As a result, visibility into supply chain actions and outcomes has catapulted to the top of many corporate wish lists — but many business leaders become frustrated when their operations and technologies don’t deliver. Still, experts say, better visibility into corporate supply chains can be achieved, but only if companies are willing to think about their sustainable supply chain initiatives in a more innovative way.

According to a September EY report on sustainable supply chains, visibility has become one of the top priorities among supply chain leaders. Of the 525 large corporations surveyed, 58% said that increased end-to-end visibility in their supply chain was among their top two priorities in both the past two years and the upcoming two years. However, despite that desire, just 37% of supply chain leaders reported achieving supply chain visibility over the past two years, indicating a large gap between the desire for more visibility and the progress many organizations are practically achieving.

Rae-Anne Alves, ESG & Sustainability Supply Chain Leader at EY Americas and co-author of the report, said that visibility is the key first step to compliance. “When companies are thinking through their supply chain and trying to make it more sustainable, they need end-to-end visibility to know is what is happening,” Alves said. “Companies are lacking the transparency that they need from their suppliers through logistics, especially in areas outside of their four walls.  Achieving this transparency will give them the visibility they need across their supply chain.”

Recent research from the Thomson Reuters’ Market Research & Competitive Insights team mirrored these findings. In interviews conducted with senior leaders of US-based companies charged with tracking ESG efforts, large numbers of companies say they have established dedicated ESG efforts but collecting data and measuring those efforts remains disconnected and lacks consistency.

The issues in raising visibility

When it comes to trying to raise the visibility of supply chain practices and outcomes, many corporate leaders have run into an unfortunate reality: the difficulty of gathering and mingling data that lives in disparate systems. One public company ESG head explained that a common supply chain review pulls data from systems as broad as risk management and operations software, human resources software, and procurement and supplier-oriented software.

Combining all of these types of data into one truth remains difficult. “I don’t even know how they collect their data,” said the supply chain head of another public company. “Every vendor has their own process.”

This problem is only increasing as companies are beginning to scale up the types of data that they collect, EY’s Alves added. To take a firmer grasp on their supply chain, many companies are looking to catalog not only emissions from scope 1 (directly owned by the company) and scope 2 (indirect use of energy the company purchases), but increasingly scope 3 emissions that result both up and down the company’s value chain as well. Indeed, the more a company’s data collection scope expands, the more complex the visibility question becomes. Many supply chain-centric software providers have arisen in recent years to try and compile and display all of these data sources, however, currently, there is not a leader that has captured a substantial share of the market.

Some companies have been able to achieve more supply chain visibility, becoming sustainable supply chain “trailblazers” with an “extreme focus on transparency”

“It’s unclear yet whether there will be a provider that is able to deliver the end-to-end capability needed for a digitally network-connected supply chain,” explained Gaurav Malhotra, Partner and Americas Supply Chain Technology Leader at EY. “There are many factors that have to come together, versus just a singular platform from a control tower or visibility standpoint to enable the orchestration.”

Instead, many companies have tried to apply other technological fixes to the issue, often without much success. “Almost everything is run on Excel. It’s truly terrible,” a public company’s supply chain head told Thomson Reuters Institute. “We have very few tools for environmental stuff. Everything is reported through Excel, everything is measured in Excel, everything is rolled up in Excel and it’s extremely inefficient because we have all these different teams.”

Supplying more visibility

Still, some companies have been able to achieve more supply chain visibility. EY’s report designated certain companies as sustainable supply chain “trailblazers” and noted that one of the traits they have in common is an “extreme focus on transparency” through which “[t]hey can significantly or moderately peer into Tier 2 and 3 supply networks.”

EY’s Malhotra said these leaders often undertake two simultaneous shifts to aid this transparency. One involves automating individual supply chain functions so that they can run more efficiently and be consistently reliable. The second involves integrating those individual functions and making sure their output data is portable to enable the needed effective real-time communication, both internally and with external supply chain ecosystem partners.

Currently, he explained, most supply chain networks are “not digitally integrated in their true sense” because they operate in multiple stages. Data is processed by one organization that controls their section of the supply chain ecosystem, then it is transmitted to be able to be consumed or processed by other organizations. While Malhotra concedes that it takes “time and effort to ultimately get to a mostly autonomous state,” he believes combining, integrating, and automating these steps will be the future of supply chain management.

“What we have found is that some leading companies have moved towards an integrated process and singular platform that allows the right level of visibility, orchestration and actioning with their supply chain network partners,” Malhotra said. “Enabling trust, effective execution and accountability with the overall network in play, resulting in a highly efficient, highly integrated, differentiated and reliable supply chain.”

Leading companies are also pushing for data standardization among common supply chain suppliers, Alves added. Many sustainability frameworks are available, and increased regulatory attention continues to add more complexity. Increased standardization can make supply chain data more actionable, and auditable, potentially lowering a company’s risk profile. When asked about top supply chain priorities for the coming year, the ESG head of one public company was clear: “We want to make sure that we have auditable processes in place, that the data is sound.”

However, Alves added that for sustainable supply chain measurement and reporting businesses are “definitely not there yet.” As both public and regulatory attention in the space continue, expect that visualization into supply chain processes and data will become even more important, and leading organizations will continue to invest resources and personnel to get their supply chain data house in order.

Corporations’ contributions to the communities in which they serve is one of the biggest proactive drivers of a company decision to create and implement an ESG strategy. Indeed, one of the biggest, yet least visible, ways companies achieve this objective is through the payment of taxes to local communities in which they operate.

There are many tax related ESG credits and incentives to reward positive corporate behavior, as well as taxes to disincentivize negative ones. Corporate tax functions are critical to practices that best serve company objectives through the financial support of the communities they serve.

Surprising to many tax novices, there are many elements of an effective ESG policy that can factor into a company’s tax strategy. For the environment, these include water efficiency and curbing emissions; social goals include ensuring human rights, promoting diversity, equity & inclusion (DEI) policies; and governance includes strong business ethics and anti-corruption policies.

Encouraging changes in behavior by taxation and incentives is increasingly common in the environmental area, for example. Across the world, many countries are encouraging movement away from products and practices that cause environmental damage through tax incentives or disincentives. Such taxes can address carbon and other pollutants, plastics, landfill waste,water pollution, and certain chemicals. As a result, there has been a rapidly evolving landscape of new taxes involving carbon, waste, water, plastic packaging, and chemicals. Thus, as governments enhance their focus on measurable improvement in the environment, companies simultaneously are able to take advantage of many credits and incentives in the environmental area.

Under the social category, corporate transparency on how income taxes are paid on a country-by-country basis can demonstrate that corporations are not avoiding, evading, or artificially reducing taxes in any particular geography.

Further, obtaining tax credits and incentives for diversity and corporate giving are common social tax initiatives and can include:

• • • Hiring & retaining a diverse workforce — For example, the Work Opportunity Tax Credit allows tax breaks for employing targeted segments of the workforce such as those receiving government assistance and individuals who have been unemployed long-term or have a felony conviction. And Opportunity Zone credits incentivize moving a business to a government-designated area that qualifies for renewal efforts.
    • Charitable contributions — Tax deductions incentivize corporations to give back to the communities in which they operate by providing funds, community service hours, or donations-in-kind.

Shifts in the regulatory landscape across geographies also are important to determine a corporate tax function’s role in a company’s ESG strategy. Corporate income taxes are one of the most foundational components of the governance strategy, starting with the “tone at the top” and including a strong tax risk management policy.

“A robust tax risk management policy, in line with the board and C-suite’s overall governance strategy for an organization, guides how the tax piece of the organization operates by outlining how decisions are made,” explains Grant Thornton’s Little. When addressing governance strategies, such policies target core investments that an enterprise makes, such as deciding where to locate a facility and finding tax planning opportunities, “while still ensuring that the company is paying the right amount of tax globally,” she adds.

The “tone at the top,” according to Little, guides how tax decisions are made, particularly those that have ESG implications. For example, a company may choose to enter into a transfer pricing arrangement to shift profits from one jurisdiction to another, which is a decision that may be perfectly allowable within the transfer pricing guidelines for the two different jurisdictions. However, to align with governance goals, the tax risk management policy may help steer the company to determine its portion of the global tax base to both jurisdictions rather than minimizing the overall tax.

Typically, tax risk management policies are more detailed and robust in Europe because they are required for public companies across the European Union and in the United Kingdom. “Companies operating in those geographies generally have to post these policies on their website or make them publicly available,” Little says.

Involving tax at the beginning

A company’s ESG journey generally starts with a decision by a company executive to move forward in the ESG space. This declaration is typically followed by a benchmarking exercise to understand what industry peers are doing; a materiality assessment to determine which ESG issues matter most to the company’s stakeholders; and a determination of what data is available for reporting and how to measure progress.

During the ESG strategy formulation, there are important implications for tax. For example, the tax function can help to minimize taxes incurred along the supply chain and increase return on investment by identifying credits and incentives. This is especially important for companies with operations in the EU and UK because these geographies dictate a tax framework for disclosure in that ESG landscape.

The tax function then helps conduct scenario-planning around accounting methods, such as performing a cost segregation study to enhance or accelerate deductions from a tax perspective. To maximize the value of the deduction, depreciation methods can be changed to accelerate or defer a deduction.

Detailed tax decisions such as these that align with a company’s ESG strategy can have a sizable effect on a company’s ability to achieve its twin goals of generating profit and acting responsibly as a corporate citizen.

To get started, recent research shows that forward-looking tax department leaders have already started to uncover their total picture, developing a strategy to embed ESG principles into tax policies and practices, communicate tax impacts as part of regular disclosures, and put governance mechanisms in place to ensure tax decisions are sustainable moving forward.

Indeed, in a spot poll of roughly 30 in-house lawyers in the San Francisco Bay Area in September, all of them indicated that their companies and teams were either fully remote or hybrid.

Yet, despite the prevalence of remote or hybrid workplaces, the potential biases that can impact staff members who are working mostly remote or hybrid still remains. The types of biases include: i) implicit bias, which is a form of bias that occurs automatically and unintentionally and affects judgments, decisions, and behaviors; ii) proximity bias, which is the tendency to favor people who are closer in time and space; and iii) affinity bias, an unconscious bias that causes people to gravitate toward others who appear to be like them.

For those employees who are negatively impacted by these biases in a hybrid setting, management’s poor behavior can be experienced as microaggressions. This can be keenly felt during remote of hybrid meetings, especially if those running the meetings ignore remote attendees, don’t invite the more introverted or junior people to contribute, avoid eye contact, or allow extroverts to consistently dominate the conversation.

Management should also be careful not to ignore virtual meeting invites or consistently reschedule remote meetings because ignoring emails, video call invites, recurring meetings, and more — especially when done by key partners — is a form of bias that can prevent people from doing their jobs well in a remote-first world.

Forging partnerships with other corporate functions

Chief legal officers (CLOs) have an influential role to play in mitigating this bias not just within their team as a manager, but more importantly across their company through the creation of policies, norms and behaviors. Here are some of the ways CLOs are attacking bias at the company level:

• • Setting expectations that human resources (HR) need to work closely with the law department — This includes not only forging an organically strong relationship, but establishing a top-down expectation that HR should look to the company’s law department as a key input and decision-maker for company policies and approach. This should be a priority, given the important role of the department in mitigating biases company-wide, suggests Megan Niedermeyer, General Counsel & Corporate Secretary at Fivetran, who joined the software company during the pandemic as its first legal leader.
  • Focusing on policies and practices that can help reduce bias — These exercises include pay equity audits, which analyze median compensation for each level by department, location, function, and team to understand if those employees with underrepresented identities are receiving lower salaries. Niedermeyer says this was one of the first tasks she tackled with outside employment counsel when coming to Fivetran. In addition to pay equity audits, in-house counsel should be adequately involved in the performance review calibration process, reviewing both median timing to promotion and pay increases for each level by team. In this way, the law department can determine if bias is creeping in and can use this information for sensitive conversations if this is occurring, she says.
  • Leveraging technology to build a culture of feedback — Similarly, CLOs as the chief risk officers of their companies by default, can impact how a return-to-office policy is going, especially when some corporations have had a policy that they’ve had to review or roll back. Niedermeyer explains how she used a strong partnership with HR and a technology platform to increase employee feedback on how the return-to-office process was going, as well as allowing anonymous reporting of incidents to obtain better data on potential negative cultural hot spots. Indeed, workplace harassment in the digital realm, which can be as high as 40% of those who experience work-related harassment, is an unfortunate side effect of more remote working.

Modeling inclusion as an aspect of C-level culture

CLOs, through their conduct and leadership style, can be a model cultural promoter for demonstrating inclusion, which proactively can create a feeling of psychological safety and this, mitigate biases. Alexa Summer, CLO of Rho, suggests ways this could be accomplished, such as:

• • Tailoring management style — Summer customizes her engagement approach with each person she works with, including her peers, direct reports, members of the company’s law department. Specifically, Summer says she seeks to understand what the motivations, goals, and preferences for communication are by asking questions to create a give-and-take, flexible atmosphere that offers a joint approach to problem solving.
  • Repeating expectations of work performance — To increase and maintain trust and transparency, Summer says she often reinforces expectations of performance in hybrid work situations through one-on-one meetings with her direct reports. This ensures that she and her employees maintain a consistent understanding of work requirements and performance goals, especially in a dynamic remote working world where everything evolves quickly.

The management behaviors that advance a culture of trust, respect, and inclusion while mitigating bias in remote and hybrid work are pretty much the same as those that comprise a great leader. Most of the time, this just requires adapting these behaviors to a different paradigm — in this case, one of a remote-first mindset.

This has allowed courts, litigants, and others to recreate the environment of a face-to-face court proceeding, with the added benefit of efficiency for all and improved access to justice for citizens.

Key considerations for courts

Of course, there are several key considerations that courts need to address as they continue to pivot towards conducting proceedings remotely.

What does a fully remote or hybrid proceeding entail?

In a remote proceeding, the judge, attorneys, clients, witnesses, and other participants can appear from multiple locations. By contrast, a hybrid proceeding involves some participants — often a witness — appearing remotely, while others are present in the courtroom with the judge. In either of these proceeding types, participants must have access to the specific remote technology used by the court, which frequently involves Zoom videoconferencing. While videoconferencing typically serves as a primary method for conducting a remote proceeding, a telephone backup ensures that the proceeding can continue to take place even if technical difficulties arise.

Courts may utilize different features for the videoconferencing platform as well. For example, one of Zoom’s standard features involves a private breakout room, which allows attorneys and their clients to privately communicate with each other through the Zoom platform. However, Idaho state courts disabled Zoom’s private chat feature for participants and instead require them to communicate outside of Zoom, such as by telephone.

The judge and court staff remain in control over a remote proceeding and, for example, can employ the mute feature to silence any disruptive participants.

How do the courts determine which proceedings will occur remotely?

Concurrent with rolling back orders and directives governing the pandemic, several courts have established procedures, orders, and rules addressing the specific circumstances for remote and hybrid proceedings. These proceedings vary among state and federal courts and the type of court proceeding.

What are advantages to remote proceedings?

Remote proceedings help limit litigation costs, by eliminating attorneys’ travel time and any waiting time at the courthouse. Remote proceedings also allow a party to present testimony from witnesses who may not be able to attend in person. For example, a key witness may be unable to attend in person because of their location, financial condition, or health, yet the witness may be able to participate remotely.

Courts usually can handle many matters remotely with the same effectiveness as in-person proceedings, such as holding status conferences or motion hearings that may involve non-evidentiary or procedural matters. Remote proceedings also provide flexibility for courts in scheduling proceedings when an in-person proceeding is impossible, because of a lack of available courtrooms, for example. Remote proceedings also promote public access to the courts by allowing additional viewing through livestream or recordings.

What are disadvantages to remote proceedings?

Remote proceedings may not be an effective substitute for an in-person proceeding, however. Assessing the effectiveness and credibility of a testimony requires being able to observe a witness’s demeanor, which may be impossible, limited, or even appear unnatural when captured by camera in a remote setting. Likewise, presenting exhibits can involve unique problems in a remote proceedings, requiring an ability to use the “share screen” feature and multi-tasking between sharing or reviewing displayed exhibits. If a problem arises, the effectiveness of testimony exhibits may be lost, especially if participants are forced to use a dial-in number or hold exhibits up to the camera.

Remote proceedings also restrict the ability for counsel to confer with their clients in confidence. During a proceeding, counsel and their clients oftentimes communicate by whispering or passing notes. However, a remote proceeding requires having an ability to communicate through a breakout room, texting, or otherwise, but without the appearance of distraction or improper coaching.

Further, a remote proceeding requires that the participants have technical capacity and competency. This includes having a reliable internet connection, a compatible computer, familiarity with the videoconferencing platform, and a backup plan — such as a smartphone app or dial-in number — if connectivity issues arise.

What safeguards are necessary for remote proceedings?

As with in-person proceedings, remote proceedings must comply with applicable procedural requirements, including any constitutional and statutory rights, such as constitutional due process. Additional safeguards may be necessary so that participants can have an ability to meaningfully participate, including if a participant (especially a self-represented party) cannot use a videoconferencing platform.

As a result, courts may need to facilitate access to remote proceedings by providing instructions, verifying the ability of litigants to participate, having a backup if technology fails, or holding a proceeding in-person when all else fails. Indeed, many courts, such as the US District Court for the Western District of Texas, provide detailed guidance for using Zoom, while others, like the Massachusetts Trial Courts, provide Zoom Rooms to accommodate litigants.

You can find out more about remote court proceedings here.

Inflation, the continued war for talent, return-to-office strategy implementation, as well as the declining demand for corporate and mergers & acquisitions (M&A) legal services, led to a second consecutive quarter of profit decline. Reduction in profit margin also comes while billing rates continue to climb industry wide. While firms had enjoyed nearly two years of continued quarterly profit increases, the declining trend identified in the first half of 2022 serves as an ominous warning of future liquidity issues if margins continue to decline.

The Thomson Reuters Institute reported that, in the second quarter of 2022, overall average industry demand fell by 0.5% in comparison to the second quarter of 2021. Corporate demand fell by 0.7% and M&A fell by 4.9% over the same period, although it should be stated the 2021 figures correlate to a period of unmatched demand after firms and clients adjusted to the pandemic-related legal atmosphere.

While demand has receded through the first half of 2022, billing rates have increased approximately 5.8%. This may appear to be a sizable increase but is less than those in prior years of 5.9% in 2020 and 6.7% in 2021

The war for talent continues to drive compensation expense upwards, as it increased 12.4% in the second quarter, year over year, according to the Thomson Reuters Institute. Lawyer head counts increased 4.5% during the first half of 2022, which correlates to the increase in hiring made in 2021. Operating expenses also increased by 13.5% year over year, fueled mostly by increases in technology spending, rising costs due to inflation and costs related to returning a workforce to the office, as many legal professionals were still operating mostly in a work-from-home environment in the first half of 2021. It should also be noted that many of these operating expenses were initially implemented in the second half of 2021, and as a result, one expects to see a more gradual increase in operating expenses in the second half of 2022.

Revenue growth of 5% during the first half of 2022 is more in line with historical first-half figures, and 2021’s first-half growth of 14.6% is now seen as an outlier that’s tied to the industry’s resurgence after a period of pandemic-related dormancy. Another variable that appears to have curbed revenue growth in the first half of 2022 is a 4.2% lengthening of the collection cycle. Firms are servicing clients who are taking longer to pay their bills. Receivables continue to age, and the legal industry has seen an almost 10% increase in receivables outstanding since the beginning of 2022.

Inflation as a factor

US inflation roared to a four-decade high at the end of June, as the consumer price index rose approximately 9% from a year earlier. If inflation remains at current levels, law firm billing rates won’t be able to keep pace. While demand has receded through the first half of 2022, billing rates have increased approximately 5.8%. This may appear to be a sizable increase but is less than those in prior years of 5.9% in 2020 and 6.7% in 2021. Firm leaders may have wanted to implement additional fee raises midyear, but many opted against adjusting fees in light of decreasing legal demand industry wide. Also, billing rates have historically been about two points higher than inflation for the past decade.

Firms that opted against midyear billing increases may be facing quite the uphill climb as they attempt to make up for their eroded gross profit margins during the first half of 2022. It is not guaranteed that inflation will continue its current torrid pace; in fact, multiple projections suggest inflation will decrease in the next 12 months. Either way, the industry can expect to deal with inflation-related fallout for the immediate future.

As the industry enters the third quarter, market conditions remain challenging. However, rising accounts receivable balances at the end of the first half should aid in increased revenue if firms can efficiently prioritize collections prior to year-end. It is also expected that expense growth should diminish in the second half of 2022 as the lawyer head-count boom spurred on by the rush of post-pandemic-related demand finds its market-driven equilibrium.

While technology expenses have increased drastically in 2022 (approximately 10.5%), this is one area where firms should be hesitant to reduce costs. Such expenses should instead be viewed as infrastructure investments, as new technology allowed firms to pivot to the remote-work environment during the pandemic, while also driving firm efficiency improvements through cybersecurity and cloud computing, among other processes. Firms that properly invested in new technology can expect to see improved realization efficiencies through the continued implementation of data analytics. Such investments will also give firms the ability to reach a new client base and explore emerging practice areas through streamlined data intake and initial analysis.

As firms continue to compete for new business in an increasingly competitive marketplace, technology will be at the center of improving the client-driven experience by increasing the perceived value of the clients’ legal services. As more routine procedures are automated, professionals can spend more hands-on time with clients, working through more high-value processes.

For many firms, it is likely that 2022 profits will be lower than 2021. However, a reduction to the continued growth of expenses, and the potential for increased revenues if a concerted effort is made to increase collections on outstanding balances should result in the second half of 2022 being more profitable than the first half.

These are among the key findings of the newly published 2022 Report on the State of US Small Law Firms from the Thomson Reuters Institute.

Even as the overall economy has turned sour for many, smaller law firms have maintained a bullish outlook on their future prospects, and likely with good reason. Evidence across the legal marketplace indicates that corporate clients are looking for ways to push work down to lower-cost legal service providers, creating new opportunities for smaller law firms to capitalize on their pricing advantages.

At the same time, however, those small law firms that serve primarily individual clients continue to face pressure from alternative providers like do-it-yourself (DIY) legal sites. Yet, small law firms report that they are not facing an increasing degree of pressure from those competitors, with whom they have learned to cope over many years of market maneuvering.

This most recent edition of the Report on the State of US Small Law Firms once again explores the current state of the legal market through the eyes of leaders of small legal practices, offering several insightful glimpses into their thinking. While leaders of small law firm continue to characterize their practices as generally successful, for example, some cracks potentially may be emerging. Increasing costs pressures for some small law firms and a heavier administrative burden continue to place ever greater pressure on firm leaders. Moreover, broader economic challenges could put further pressures on this group of firms.

Still, for those small law firm leaders who take a mindful and strategic approach to the problems many of them foresee in the future, as well as those they admit they’re already dealing with, the current upheaval in the broader economy and the legal market specifically could provide fertile ground to turn difficulties into opportunities.

Among the report’s key findings:

• • • The outlook for small law firms is increasingly positive;
    • Small firms by-and-large consider themselves to be successful;
    • The competitive landscape is shifting, and this provides both new opportunities and rising threats; and
    • Small firms are demonstrating the ability and wherewithal to make changes and potentially take advantage of those opportunities.

The report also highlights the positive outcomes that can result from a determined focus on addressing a key challenge, offering the example of how small law firms dealt with one recent problem. In 2020, getting paid by clients was one of the top concerns among small law firms with nearly two-thirds (64%) of firms reporting it as a significant or moderate challenge. However, more than 40% of small firms reported that they have a plan to address the problem and they had already implemented changes to address the issue through such strategies as increasing retainers, improving payment collections, and accepting electronic payments such as ACH payments and debit or credit cards. Fast forward two years and the percentage of firms that view getting paid by clients as a significant or moderate challenge has fallen to 54%. And those firms that rated it as a significant challenge has been cut by more than half to just 9% compared to 19% in 2020.

Small law firms that follow this example as they look to address the challenges reported in this year’s edition of the Report on the State of US Small Law Firms are certainly not guaranteed a similar result, but the evidence suggests that they are far more likely to enjoy a positive outcome and capitalize on their bullish vision for the future.

You can download a copy of the “2022 Report on the State of US Small Law Firms” by completing the form below:

In addition, there is a ripple effect on all of these factors that could spur the downward spiral of all. For example, with no time available to invest in addressing technology and leadership gaps, corporate tax departments are making their lack of technology and leadership experience worse, which is causing a pronounced lack of commitment to succession planning to worsen as well. And while there is currently significant corporate investment in technology to increase the efficiency in workflow and output to better deal with the expanding multi-jurisdictional tax requirements, it is not enough.

Without proactive efforts by corporate tax managers to address the top three drivers of corporate tax employees’ decision to leave employers — feelings of under-appreciation, lack of career progression, and dissatisfaction with corporate culture, according to the report — problems will only get worse in the future. As the red warning light continues to flash on talent, corporate tax managers would be smart to take these actions to stem flight risk and address their tax teams biggest concerns.

Build a rewarding team micro-culture 

Creating a supportive and inclusive micro-culture at work is a critical step no matter if your team is currently working in the office, remotely, or hybrid mix of the two. Unhappiness with company culture is one of the top three reasons tax department employees cite as their motivation to seek another job. Yet, many corporate tax leaders and managers continue to view culture through a pre-pandemic lens that is attached to physical space and referred to as the articulated culture. However, lived culture — the daily occurrence of specific performance outcomes and implied behaviors that drive norms of what is rewarded, permissible, intentionally ignored, and penalized in a work environment — is much more important to many professionals. Moreover, a lived micro-culture exists in the hearts and minds of your team, and you, as the manager, have great influence over this micro-culture.

To build the best microculture for your team, it is critical to make monthly attempts to give the team more clarity on how their individual and collective roles fit into the overall organization’s strategy; and grant them autonomy by being open to work preferences in terms of when, where, and how they want to work within a sensible framework that makes sense for their life.

Find out each team member’s career goals

One of the simplest ways to lower the threat of attrition from valuable team members is to build connection, especially on a personal level with those who report to you. One way to do this is to ask the following questions monthly or at least quarterly:

• • • Do you know how you want to grow in this organization? Do you desire to lead it one day? Or would you prefer to remain a valuable individual contributor? And it is okay not to know yet.
    • If there is one way that you could grow your skill set this year in an ideal world, what would it be?
    • What can I do to better ensure you have a rewarding career here?

Say “thank you” often

Flight risk of those next in line for leadership (usually those between the ages of 41 and 50) is at 30%, while it averages 28% across all of corporate tax professionals, according to the report. Showing daily appreciation for the contributions of team members and for those who are consistently working hard to deliver for the company is the easiest way to reduce flight risk. Saying thank you doesn’t require extra time or resources — it simply requires intention and effort during your normal course of meetings and work.

To promote further engagement, ask one of the following questions consistently on a monthly basis in each of your one-on-one meetings with your team members:

• • • How are you really doing?
    • How is your workload?
    • How is the mix between being in the office and remote going?
    • What can I do today, next month, and next year to ensure you have a rewarding career here?

Ideally, keep track of when you ask each question during the first few months to ensure proper habit formation, better respond to employees’ feedback, and build a positive and appreciative micro-culture. Taking these actions won’t do much to address the fact that almost two-thirds (64%) of survey respondents said the biggest obstacle preventing them from achieving their professional development goals was “lack of time,” but it might reduce the chance that your flight risk indicator will be flashing red.

That in turn, may give you some breathing room to work on the medium-term challenges that your corporate tax team faces, while giving your most valuable team members a micro-culture that better shows their appreciation for the work they do.

The COVID-19 pandemic and resulting lockdowns and government closures changed the way we were allowed to communicate, limiting personal contact and requiring the use of all alternative means. Ultimately, this advanced our overall ability to communicate and interact remotely. More than 30 states suspended in-person court proceedings for weeks or months after the pandemic hit in March 2020. New Jersey, Connecticut, Delaware, New Mexico, and Alaska mandated their use; and states including New York, California, and Texas urged use of virtual proceedings while suspending conflicting court rules. The pandemic may have forced government’s hand, but many courts and related agencies rose to the challenge in understanding new ways to use technology to ensure that people’s rights were preserved and protected.

A failure to provide adequate protection of citizens’ rights leads to more than a clogged court. There are civil implications, such as allegations of civil rights violations and expensive court cases. For example, a lawsuit, brought by San Francisco’s public defender against the San Francisco Superior Court on behalf of nearly 400 remanded prisoners goes into details about how defendants’ constitutional rights to a speedy trial could be being violated by delays and backlogs due to an overburdened and technically-stagnant court system.

As pandemic restrictions are lifted, courts must balance the benefits of traditional means of adjudication against valuable opportunities to use more advanced means. Governments must evaluate the merits and protection of rights afforded in both the use of traditional communication and virtual appearances. The goal of the court is to preserve rights, and it has become obvious that a hybrid model (using virtual and in-person options) is the best way to make sure individuals have the most opportunities and options to exercise their rights.

Participation & access are key

One of the major hurdles to access to justice, of course, is participation in the process, which can include transportation issues, childcare, time off of work, and many other issues that some people can afford to take for granted. The use of the courts’ time to issue bench warrants, dismiss for want of prosecution, and entering default judgements only to have to appeal and re-address the same issues, is an inefficient use of the limited funds allocated to the judicial system. Texas Chief Justice Nathan L. Hecht clearly explained this as the “new normal”, saying: “We really are determined to take what we learned in the pandemic and build on it.”

In Arizona, judges and other state court officials reported increases in case participation rates in 2020, which they attributed to the move toward remote proceedings. For example, there was an 8% drop year-over-year in June 2020 in the rate of default, or automatic judgments indicating an increase in participation. In Arizona’s largest county, Maricopa, the failure-to-appear rate for eviction cases decreased from nearly 40% in 2019 to approximately 13% in February 2021.

It is a critical net step for the courts and access-to-justice advocates to evaluate each change that was made in an effort to get through the period of crisis and determine which changes are critical to maintaining a properly functioning court system. While this answer will inevitable be complex, it will ultimately make the justice system better and save time and money. In many states this process has already begun.

In June 2020, the state of New York created the Commission to Reimagine the Future of New York’s Courts, a group of judges, lawyers, academics, and technology experts that is studying how courts operated during the pandemic. In April 2021, the group issued technology recommendations to “improve the efficiency and quality of justice services during the ongoing health crisis and beyond.”

As the nation enters a period of post-pandemic recovery, all government agencies have an obligation to grab hold of the lessons and technological advancements that were brought on by the pandemic and subsequent crisis. Using these lessons to create a more just court system is one way to not waste that crisis and struggle it caused.

These recruitment and retention headaches risk triggering broader operational resilience concerns and require employers to adapt to changing work culture and expectations.

Asia skills shortage “particularly acute” post-pandemic

Consultancy firm PwC has described the skills shortage across Asia as “particularly acute” based on findings from a recent survey in which 18,000 employees based in the Asia-Pacific region participated. Similarly, findings from a report released by Poly Research in March found that 60% of organizations surveyed in the Asia-Pacific region believed that they faced the risk of losing staff and being unable to attract new talent, compared with 53% in Europe, the Middle East, and Africa (EMEA) and 53% in the Americas.

Skills shortages in the region have further brought into focus how recruitment and retention risks could impede the ability of businesses to expand. Data center operators in the Asia-Pacific region will face challenges in expanding capacity to meet demand over the next few years, due to skills shortages, according to research conducted by automation company ABB and Data Center Dynamics.

More than 40% of respondents said data center construction in the region has not been able to keep up with demand during the pandemic. The unavailability of specialist skills was named as a major contributing factor, along with access to specialist sub-contractors and trades.

“Quiet quitting” and “lying flat” receive attention

Following the Great Resignation during the latter part of the pandemic, labor and skills shortages have emerged. A survey of 52,000 workers in 44 countries conducted by PwC found that 20% of workers plan to quit their jobs before the end of this year, suggesting that talent retention will continue to be a concern for employers.

Many countries are also grappling with regional attitudes towards job dissatisfaction. Across Europe, Canada, and the United States, a phenomenon known as “quiet quitting”, in which employees intentionally do the bare minimum to complete their job duties, is prompting companies to look for mitigating options.

A survey of 15,000 workers conducted by U.S. workplace researcher Gallup in June found that more than half of the respondents described themselves as “not engaged” and could be considered quiet quitters. Further, 18% of respondents described themselves as “actively disengaged,” the highest percentage since 2013.

In fact, workers in Europe ranked at the bottom for workplace engagement, compared with their peers around the world. Gallup found that only 14% of workers in Europe said they were engaged at work, compared to 33% in the United States and Canada, 24% in Southeast Asia, and 17% in East Asia, Australia, and New Zealand.

In China, a budding movement of “lying flat” and rejecting high-pressure work culture in favor of a minimalist anti-consumption lifestyle has gained momentum over the past two years. Initially spawned from backlash against high-stress overtime work that is a hallmark of corporate culture at Chinese companies in the digital economy, lying flat has spread beyond the tech industry and could have longer-term impacts on economic growth in China.

Considerations

As today’s skills shortage poses recruitment and retention challenges that could result in wider business continuity risks for organizations, corporations must endeavor to understand how regional attitudes towards work are evolving in order to adapt and mitigate their risk exposure.

In western markets, discussion over quiet quitting is prompting some employers to review job responsibilities for employees, with a view toward expecting only what is formally outlined. This shift in expectations is likely to have a wider effect on corporate cultures, with businesses moving towards more transparent and prescriptive methods of performance evaluation.

In China, regulatory reform and pressure from authorities have prompted many technology companies to cut back on overtime and be more mindful of their compliance with Chinese labor laws.

Businesses around the world are becoming increasingly aware that upskilling their workforce is their best option to mitigate retention risk and shore up skilled labor. Equally important — yet less emphasized during the tail-end of the pandemic — is the need to factor employee well-being into talent retention planning. Overlooking employee job satisfaction potentially risks losing valuable resources spent on upskilling key employees to competitors.

While climate change has spent the last few decades as “tomorrow’s problem”, it seems like tomorrow has arrived, especially for supply chains that are reliant on agricultural components. Agrarian commodities such as bananas and coffee have been under threat for years now, though not directly because of rising temperatures. Rather, these and other multi-billion-dollar crops are facing fungus strains that are devastating entire regions. While pathogens will always be a threat to agriculture (similarly to humans) these fungal strains are being enhanced by climate change, accelerating their spread.

Outside of exotic fungal pathogens, climate change is exacerbating threats as old as farming itself. A poor spring chili harvest caused by extended droughts in northern Mexico has led to a significant shortage of sriracha sauce and other related products. Simultaneously, the Great Salt Lake in Utah is becoming dangerously low, potentially resulting in catastrophic damage to the nearby agricultural industry which consumes three-quarters of its flow. Indeed, as human water consumption needs increase and temperatures climb, such water shortages will become a growing concern and will result in the expansion of ecological disruption of the GSC.

Further, tempering the risks of climate change to the supply side is not easy. Whereas a microchip factory could theoretically be built anywhere, large-scale agronomic farms are far more reliant on latitude, soil composition, water availability, and climate stability. While theoretically arable land is plentiful, ESG concerns may prevent companies from exploiting it (after all, such past expansions into rainforests and jungles has been a contributor to ongoing climate change). And as these products tend to come with a relatively short shelf life, different stages of the production cycle may have to be moved closer to the supply origination.

The altogether result is a giant headache for GSC companies looking to find resiliency or, as previously mentioned, excise from their chain those suppliers that harbor unacceptable ESG risks.

Exploring new solutions

There are, however, possible solutions. Genetic engineering, while entailing low approval levels on the consumer side as well as challenging intellectual property rights and ESG issues itself, could enable crops to better withstand changing climates and help push back against parasites and diseases.

A more expensive but potentially more beneficial option is vertical agriculture — effectively, large scale indoor growing operations stacked one on top of one another for extreme efficiency —which has so far failed to find its footing. However, with increasing interest, technological development, and a boom in demand for sustainable architecture, vertical agriculture could be moving towards a tipping point in the near future.

Of course, these are merely ways of changing how we growth the things which we already demand, but another alternative is changing the very products consumed. Meat production has proven to have a significant impact on the climate and tough climate-change control measures (as well as ESG pressure from consumers and regulators) may make alternatives to meat a larger share of the future market, especially in growing economies.

Alternate proteins that have similar tastes and textures to beef, pork, eggs, and more have the potential to become key diversification tools. Similar “lab-grown” products, while in the early stages of development, may prove even more useful, especially for an industry such as cosmetics, which is looking to distance itself from both animal and industrial byproducts

Like vertical agriculture, synthesized food products could also be re-established in geographic areas that have less ESG risk. This ability to move parts of the global supply chain which were previously locked in by geography is increasingly vital, even if the talk of “reshoring” that has become popular since the pandemic remains only a theoretical discussion.

Relocating the agricultural supply chain enables firms to sidestep many climate-change concerns previously mentioned. Deteriorating water sources can be exchanged for far more stable sources; disease spread can be curtained by isolating the growing environment from outside contamination; and agricultural goods from regions over which companies have little influence can be relocated to more favorable geography. As the agricultural supply chain is increasingly pressured by climate change, these benefits will only increase.

The ability to recognize possible solutions is very different from the ability to implement them. Rising interest rates make the immense amounts of capital needed even more difficult to secure for companies. Furthermore, the advanced skills GSC firms need are not easy to find among the current talent pool, and they also don’t come cheap. Finally, firms will need to adopt advanced technology and improve their ability to manage its implementation and use.

All of these challenges will have to be achieved in a time of growing regulatory complexity within a global economy that is fracturing further along geopolitical lines.

In the coming weeks, we will examine the best ways that GSC companies can address these problems and others as Thomson Reuters Institute releases the findings of its first Global Trade Survey