead defined by the users themselves.By understanding the opportunities as well as risks the Metaverse presents, boards can provide effective oversight and value creation.OPPORTUNITIES FROM THE METAVERSEA wide range of use cases, including entertainment, education, commerce, and even virtual prototyping, can be expected from the Metaverse. More immersive extensions of entertainment are already taking place in virtual worlds on gaming platforms like Fortnite and Roblox, such as a celebrity concert held on Roblox that received almost 37 million visits, according to Wired UK.The synergy between digital twins — defined as digital versions of their physical counterparts in the real world — and the Metaverse in the working world is exciting. Before making changes in the real world, a digital twin can be used to test new policies or corporate decisions online. Digital twins can assist with tasks that include product creation, urban planning, and even customer experience design when combined with the Metaverse immersion.Boards may assist their organizations in seeing the value of leveraging these platforms for internal learning requirements, particularly for Gen Z and younger frontline employees, in addition to external customer interaction. New hires can have the opportunity to tour their workplace before starting for a much more immersive virtual onboarding.POTENTIAL RISKSAs the Metaverse becomes mainstream, it can give rise to new risks. Similar to the risks today arising from the widespread use of the internet, increasing participation and commercialization of the Metaverse is likely to exacerbate existing issues, ranging from online safety to data privacy.It is imperative for boards to fully understand the risks magnified by the Metaverse and include the related technical and social risk subjects in the company risk management process, given broader ethical concerns regarding the use of technologies to influence human behavior. Privacy issues are the first ones to consider, particularly in how information will be used due to the variety of biometric and emotional data that is likely going to be collected through Metaverse hardware.Depending on the applications being used in the Metaverse, boards must concentrate on protecting the privacy of consumer and employee data.Boards must also be aware of security concerns in three key areas: devices, fraud, and identity. Attacks may target Metaverse hardware, such VR headsets, and use them to rob unknowing users of their private information. The Metaverse will also likely give rise to more sophisticated or advanced phishing and counterfeiting attacks, including stealing non-fungible tokens (NFTs) and scamming for wallet credentials. Moreover, there are issues of digital identity to consider, where compromised user identities can lead to digital identity theft.THREE ACTIONS THAT BOARDS CAN TAKE1. Determine applicability and long-term valueBoards will have to adopt a critical and measured perspective toward the Metaverse and its applicability to the organization. They need to evaluate whether they are engaging the Metaverse only as a response to a trend or if it truly offers a specific benefit that enables long-term value without compromising the core principles of the business. This will help influence if the enterprise risk management program of their organization will be concentrated on monitoring the achievement of strategic goals from investments in the Metaverse.As boards determine the Metaverse’s applicability, they must consider if they have the necessary expertise to manage the risks that arise from it to protect its value. They should look into enabling tools to help identify and quantify the resulting risk scenarios accordingly and facilitate management in developing responses to them. To complement this, boards should determine if the business has teams with enough age, identity, experience, and cognitive diversity to comprehend the technological, business, ethical, cultural, and legal aspects of the Metaverse use cases so that they can drive actions in improving the thoughtful adoption of it.2. Prioritize oversight based on purpose and riskThe board is responsible for applying due diligence and supporting technology investments to boost the organization’s strategy, purpose, and values. In line with this, they must understand the extent and purpose of why the Metaverse is being leveraged by the business. In the gaming industry for example, close oversight is necessary because investments in the Metaverse can be instrumental in delivering differentiated services or goods of a gaming company.In other cases, the Metaverse may only be used solely for marketing purposes, but there would still be associated risks — particularly if it can jeopardize the company’s reputation or legal standing. Another example would be the buying and selling of digital assets to facilitate Metaverse activity, in which boards need to understand the legal and accounting repercussions of these operations. Depending on the purpose and related risks, the level of oversight will need to be carefully considered. Regardless of this however, Boards have to consider if they will need additional investments in compliance, data privacy, and fraud prevention.3. Recognize laws and moral standards Boards can help management execute a Metaverse plan by making the business aware of any legal and compliance challenges and enabling them to address these. Furthermore, they can explore how businesses can collaborate with policymakers to develop workable laws and regulations that foster innovation while upholding human rights and providing value to relevant stakeholders.Boards should consider what “code of conduct” or ethics guidelines can be applied to foster the constructive cooperative engagement in the Metaverse world of the company and minimize its risks. In parallel, they must be conscious of any new governance models that may need to emerge from Metaverse activities and pivot on how these can be considered in their enterprise risk management program.SEIZING OPPORTUNITIES THROUGH THE METAVERSEWith the Metaverse bringing about exciting new ways to live and work through an immersive virtual world, boards must understand the strategic opportunities and risks associated with it to provide effective oversight. Only then can they effectively influence investment decisions, evaluate risks, and seize their future in the Metaverse. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co. Lee Carlo B. Abadia is a technology consulting principal of SGV & Co.

Second of two partsBoards play a critical role in helping management teams find ways to thrive in unpredictable circumstances as organizations today find themselves navigating a wide range of challenges. With so much uncertainty still present, boards must decide where to focus their attention. To better understand board priorities in 2023, EY conducted a study of more than 400 corporate board members across the Americas, including Argentina, Brazil, Canada, Chile, Colombia, Mexico, and the US. While the study focuses on western markets, the insights on the five top board priorities are also relevant for Philippine companies.In the first part of this article, we focused on two of the top board priorities, which were navigating difficult economic circumstances and rethinking capital strategy through investments in technology. This second part of the article will discuss the remaining three priorities, specifically on how boards can enable innovative technology transformation, champion a future-focused talent agenda, and establish cybersecurity as an enterprise risk and strategic opportunity.TECH TRANSFORMATION AND INNOVATIONBoards are crucial in helping to promote innovation, regardless of the state of the economy and the business environment. They can support the executive team in maintaining balance and push decision-makers to consider how the company can address new external challenges by innovating the business rather than investing or cutting costs.Boards are in a unique position to provide thought-provoking hypothetical questions about potential new products, services, and income streams related to megatrends, such as how the emergence of Gen Z is changing employee and consumer trends. Scenario planning can further build resilience by allowing for the potential of uncertainty, challenging long-held beliefs, and spotting possibilities to redefine the future of the company through proactive innovation.Despite the prevailing volatility, it is important to keep an eye on the longer-term developments that will shape the future of business. The value of operational, consumer, and market data is now being unlocked by advanced data analytics as the world enters a new era of data centricity powered by developing technologies. Deeper interaction is made possible by new human-machine interfaces, which also open up new avenues for communication, commerce, customer outreach, and the creation of goods and services. To best support their companies, boards must stay current on new technologies and their ideas.For our planet and social institutions, new technologies and the behaviors they encourage in people carry both promise and risk. On one hand, technological advancement can lead to a new immersive virtual workplace, the capacity to reduce unconscious bias, the potential to encourage healthier lifestyles, and lowered carbon emissions by substituting non-polluting virtual experiences for real-world presence and physical goods.However, emerging technologies can pose significant dangers for data privacy, fraud, false information, polarization and isolation, mental health, and energy costs. Better sustainability results need to be part of the future vision and strategy around new technologies and consumer strategies. This is especially significant at a time when stakeholder expectations and demands are drastically shifting in light of environmental and social developments.A FUTURE-FOCUSED TALENT AGENDAGlobal macrotrends are still influencing the future of work, making it more urgent for businesses to adjust to the shifting talent landscape. The structural shift in labor markets poses a formidable challenge as we suffer the highest global talent shortage in more than a decade. Employees are reevaluating and reordering the things they value most in an employer and are prepared to take action to satisfy those needs, with 68% of employers stating that employee turnover rose during the previous year. Previous methods used to attract and retain employees are no longer effective due to evolving employee needs, including the need for flexible and hybrid employment.Highly-skilled employees will continue to retain more power even as the labor market cools. Millennials and Gen Z, particularly those working in the hardware and technology industry, are where the highest turnover is anticipated. Technologically-skilled workers are also in high demand, with inflation driving up the cost of competitive remuneration as a result.It is crucial to monitor employee morale and workplace culture, as employers and employees have varied perspectives regarding the effects of hybrid, flexible, or mobile work options on productivity and career progression opportunities. If employees are not given the same level of flexibility provided during the pandemic, 54% of respondents to the EY Global Workforce Survey said they would consider resigning.The ability of a company to retain talent may depend on whether or not its leaders are decisive and human-centered, with an emphasis on innovation, building trust, and exhibiting desired attributes. In order to get a more comprehensive understanding of employee needs and sentiment beyond simply gauging the tone at the top, boards may need to spend more time in conversation with the chief human resources officer to champion a future-focused talent agenda. They also need to evaluate the company plan for overall compensation, filling of any skills gaps, and talent retention.CYBERSECURITY: A STRATEGIC OPPORTUNITYThe high degree of cyber risks that businesses confront are growing, with risks from ongoing digital transformation, flexible working, and the introduction of disruptive technologies having increased in 2022. Management must continue to stress the value of managing cybersecurity as an enterprise risk since the stakes are higher than ever, but should also see it as a chance to strategically position their companies as reliable business partners.The board should set the tone by discussing cyber threats with management outside of the chief information officer (CIO) or chief information security officer (CISO). When developing new technology, goods, and business arrangements, CEOs should be questioned about how cybersecurity is incorporated into the design process from the beginning using the “trust by design” idea. In order to better challenge management, boards should be familiar with new or growing risks, the financial worth of the company’s risk (including the effectiveness of cyber insurance coverage), and leading cybersecurity risk management techniques.Cybersecurity risk management in the current context is about response readiness and resilience. This means focusing on early detection, isolating important assets, preparing continuity plans to operate in a crisis, reporting to and working with authorities while managing litigation, and communicating with employees, customers, and investors.Holding cyber incident simulations with management and the board should be prioritized, as well as stress-testing the organization to improve readiness and recovery efforts by clarifying roles and escalation processes. Third parties, such as a public relations agency or forensic specialists, can be included as necessary.Finally, boards may oversee improved disclosures that make it clear to investors and other stakeholders how seriously they are taking cybersecurity threats and how qualified they are to do so. These disclosures are becoming more crucial as stakeholder scrutiny of these issues grows.BUILDING STRENGTH IN RESILIENCETo meet the challenges in this new era of constant uncertainty, resilience will be key to sustained success. Boards should work together with management to navigate uncertain economic conditions, rethink capital markets through investments in technology, pursue transformation and innovation, enable a future-focused talent agenda and elevate cybersecurity risk oversight.Through continuous collaboration with management, boards will be able to build strength in resilience to weather ongoing volatile economic conditions. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Maria Vivian C. Ruiz is the vice chair and deputy managing partner of SGV & Co.

First of two partsOrganizations today find themselves navigating a previously unheard-of range of challenges, including the ongoing pandemic, the effects of climate change, shifting regulatory requirements, and more. Boards play a critical role by helping management teams explore options and find ways to thrive in unpredictable circumstances, supervising plans to traverse this complex corporate climate, and by providing guidance on transformational investments.Resilience — the capacity to foresee, plan for, respond to, and adapt to a changing environment — is essential. Given the uncertainty in the market, deciding where the board should focus its time and attention is vital.To learn more about board priorities for 2023, EY conducted a study, Americas board priorities 2023: how to build resiliency in uncertain times, surveying more than 400 corporate board members across the Americas, including Argentina, Brazil, Canada, Chile, Colombia, Mexico, and the US. Given the distinctive difficulties businesses are facing in this area and their responsibility for financial oversight, it may not be so surprising that boards placed the highest priority upon economic conditions. Though the study focuses on western markets, the insights on the five top board priorities are also relevant for Philippine companies.DIFFICULT TIMES AHEADSeveral factors indicate the increasing possibility of a global recession in 2023. These include the ongoing conflict in Ukraine, stricter financial restrictions, and a simultaneous economic slowdown in the US, Europe, mainland China, and several emerging markets. Persistent inflation, rising borrowing costs, declining private sector sentiment, and the rapidly slowing global economy are all contributing to a potential global economic cooldown. Some businesses are choosing to exercise more caution in hiring people and undertaking investments due to ongoing cost challenges, deteriorating demand, and increased uncertainty.Drivers of economic activity that were once taken for granted will now require more attention from boards in the current business landscape.In the first part of this article, we will look at the first two top priorities identified in the report:1) Economic circumstances that companies have to focus on to support themselves through economic volatility (these include inflation, labor, capital costs, supply chain and energy switch) and2) How to rethink capital strategy through investment in technology.ECONOMIC CIRCUMSTANCESInflation. It is unlikely that the supply and demand mismatch in the energy sector, which is caused by geopolitical unrest and climate change, can be remedied very soon. Price inflation in energy, commodities, and food will likely continue to be volatile.Boards should monitor how companies are developing price and supply strategies that are flexible enough to react to demand fluctuations that have become more severe in recent years. The part that cost control and productivity improvements play in a company’s inflation strategy must also be considered.Labor. While laying off excess labor has historically been a tactic to control expenses during economic downturns, talent is now not only more expensive, but it is also more valued. Business executives currently prefer strategic hiring freezes, strategic layoffs, attrition, and furloughs over broad-based layoffs as cost-control methods.As they monitor how productivity, training, and efficiency benefits might offset increasing labor expenses and keep an employee base engaged when rehiring is possible, boards will need to keep an eye on the long-term talent agenda.Capital costs. The rapid and coordinated tightening of monetary policy around the world has resulted in an increase in borrowing costs, a decline in equity values, and major changes in foreign currency rates. The focus on optionality to meet strategic goals is increasing due to the rising cost of debt, and the wide variations in equity valuations have widened the gap between the perceptions of buyers and sellers of the true value of an asset. In order to address this, boards can collaborate with management to explore business capital strategy plans.Supply chain. The switch some firms made from just-in-time to “just-in-case” inventory management during the pandemic may likely be unsustainable, and some organizations may experience new challenges as demand slows down and inventory builds up.As businesses explore reshoring options, geopolitical developments are also quickly altering the business environment and redefining supply chain risks and opportunities. In an increasingly fragmented environment, boards should monitor how management can strike a balance between supply chain risk and redundancy.Energy switch. The impact of the war in Ukraine on energy security and supply, coupled with other climatic repercussions, is disrupting economic activity in real time and making the energy transition urgent. While inflationary pressures might postpone some plans, boards can also collaborate with management to determine whether this is a chance to accelerate that transition.CAPITAL STRATEGY AND TECH INVESTMENTMany businesses are committed to modernizing their operations, despite rising interest rates, in order to stay ahead of disruption. Additionally, they continue to maintain their investment plans in an effort to increase value, resilience, and long-term options. Nearly three-fourths of worldwide executives (72%) surveyed for the EY 2022 Digital Investment Index stated they must significantly transform their operations to remain competitive by investing in technology and digital capabilities.Many businesses are looking to build long-term value through cost-of-capital optimization, reduced operational disruption, creating stronger connections with customers and employees regarding the environmental, social, and governance (ESG) agenda, and putting environmental and social sustainability at the core of the business. Organizations are also interested in investing in early-stage companies to expand their current portfolio, obtain fresh talent, or build new business platforms.Mergers and acquisitions (M&A) continue to be a crucial alternative to improve capabilities in technology, talent, and innovation as well as sustainability plans. Divestment may also be a key strategy to free up capital to reinvest in core capabilities and growth areas.It will be crucial to maintain flexibility in order to achieve strategic objectives, especially with the rising cost of debt. Boards can play a significant role in addressing the assumptions that underlie management decisions and disputing possible options that management has explored. They can facilitate discussions that aid in strategy clarification and provide a clear view of the markets and underlying growth factors, such as demand, competitive advantage, alignment to company vision, and potential for long-term value.Finally, boards have the chance to direct management’s investor engagement strategy as a crucial component of long-term value creation initiatives in the current downturn. They will need to determine if their efforts to proactively communicate with shareholders are sufficient and ensure that potential innovation and growth opportunities are considered.The second part of this article will discuss the other three priorities, specifically on how boards can enable innovative technology transformation, champion a future-focused talent agenda, and establish cybersecurity as both an enterprise risk and strategic opportunity. This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views reflected in this article are the views of the author and do not necessarily reflect the views of SGV, the global EY organization or its member firms.Maria Vivian C. Ruiz is the vice chair and deputy managing partner of SGV & Co.