July 2022

SGV thought leadership on pressing issues faced by chief executives in today’s economic landscape. Articles are published every Monday in the Economy section of the BusinessWorld newspaper.
25 July 2022 Rossana A. Fajardo

Transforming with humans at center (Second Part)

Second of two partsWhile transformation has always been integral to the long-term success of a business, both the nature and rate of transformation have changed in the past few years. Companies have to transform more regularly to keep up due to market disruptions increasing in frequency and impact, further highlighting the need to transform successfully and consistently.A 2021 research collaboration between EY and the Saïd Business School of the University of Oxford determined that to push organizational change, leaders must use a strategy that emphasizes human factors and take into account both leaders and workers. As much as 67% of the respondents claimed that they had gone through at least one underwhelming transformation during that period, leading to the startling insight that organizations accept this failure rate as the price of transformation.The path to transformation is neither straightforward nor linear, with detours and turns along the way. Leaders must be able to learn as they go, develop a strong belief in the transformation, cultivate a culture of both discipline and experimentation, and welcome emotions instead of ignoring them. Research findings from the study highlight that emotions are at the core of the complex factors that determine if transformation succeeds, regardless of location or industry. The study identified six key drivers that leaders have to instill in their practices to increase the likelihood of success in their transformation projects.In the previous article, we discussed the first three key drivers: adapting and nurturing the necessary leadership skills, creating a vision that everyone can believe in, and building a culture that encourages and embraces all opinions. In this second part, we discuss setting clear responsibilities and preparing for change, using technology to quickly drive visible action, and finding the best ways to connect and collaborate.EMPOWER: SET CLEAR RESPONSIBILITIES AND PREPARE FOR CHANGETransformations are typically viewed as linear processes, but findings from the study prove this is not the case. There will be all manner of twists and turns and stops and starts. Offering structure, discipline, and the creative flexibility to experiment and innovate will be key to managing transformation.Autonomy to execute must be established for the organization to transform effectively. In high-performing transitions, 52% of respondents indicated that roles and duties were clearly assigned to staff, and 49% said that decision-making authority was delegated in a clear and appropriate manner throughout the business compared to the 29% in low-performing transformations.By adopting a “fail fast” mentality as opposed to a “don’t fail” attitude, leaders can encourage experimentation and innovation. While a fear of failure frequently results in squandered opportunities, huge successes can be gained from small failures. The approach set up by 46% of respondents from high-performing transformations fosters creative experimentation, but they also simultaneously ensure that failed experiments do not have a detrimental impact on compensation or career.Key driver: In order to seize and take advantage of possibilities that can be overlooked by a mindset that is unwilling to fail, leaders must encourage experimentation and help their people develop a mindset of failing quickly instead.BUILD: USE TECHNOLOGY TO QUICKLY DRIVE VISIBLE ACTIONTechnology does not create the vision; it enables it. For the vision to be realized and the transformation process to be facilitated, the appropriate technology is essential. According to executives, effective technology usage is the second most critical factor in success, and poor technology use is the second highest factor in failure.It’s also critical to recognize how emotionally charged the introduction of new technologies may be. There are some that are afraid of what technology is capable of, or the impact it can make. Employees in unsuccessful transformations are 25% more likely to concur that the change causes job security concerns. Others might also view it as a way to avoid interpersonal connections, which are crucial for the emotional health of employees as well as the operations of the company.To get customers and employees on board with the vision and the value of new technology-enabled techniques, it’s critical to demonstrate their value early on and to attract early adopters and influencers. Leaders must prioritize progress over perfection and recognize how technology can affect the emotions within an organization.Key driver: With appropriate learning and emotional support, employees are more likely to develop a digital mentality and embrace the vision and value that technology can provide.COLLABORATE: FIND THE BEST WAYS TO CONNECT AND CO-CREATEThe perpetual state of transformation now makes interdependency and collaboration a critical need. This is opposed to legacy cultures that adopted a command-and-control, top-down hierarchical approach, with leaders setting the vision and employees simply carrying it out.Leaders will have to create a culture that encourages collaboration and creativity. They must create a safe environment where new ways of agile and digital working can flourish in order to promote creativity, engagement, and meaningful work. In high-performing transformations, 44% of respondents reported that their organization’s culture fostered new methods of working, as opposed to 28% in low-performing transformations. It is therefore important to enable employees to redesign and redefine their own jobs, both in terms of what tasks and behaviors need to change and how work is accomplished. Leaders can co-create new methods of working and purposefully build interdependence across teams to handle both the emotional and logical aspects of change.Key driver: Leaders and employees must work together to rebalance delegation, ownership, and empowerment in order for new ways of working to be successful.UTILIZE THE STRENGTH OF YOUR PEOPLE TO ACCELERATE TRANSFORMATION SUCCESSLeaders are aware of the need for their organizations to transform but acknowledge that change is difficult, with many intimidated by the idea. Simply standing still is not an option in a time of constant disruption. Leaders can put their business on the path to successful transformation by utilizing the power of their people and implementing leading practices in each of the six drivers.It is imperative to recognize that success does not come from excelling in just one of these drivers, but in all six of them. Simply put, while strategy, vision and technology set the framework for transformation, it is still humans that have to remain at the center of the journey. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

Read More
18 July 2022 Rossana A. Fajardo

Transforming with humans at center (First Part)

First of two partsTransformation has always been integral to the long-term success of a business. But for many years, the process by which businesses overhauled their operations to boost productivity and promote sustainable growth was sporadic. In many instances, changes in stakeholder expectations or market sentiment would prompt leaders to rethink their organizations from the ground up or make small changes to adapt.However, both the nature and rate of transformation have changed in the past few years. In the EY 2021 Global Board Risk survey, as much as 82% of board members and CEOs stated that market disruptions have increased in frequency and severity. Companies have started to transform more regularly to keep up — amplifying the need to successfully transform and do so consistently.A research collaboration established in 2021 between EY and the Saïd Business School of the University of Oxford determined the need for a more effective and contemporary means to sustain organizational change. Specifically, it has to employ a strategy that takes into account the sentiments of both leaders and workers to focus on human factors, which are frequently cited as one of the main reasons why transformations fail. Moreover, the research posited that apart from the transformation failure rate being too high, organizations can no longer afford the human cost associated with it.HUMAN EMOTIONS AT THE HEART OF TRANSFORMATION SUCCESSLeaders usually invest early to create the circumstances for a successful transformation on both an emotional and a rational level. The research observed that, along the way, confidence in the process may ebb as tensions arise, but also noted that the support usually increases to match the pressure. Workers will feel positive by the end of the transformation with proper and timely support. The study has found that positive worker sentiment increased by 50% after successful transformations.The emotional state of both leaders and employees at the start of a successful transition is comparable, but there will be a point in the transformation when things start to go awry. This is where supportive intervention is needed as up to 66% of employees feel stressed with an underperforming transformation. The impact of a failed transformation can be severe, with up to 75% of the workforce experiencing negative feelings and an extreme of 31% feeling angry, depressed or sad.This is particularly noteworthy in situations where a series of transformations is planned. While negative emotions in the workforce can rise by 25% during successful transformations, it rises dramatically to 130% during unsuccessful ones. Going into the next transformation with this negativity can be devastating for any new transformation efforts. This makes it even more important for organizations to revisit their transformation plans and keep humans at the center in order to better turn transformation failure into success.Research findings from the study identified six key drivers that can help increase the likelihood of transformation success. In the first part of this article, we discuss the first three: adapting and nurturing the necessary leadership skills, creating a vision that everyone can believe in, and building a culture that encourages and embraces all opinions.LEAD: ADAPT AND NURTURE THE NECESSARY LEADERSHIP SKILLSRegardless of whether a transformation was successful or not, employees in the study ranked leadership as the most important factor. Interestingly, while leaders considered leadership as the primary factor in successful transformations, they also saw it as irrelevant when the transformation failed. Given the importance of personal emotional development, leaders must be aware of their own mental and physical limitations. Moreover, they must be absolutely open and honest about their worries, fears, and self-doubt regarding the transformation journey, as well as admit what they don’t know and still need to learn.Leaders need to have the courage to admit they may not have all the solutions and be willing to demonstrate the humility to search both inside and outside the company for such solutions. For instance, compared to respondents in low-performing transformations, respondents in high-performing transformations were more likely to say that leaders embraced ideas from more junior staff.To demonstrate that the entire team is participating in the transformation together, leaders must take responsibility for both the good and the bad. By promoting collaboration, achieving consensus, and establishing consistent two-way communication with those driving the execution, leaders can highlight that everyone contributes. Successful transformation executives have reportedly spoken with employees directly to ascertain their concerns. Others made investments in technological platforms that enabled two-way communication and united diverse viewpoints.Key driver: Leaders must invest in their own transformation and place a strong emphasis on teamwork and communication.INSPIRE: CREATE A VISION EVERYONE CAN BELIEVE INVision establishes the transformation tone and foundational framework. In order to find a compelling vision, leaders must look outside of themselves, their company, and their sector. They should cast a wide net to find inspiration and employ future-back planning to locate exciting new opportunities, creating a compelling vision that can inspire everyone. Compared to 26% of respondents in a low-performing transformation, 47% of those in a high-performing transformation thought the vision was compelling and clear.As much as 71% of employees think that this can increase the success of a transformation, making it imperative for leaders to effectively convey why change is necessary rather than merely state what they must do if they want the vision to become a reality. Instead of just encouraging their people to understand the vision, leaders must nurture genuine belief in it.Compared to 25% of respondents in low-performing transformations, 50% of respondents in high-performing transformations said that leadership made it obvious why the organization needed to change.Key driver: Leaders must manifest a vision that everyone can support, motivating employees to go above and beyond.CARE: BUILD A CULTURE THAT ENCOURAGES AND EMBRACES ALL OPINIONSEmotions are the key to a successful transition, but if the business is unprepared, it can doom the transformation to failure. In the study, 50% of the employees who went through a successful transformation felt that transformation was merely another word for layoffs. Workers involved in poorly executed transformations reported feeling ignored, unsupported, and stressed both during and after the transition. Leaders admitted in follow-up meetings that they were shocked by these results and were not aware of the severe toll that a poorly executed change had taken on their workforce.In addition to giving enough emotional support to minimize anxiety and burnout, leaders must be able to manage emotions to keep employees motivated and engaged. According to the prediction model used in the study, extending emotional support increased the average likelihood of transformation success by 17%.Understanding the emotional condition of the workforce during the transformation process will help leaders spot early warning signs and make the necessary modifications to set the transformation back on track.Key driver: Leaders will have to pay close attention to what their people are saying, identify the cause of their anxiety, and try to solve problems in a way that is both productive and emotionally supportive.In the second part of this article, we will discuss the next three key drivers: setting clear responsibilities and preparing for change, using technology to quickly drive visible action, and finding the best ways to connect and collaborate. 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.Rossana A. Fajardo is the EY ASEAN business consulting leader and the consulting service line leader of SGV & Co.

Read More
11 July 2022 Kristopher S. Catalan and Jules E. Riego

Tradition and transformation in single family offices (Second Part)

Second of two partsIn the first part of this article, we discussed how single family offices (SFOs) have concerns about managing reporting responsibilities and compliance in response to the evolving regulations and seizing the opportunities arising from harnessing new technologies to enable data-driven decision-making. This is based on the survey recently conducted by EY teams to gather and share deeper insights into their priorities in times of accelerating economic, social, and geopolitical disruption.It was striking how, regardless of where these surveyed SFOs are and the different functions they undertake, there were several common focus areas identified — wealth and regulation, digital transformation, risk and regulation, and strategy and governance.In this second part, we will discuss risk and reputation, and strategy and governance.RISK AND REPUTATIONRisk management has long been a strategic focus for most SFOs, but many are seeing the need to revisit scope, methods and leading practices. In particular, SFOs raised the need for more sophisticated and rigorous models for managing an expanding scope of risk and reputation considerations. A failure to address this need can leave families and family office leaders exposed to unexpected situations.While many SFOs recognize risk management as a key function that must be fulfilled, the survey suggests that some SFOs feel their own risk management frameworks could be strengthened. Only 49% of surveyed SFOs shared confidence that they have a structured process in place to identify risks, while 31% say that risk management decisions are not taken at the highest levels of their organization. This lack of formal, institutional-grade risk management can leave SFOs in a reactive posture, resulting in them spending valuable time putting out fires or dealing with gaps in expectations. Moreover, it can result in reputational risks given the prominence of families.Robust risk management can deliver broader benefits to the organization, reinforcing trust and confidence not just within the organization, but with the stakeholders as well. Families must review their governance frameworks to determine gaps and potential opportunities, but they must also have a commonly agreed ownership strategy. Families will need to determine high-level risks and use them to frame a properly designed risk program based on their own risk appetite. However, not all families will rank top areas of focus — such as family reputation, investments, cyber and data security and integrity — equally or even view them in the same way.After refreshing the SFO’s risk management strategy and program, benefits will only materialize once an enhanced risk management model is implemented and operating as intended. In order to ensure that these benefits are sustained, SFOs will need to establish an evergreen program for the continuous testing and refinement of their risk management processes. Adopting a comprehensive approach tailored to their own unique risk appetite, strengths and resources will provide SFOs with more certainty and resilience.Rapid changes in doing business today are disruptions that cause the imbalance of priorities, often becoming a forgone conclusion of misplaced resources as plans are no longer responsive to the current challenges.Family offices should look at these changes as opportunities to thrive in rather than difficulties to falter from. Establishing a well-organized risk management plan structure would make sense to protect the family name and reputation for years to come. The study shows that as many as 90% of SFOs are considering or are already co-sourcing functions related to risk management, collaborating with external partners to support their risk agenda.STRATEGY AND GOVERNANCEIn an environment where emerging technologies and changing regulations create disruption, a validated strategic plan and governance systems that are periodically refreshed are more valuable than ever for SFOs. While most SFOs indicated some form of strategic planning and governance construct in place, too many share that these systems are relatively informal. This can often leave gaps in expectations, escalation or execution.The study showed that SFOs and prominent families themselves are being intentional in designing and operating more sophisticated and strategic governance constructs. Dual Governance, which distinguishes and aligns the business and family governance and contemplates the strategic and often essential role of the family office, is facilitating clarity, execution, and stakeholder alignment.One of the dynamics driving new risk and reputation frameworks is expanding the definition of value and risk to include new environmental, social and governance (ESG) considerations. This was identified as an area for increased focus and action, especially as it relates to evolving multigenerational family priorities and legacy amidst more prominent ESG trends.Human capital, societal and community value as well as customer and stakeholder impact are now part of a growing appetite to define value and purpose beyond traditional performance metrics. At the same time, many families are innovating to formally incorporate growing consumer expectations into their strategic planning and governance constructs.Leading SFOs are taking action in different ways, with 44% of survey respondents planning to exclude investments that do not align with the ethics and values of the family, whether these are ESG-related or reflect other values the family holds. However, the survey also exposes a potential gap in execution — while as much as 85% of SFOs indicate the importance of measuring and optimizing non-financial performance, only 30% do so to a significant extent. Across all regions of the world, the most widely deployed metric in measuring performance for the SFO is cost instead of value.It should be noted that there is a proven and tangible benefit to innovating performance to include new measures, with 58% of SFOs sharing that including non-financial metrics to a significant extent led to performance that exceeded expectations. As the aspirations and goals of the family expand, it will be critical for SFOs to take the lead in designing and deploying next generation performance criteria that encompasses the broader mandate as it relates to ESG.PROTECTING THE FAMILY LEGACY ACROSS GENERATIONSThe four key themes discussed show the new pressures that SFOs must navigate related to their wealth. They will have to consider accelerating tax, regulatory and economic policies and disruptions as jurisdictions around the world attempt to address a wide range of societal and geopolitical challenges. This provides exciting opportunities to make use of emerging technologies and data to deliver insights like never before.As they traverse the pace of change in technology, regulation, risk and governance, SFOs will need agility as they balance their obligations with the need to maintain strategic focus in support of their family stakeholders. In keeping up with the times, SFOs need to align their objectives to enable them to create long-term value and not just short-term returns while managing the risks that will threaten the continuity of the family legacy. 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 authors and do not necessarily represent the views of SGV & Co.Kristopher S. Catalan is the Philippines EY private leader and Jules E. Riego is the Philippines and ASEAN Business Tax Services (BTS) leader of SGV & Co.

Read More
04 July 2022 Kristopher S. Catalan and Jules E. Riego

Tradition and transformation in single family offices (First Part)

First of two partsFamily-run businesses require structures that are necessary to ensure a smooth transition. In the Philippines, the wealth of ultra-high net worth families is often managed by holding companies or a trust, and not by a family office.So, what is a family office and why is it important for ultra-high net worth families? A family office provides services specifically to meet the needs of high net-worth families. It is basically private wealth management for family assets and so much more. Apart from being a financial advisor, single family offices (SFOs) are usually involved in activities in furtherance of the family’s philanthropical objectives, succession planning, family governance, tax reporting and other compliance matters. It is often used as a structure to manage family wealth in developed countries such as Singapore.In today’s high-pressure and fast-changing environment, the strategic role of the SFO continues to evolve, amplify and expand. EY teams recently engaged with more than 250 SFOs around the world with the goal of gathering and sharing deeper insights into their priorities in times of accelerating economic, social, and geopolitical disruption.The EY SFO study was commissioned to determine how SFOs perceive their capabilities, how they can learn from best practices, and where they can see growth opportunities or market challenges.The EY study aims to help SFOs innovate around purpose, priorities and legacy, creating and protecting long-term value while also optimizing family office strategy and operations. The key findings from the SFO study are based on focus areas shared by the respondents regardless of their location and function. They reflect the insights shared by the respondents to the survey as well as the actions that leading SFOs are taking to respond to the rapidly changing business environment to deliver long-term value and support to family office stakeholders.The key findings of the survey are set out across four focus areas: (a) wealth and regulation; (b) digital transformation; (c) risk and reputation; and (d) strategy and governance. In the first part of this article, we cover wealth and regulation, and digital transformation.WEALTH AND REGULATIONPolicy changes have always had far-reaching implications to the strategy, structure and operations of SFOs. Changes in the wealth and regulatory landscape are impacting every aspect of family office planning, strategy, and execution with the pace of developments requiring the need for agility. Recently, external forces brought about by the pandemic, geopolitical uncertainties, economic trends and social considerations have further intensified a keen focus on family wealth profiles.As an example, an increasing number of global jurisdictions are using tax policy and transparency initiatives as a platform to address broader economic and social policy issues. Moreover, many jurisdictions are reviewing how their tax policies and enforcement will evolve to secure higher revenue while remaining fair and competitive.SFOs also shared concerns about how new virtual ways of working will raise new tax considerations for family members, family office employees and their broader business ecosystem. Family office principals and beneficiaries often lead an international lifestyle, so when that is combined with the new normal of virtual work, it comes as no surprise that as much as 72% of the respondents in the SFO survey cited the tax consequences of remote working as a concern.One survey respondent shared how companies now need to be more transparent about their taxes to both tax authorities and shareholders, and how family offices and family businesses worry about long-term sustainability. If SFOs want to be sustainable for the next 50 to 100 years, they should consider avoiding any entanglement with cross-border tax issues.In addition, SFOs have to manage a delicate interplay between increasing demands for transparency and obligations for additional reporting and the ongoing desire to maintain family and personal privacy. This is reflected in the study, where 67% of the survey respondents shared significant concern about three or more regulatory issues.Their worries are not very different from corporate entities, especially in the Philippines. As much as 64% also shared that they were not very confident that their tax operations are high performing, which indicates that more work must be done to remain compliant.With the many external forces at play as well as the likely inevitable regulatory policy changes for prominent families, most SFOs will benefit from a careful review of how best to adapt to the shifting landscape. Fresh perspectives are needed now more than ever to satisfy critical obligations while sustaining strategic focus in support of family, business and regulatory stakeholders.SFOs that can engage and proactively adapt are better positioned to meet these obligations.However, getting hold of the required technology and skills in-house can prove difficult given the rapid pace and sophistication of changes in technology. This is why many SFOs are instead considering co-sourcing family office operations that involve the fastest changing technology and operating model or the most unique skillsets.Emerging areas of focus also include tax, accounting, risk management and technology. SFOs need to adapt easily with the changing times, and they need tools in order to do so.Disruptive technology is here to stay, and the technological landscape provides significant opportunities as well as challenges for SFOs as they prioritize technology and digital transformation trends more and more. Responses to the survey share a clear urgency for digital transformation across a broad spectrum, with 81% of respondents indicating plans to make significant investments in three or more digital tools and technologies in the next two years.Whether it is regarding cybersecurity or using intelligent automation to improve efficiency and manage risk, SFOs are showing a clear drive towards employing a “digital first” mindset in the entire ecosystem — including connected businesses and the families involved.As much as 74% of the respondents indicated experience in some form of data or cybersecurity breach. This is not surprising, as SFOs share concerns about a wide range of associated risks such as theft, loss of privacy, stolen identities, reputational threats, and even physical risks to family security.However, the survey also shows that a diligent approach to cybersecurity does not seem to be the norm despite acute concerns. Most SFOs do not have robust practices in place to respond to cyber issues, with as many as 72% of respondents lacking a cyber incident response plan and less than a third with actual cyber training for their employees or family members.With the increased use of remote working and collaboration amidst evolving technology requirements, there is a greater risk from a data security perspective. Leading families cannot simply acknowledge these inevitable changes — they must seize the opportunities arising from harnessing new technologies while becoming more sophisticated in managing related risks. Data-driven decision-making makes sense now more than ever given the insights that we can draw from it.SFOs need reliable and ‘fresh’ data in order for such information to be useful in coming up with critical decisions. Before creating or choosing technology solutions, however, SFOs must first define evolving family stakeholder needs, strategic priorities, multi and generational expectations, and the core business functions of the SFO. These will determine the nature of the technology required, whether it would be a product off the shelf or an ecosystem of integrated solutions.SFOs are also considering how to leverage external service providers in new ways by having them operate or support specific functions given the need for specialized resources. Some SFOs take a proactive route and formally engage the next generation of family leaders in designing and defining the necessary technology solutions for the future. By taking the lead, next generations can use their level of comfort with digital trends to spur innovation and align with objectives and expectations for tomorrow. 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 authors and do not necessarily represent the views of SGV & Co.Kristopher S. Catalan is the Philippines EY private leader and Jules E. Riego is the Philippines and ASEAN Business Tax Services (BTS) leader of SGV & Co. 

Read More
Leading the way in business

Other SGV News and Publications