LESSONS FROM COVID-19How governance leaders have reacted to the crisis and what this will mean for their functions moving forward.

Jonny Warner, Asia Pacific Corporate Officers Practice

INTRODUCTION

LESSONS FROM COVID-19

As Asia begins to return to some semblance of normal following months of uncertainty caused by the global Coronavirus pandemic, we take a look at how key governance functions have responded to the situation, its effect on day to day business and how it has impacted the wider hiring and talent management strategy.

The big question however, is what does ‘normal’ look like, how will governance functions and wider institutions as a whole adapt moving forward and perhaps most importantly, what lessons have been learnt as a result of COVID-19?

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“ Even as a Risk Manager this situation is unique. All risk types are being impacted and tested simultaneously…this is something that didn’t even happen during the Global Financial Crisis.

APAC Chief Risk Officer

INITIAL IMPACT & RESPONSE

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MOVING FORWARD

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HIRING & TALENT

MANAGEMENTp. 5

KEY THEMES IN THIS PAPER

REGIONAL COVID-19 INFECTIONS AS OF 13TH MAY 2020

Guardian Graphic. Sources: Johns Hopkins CSSE, WHO, CDC, NHC and Dingxiangyuan1

1 https://www.theguardian.com/world/2020/may/13/coronavirus-world-map-which-countries-have-the-most-cases-and-deaths

INITIAL IMPACT & RESPONSE

LESSONS FROM COVID-19

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Whilst the initial response to the Coronavirus pandemic differed across institutions and the governance functions therein, the general consensus from leaders and senior management looking back is that changes and developments were managed well, or at least as well as could be expected in such an unprecedented and evolving environment. As one Asia Pacific Chief Compliance Officer notes, “The compliance function has risen to the occasion fantastically. We have been flexible, pragmatic and sensible”.

With immediate business continuity and resilience plans driving a shift to home working, split-site working or a combination of the two, immediate pressure was placed upon technology capabilities and, barring a small number of exceptions, most leaders have indicated that this has performed well under stress. One American investment bank was at peak, operating with 90% of staff across the region working from home simultaneously and noted minimal disruption.

There were of course some teething problems in the early days of the transition, particularly from a compliance perspective with senior management having to understand how key regulatory requirements can be met via home working such as recorded lines, providing increased computing power to some individuals in monitoring and surveillance roles, and more broadly addressing potential latency issues.

Flexible working has, however created new challenges for governance leaders, particularly in interlinking areas of Compliance and Operational Risk as the ability to proactively monitor and supervise vanished almost overnight. Although some leaders indicated that they adopted a relatively flexible approach in the early days (whilst adapting to the situation and client demands), an underlying challenge of balancing potential micromanagement and a more laissez-faire approach has emerged in some areas as managers determine how best to monitor and support their staff from afar.

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LESSONS FROM COVID-19

That is not to say the managers themselves have not been hindered. Indeed, one Head of Compliance remarked that where he would traditionally just leave his door open to indicate he is available for any queries, he now must formally schedule catch ups for queries that would have historically been resolved on the spot, thus tangibly increasing the amount of time he has to take out of his day for potential issue resolution.

One positive impact from the ongoing situation has been a marked increase of pragmatism from some regulators, especially the MAS and the Taiwan FSC as they too adapt to the new normal. This has been particularly prevalent when addressing the issue of staff stuck in home countries as a result of travel and subsequent quarantine restrictions. In such cases, we have seen regulators relaxing their restrictions on cross-border working and permitting such individuals to continue to operate on foreign licenses whilst remaining in their home countries.

With such heightened levels of volatility across the markets, Market Risk functions unsurprisingly underwent the most immediate test. However for those with robust functions and processes, they have been able to weather the storm with strong revenues reported, especially from the US banks, as firms benefit from a return to more volatile markets for the first time in a while. That is not to say Credit Risk has been unimpacted and for those banks with large credit books, the longer-term impact will be significant as multiple industries and sectors (notably airlines, hospitality and leisure) suffer from the wider economic downturn. We are already seeing increased activity in the workout and restructuring space and this will continue throughout the year as historically over leveraged exposures deteriorate. Owing to the aforementioned market volatility, it has also been necessary for some institutions to reduce their lending activity and shore up their capital buffer to mitigate these price moves.

LESSONS FROM COVID-19

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HIRING AND TALENT MANAGEMENT If the firm by firm approaches to the new way of working showed a certain level of consistency, the response to how best to manage hiring needs and processes has been notably less harmonious, with some leaders suggesting they have received messy and unclear messages from their senior management. Some banks went as far as publicly announcing they will be making no cuts to their workforce, whilst others are continuing to reduce headcount as part of pre-existing cost cutting measures. For those institutions who have been less vocal in the public domain, the internal message has been to minimise any potential noise and adopt a ‘wait and see’ approach. Overall, governance related hires are often critical hires and as such there has been continued, albeit muted hiring activity.

One significant shift we can expect to see as a result of COVID-19, is a fundamental review of location strategy and what this will mean for the talent attraction. With the overall success of flexible and digital working, it will be hard to justify the need for all roles to be based in core hub locations. There will certainly be roles that cannot be done (at least in the most part) remotely, but as one APAC Head of Market Risk suggests; “barring some exceptions, the roles can go to the talent. The talent will no longer need to always come to the roles”. There are still extensive conversations to be had

around this challenging topic, but expect industry-wide uptake if it allows firms to attract previously untapped talent whilst simultaneously reducing the need for hugely expensive real estate in locations such as Central Hong Kong or the Marina Bay Financial Centre.

Video conference and conference call interviews are by no means a new trend, however given they are now the cornerstone of any hiring process that has survived the pandemic, hiring managers and human resource functions alike are currently examining the role they will play moving forward.

LESSONS FROM COVID-19

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Feedback has been at best mixed and whether digital processes can be fully adopted seems unlikely with many hiring managers indicating that for the vast majority of roles – for some more junior and process oriented hiring it may be possible to conduct a full process virtually – they will not be comfortable hiring an individual whom they have not met face to face. This is particularly true for roles such as line of business compliance, 1st line of defence risk and front office/client facing governance roles more generally. So, whilst there is some consensus that ‘digital interviews’ will increase as a result of this, we do not expect fully digital processes to become the new standard.

One area that is of no less importance, although seems to be less highlighted publicly, is the issue of candidate onboarding. Even whereby processes have been able to complete, institutions are now faced with the arduous task of setting up, training and embedding new team members they have potentially not yet met and who they cannot communicate with and provide support to fluidly. Add to this the fundamental issues of establishing their infrastructure, and in some cases even getting work permits approved, onboarding has become an increasingly prominent issue.

“ Something that would take one week in the office is now taking closer to one month remotely.

APAC Head of Risk, Global Markets

LESSONS FROM COVID-19

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MOVING FORWARD

Exactly what ‘normal’ might look like is currently one of the key questions on the minds of leaders, and although there are a number of areas where consensus can be found, there is a general sense that it is still too early to draw any conclusion and to determine what activity will look like for the remainder of the year. Countries will of course begin to emerge from their respective lockdowns/restrictions at varying rates as appropriate, with a general view that things will return cautiously and slowly. Reasonably we can expect institutions to return to levels of 50-60% capacity and then take time to reassess to what extent, if any, they should further increase on-site resources. Although sentiment in Asia is for the most part cautiously optimistic, the global landscape will also continue to influence decision making. As one Regional Talent Acquisition lead notes; “Things won’t go back to the way things were before, at least not for a very long time. Just because one country is doing better, we are an international business and are vulnerable to every other country’s recovery.”

Linked to the above capacity considerations, is the wider topic of location strategy and remote working practices. With almost unanimously positive feedback recorded from leaders across the governance functions as to how well their teams have performed during this period, an increase in flexible working practices will naturally be embedded into the new ways of working. The traditionally popular ‘hot-desking’ approach to flexible working however is one area that will require real consideration and may become less prevalent as institutions endeavour to minimise potential cross contamination and ensure they are able to deliver consistent tracing.

“ As a leader this is a really interesting challenge. This situation makes you increasingly self-aware and you start to see things differently and with greater empathy.

APAC Head of Operations

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Beyond the potential health considerations, this also presents potential data privacy issues with regular hot-desking meaning any impacted names and details would need to be shared with a much wider audience than if adopting other practices.

As flexible and remote working becomes increasingly standardised, leaders and their teams will need to further adapt their processes to ensure that any potential cyber risk issues, compliance slippages and wider operational risk issues are appropriately mitigated and monitored.

International travel will be under significant scrutiny as a result of the pandemic, not just from a health perspective but also as a method of cost control. With only minor inconveniences observed from virtual interaction across borders, it will be hard for individuals to justify physical travel between locations, especially in functions such as risk and compliance where cost reduction has been a major focus for several years now.

Data is a topic that has been at the forefront of many leaders’ minds for a number of years now, with many inefficiencies brought further to light as a result of this pandemic. Some firms and functions have taken the opportunity to use this time to clean up their time series data and wider methodologies, however there are still significant gaps and process inefficiencies that need to be resolved. This situation has also added further weight to the existing demand to hire truly technology savvy risk managers.

“ This has really highlighted the issues of data. In ultra-stressed markets the methodologies fall apart.

Asia ex-Japan Chief Risk Officer

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Despite all the challenges and longer-term issues governance leaders have and will continue to face, one area of positivity is the learning opportunity this has afforded for a significant portion of junior and mid-level team members, many of whom have not worked in a similar situation, such as the GFC previously. One APAC Risk Head remarked that more than 50% of his team have never experienced anything like this before and are now finding even more meaning in their roles, learning new skills and honing what they already know.

Sheffield Haworth undertook a review of the Business Continuity and Resilience functions across Asia Pacific in 2019 and this historically overlooked or undervalued function has certainly gained greater prominence in all institutions even prior to this pandemic, particularly in Hong Kong where recent political activity has greatly impacted business as usual. Feedback in general on continuity and resilience procedures has been positive, however the sheer scale of the pandemic has highlighted a need to take an even longer-term approach to continuity planning. Many plans, especially support site strategies which, albeit effective, are designed as short-term remedies and are not suitable for adapting working practices on a mid to long term basis. As a result, some areas of Business Continuity and resilience plans will need to be rewritten off the back of this to ensure institutions are truly ready for potential future long-term shocks.

“ We are lucky as we have two locations in Hong Kong…we didn’t actually activate our BCP site as it wasn’t fit for purpose long term

APAC Chief Compliance Officer

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LESSONS FROM COVID-19

CONCLUSION

Jonny joined Sheffield Haworth in 2015 focussing primarily on Risk Management and Compliance & Regulatory Affairs, in addition to providing coverage across the wider Corporate Officers practice. He relocated to Hong Kong in 2017 to assume regional responsibility for the Corporate Officers function, leading executive searches across Asia Pacific and has delivered key governance talent to a wide range of institutions including Corporate & Investment Banks, Asset Managers, Sovereign Wealth Funds and Exchanges. Geographically, he has executed searches across Hong Kong, Singapore, Mainland China, India and Australia.

Prior to Sheffield Haworth, Jonny was responsible for leading all financial services recruitment at a boutique, start-up recruitment consultancy, where he successfully built and developed the team and product offering. Jonny graduated from Exeter University with a bachelor’s degree in Business Economics.

Sheffield Haworth is a leading global executive search, interim management and human capital research & advisory company with over 150 staff across 12 offices and 4 continents.

About the Author

W. www.sheffieldhaworth.com

Jonny WarnerAsia Pacific Corporate Officers Practice

E. warner@sheffieldhaworth.comT. +852 3008 0581

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Exactly how the situation will unfold over the next few months is almost impossible to predict, however barring any major setbacks in both regional and global virus control, we expect Asia to embark on a cautious and steady return to more traditional working practices. That said, firms will not revert to the exact ways of working as before the pandemic, with an increasing willingness to offer flexible working expected across the region in the short term and beyond.

Hiring activity across governance functions is expected remain muted for the remainder of the year as firms continue to take stock on whether functions and teams are over, under or appropriately staffed.

Changes to internal operating procedures as well as external regulatory requirements can certainly be expected, however again it will take time and ongoing dialogue between all parties to determine exactly what changes need to be made and how this is most effectively done, particularly with regards to any tightening or loosening of current regulations.