Episode Thirty-Eight: The Green Shoots of Recovery

The Importance Of Transparency Amidst Changing Global Risk

[Companies] have to understand what alternatives they have and how quickly they can move to those to mitigate any risk. You're never going to remove risk, but you can do a lot to mitigate.
 

Brian Alster, General Manager for Third-Party Risk & Compliance at Dun & Bradstreet joins us on the podcast to discuss understanding the levels to businesses multi-tiered supply chains, his excitement around ESG, helping companies understand risk profiles and preparing for the green shoots of recovery following COVID-19.

(Please note at this podcast was recorded remotely.)

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The Power of Data Podcast

Episode 38: The Green Shoots of Recovery

Guest: Brian Alster, General Manager for Third-Party Risk & Compliance at Dun & Bradstreet
Interviewer: Sam Tidswell-Norrish, International CMO at Dun & Bradstreet

Sam 00:00
Hi, welcome back. You're joined today by me Sam and Brian Alster, General Manager of Third-Party Risk and Compliance at Dun and Bradstreet. Welcome, Brian.

Brian 00:08
Thank you for having me. I appreciate it.

Sam 00:10
The title is quite a mouthful. It's almost like they've added a letter for every year that Dun and Bradstreet has been in business. Let's demystify it. What does GM Third-Party Risk and Compliance mean at Dun and Bradstreet and tell us a little bit about your career to date?

Brian 00:23
Sure. I'll start with where I came from before I joined D&B, I spent about 17 years in the financial services industry. During that time, I had the ability to lead teams both from a consumer risk side of the business as well as the commercial side of the business dealing with companies of all shapes and sizes. So before I was a employee of Dun and Bradstreet, I was a customer of Dun and Bradstreet. I was able to work with D&B data, as well as other data providers specifically around three key categories, mitigation of risk, overarching strategy development, as well as analytics and segmentation essentially. Since joining D&B about nine years ago, I really started to help build the bridge with financial services and how to grow Dun and Bradstreet’s financial services business. I was then afforded an opportunity to bring together a few smaller businesses into what is Third Party Risk and Compliance. And really what we do, is we really focus on helping companies to identify and leverage Dun and Bradstreet crownsville assets, to really focus on helping to articulate and solve some of the key challenges they face, given the ever-changing regulatory environment. And that's specifically around anti-money laundering, anti-bribery and anti-corruption and helping to identify, onboard and to monitor all clients and third-party relationships that a company does business with.

Sam 01:46
Wow, I was gonna say I wish we were recording it. We are recording this and that was a super succinct overview of the fair value risk and compliance business. Let's just dip into that a little bit. The regulatory and compliance landscape has been a pretty exciting place. I never thought I'd say that when I grew up. But it has in the last 12 years, perhaps since the financial crisis. And you know, I've been using the analogy that compliance executives were the rock stars coming out of 2008-9. I'm rather hoping that marketeers are the rock stars coming out of this digital inflection point from COVID-19. But tell us what have been the biggest shifts and trends you've seen in the regulatory and compliance landscape over the last decade maybe?

Brian 02:26
I think there's two key themes here. One is the type and the way that compliance officers have to interact with data. Back in call it the 90s, early 2000s, compliance executives really had to deal with data on a fragmented basis. And today, they've really got to shift and be able to solve business concerns very quickly. They need to be able to turn data into actual insight because right now compliance officers and risk officers today are now responsible as well for growing the business, albeit growing responsibly. You mentioned 2008. One of the largest things that came out in 2008 was how can businesses continue to meet revenue targets in a responsible way through new risk assessment tools. And that goes the same for compliance officers. So it's very important to make sure that they're taking data ingesting data from a variety of sources not having to be required to go and manually collect all that data themselves. That brings us to the second component: technology. Over the last five to 10 years technology has played a much larger role in helping compliance officers to be able to take nuanced information, piece it together, and make quick, actionable decisions that will help to drive the responsible business growth that I alluded to earlier.

Sam 03:56
Let's start with the first part of that. So the new role for risk in sustainable finance, you know, doing that parallel look that to look forwards, I think is gonna be something that we're going to see really accentuated out of the back of COVID-19. It is, I think inevitable that governments will want to get more and more intimately involved in the private sector, and in the sustainability and long-term value of businesses. Now, many businesses out there accepting loans, interest free, no strings attached help to try and keep the economy buoyant. I think there will be a tax, but that tax will really be an oversight going forwards. And that will come I think, in the form of a global economic reset, and redirecting ourselves towards a much more ESG minded world. What do you think about that? I mean, you and I both share a passion for supporting businesses with their ESG responsibilities. Any views?

Brian 04:52
Yeah, actually, I think ESG is an exciting place to be right now. And it's interesting, we talked first about the regulatory environment and how governments around the world have been leading the charge to ensure that companies across all sectors become more diligent in understanding who they do business with. What's neat about ESG, and the movement we're seeing recently around ESG is that it's not necessarily being driven through regulatory requirements. Albeit we are starting to see some, especially in certain industries in certain countries. But what I'm most excited about ESG is that it's starting from a different place, or it's at least creating momentum from a different place. You're seeing it from three different areas. You're seeing it in the C suite, first and foremost, executives are starting to understand that they need to do business better, in a more ethical, sustainable way. And they need to start doing business with like-minded businesses. That's number one. Number two, you're seeing shareholders demand that their companies that they have ownership in are starting to force that change. And finally, and sometimes the most influential is customers, customers are starting to demand it. We're seeing it in industries like asset management, where individuals are starting to want to make decisions about where they invest their money based on the ethical nature or the sustainable nature of a given business, or an industry or both businesses. And so this is an exciting time, because we're starting to see companies shake their hiring practices, their culture, as well as the how they build their brand, around ESG. So it's definitely an exciting time. And it's definitely I'm excited to be a part of trying to help the industry shape some of the solutions that will help drive greater transparency.

Sam 06:44
I think the point you just made that businesses wanting to do business with like-minded businesses, is a really important one, you know Dun & Bradstreet has been around for 179 years. And trust has always been at the core of what we do; helping businesses understand more about their counterparts about the people that they're working with and ultimately driving trust, now a core component in the governance aspect of ESG. One of the areas that you focus on a great deal is supply chains, notoriously not an easy area for a business in a world where data was not as prolific as it is today, to understand a great deal, and especially not to govern it. Have you seen the supply chain management world evolve? Since you've been at Dun and Bradstreet?

Brian 07:29
That's a really good point and started on with trust. I'll throw a second t in there. And it's trust and transparency. I would say that the challenges that companies have is gaining a level of trust in the businesses that they're doing business with. And that starts with understanding who they are and what their risk profile looks like. Because a company as we've seen in business throughout time, is as good as its last transaction. And as it starts to build a series of transactions that are positive in nature, the risk profile will change over time. Just like though there are shocks to the system. And anytime there's a shock to the system like the one we're in now, you will start to see that a larger risk profile and a greater transparency into a given company will help them weather the storm. So for example, some of the things that we're seeing and hearing from our clients today really revolves around three key themes. One is, do I know who I'm doing business with? And when I say do I know who I'm doing business with, it's just not a matter of identifying who they are and making sure that you know what industry they're in and what type of business they do. It's also about what their risk profile is. And then it's not just understanding their basic tenets of their overall risk profile today. It's about the third core tenant of being able to understand and monitor a change in that risk profile. And should you see a change in that risk profile you have to be able to understand what options you have and what alternatives you have, unfortunately, many companies wait for the shock to the system to happen before they have a plan of attack. What we've been seeing over the last few months is that companies have been prepared to understand how to measure the risk, but they haven't been prepared to make alternative decisions. And so I think one of the biggest learning lessons coming out of the current environment we're in is that companies, especially in the global nature of supply chains today, have to understand what alternatives they'd have and how quickly they can move to those alternatives to mitigate any risk, you're never going to remove risk, but you can do a lot to mitigate.

Sam 09:43
Okay, so let's evolve this question a little bit further. If you had to give some advice to a business that was looking to navigate a complex global landscape, especially at the type of firm that's going to operate across borders, what advice would you give them knowing what you know about the data analytics capabilities both we and others have?

Brian 10:01
First, know your local markets that you're in, understand the geopolitical environment. Understand that as you're working with your companies and those businesses understand which businesses are critical to your supply chain, once you understand which of those businesses are absolutely critical to your supply chain, understand which of their suppliers what we call second tier suppliers, make sure you understand which of their suppliers are critical to them. That will give you a level of transparency and understanding into the potential disruptions to your supply chain. You know, and just in the most recent example of the global nature of COVID-19, what we saw with our clients here at Dun and Bradstreet was that at the apex, we saw maybe only less than 100,000 companies were impacted by their tier one suppliers disruption, but when you look at the secondary suppliers, the number of impacted businesses grew from just under 100,000 to over 5 million, that is a significant number of businesses worldwide that are impacted based on their suppliers, suppliers.

Sam 11:08
How many levels down into the supply chain do you go? Can we go? Obviously, you've got tier one critical to critical for your key dependency tier one suppliers. Do you see firms that go down many, many levels?

Brian 11:21
Yes. In certain industries, you have. You know for example, when you're dealing with technology and the creation of hardware, much of that hardware utilizes conflict minerals. Many companies are required to go all the way back to the mine, that the conflict minerals were actually extracted from, so that they can be able to show that they're using ethical responsible mining tools, as well as being able to show where the potential impacts are in their supply chain. Should there be any kind of unrest?

Sam 11:57
You know, I wonder how many business owners really are thinking multi-tier supply chains. I mean, when you're at the helm of a big corporate, it makes a lot of sense when you're dealing in a technology business that's using potentially conflict minerals, you can see it but for the everyday business leader, I'm not quite sure so much. And that's gonna change as the world becomes ever more focused on sustainability and cares more and more about this stuff and is being charged to care more about it by government, you can only see that becoming increasingly important.

Brian 12:24
Yeah, to your point, you're starting to see it now impact industries for a variety of reasons. We talked about one industry what about farmers, restaurants, supermarkets? We've seen examples of companies that, you know, there's been an outbreak of listeria or other health risks, and we've had to be able to map back to the exact farms that some of this produce was created at and being able to do that requires a whole litany of industries to be impacted. So to your point, it's going to impact all industries. It's going to impact all sizes of business. And it's going to really require companies to think differently about how they interact with other companies, and how they're creating an ethical and sustainable environment to do business.

Sam 13:13
So let's go from supply chains to the world we live in today. And COVID is fast becoming an over talked about topic, you and your team, I know have done a ton of analysis on the impact of COVID-19, especially, obviously, supply chains. But what other impacts are we seeing on businesses around the world? And what kind of stuff have you been working on? I know much of it, but I know our listeners will be fascinated to know what kind of solutions and organizations we've been working with.

Brian 13:40
Yeah, I think the biggest lesson that we learned in talking to clients is that COVID-19 is impacting everyone. And so we've been fielding questions across three unique universes. One, we already mentioned, supply chain disruption. Clearly, we have to understand how dun Bradstreet can assist our clients in understanding what of their suppliers are impacted, what alternatives they have, and how to quickly mitigate the risk. But we've also fielded questions about our clients customer basis. Which of their customers have been impacted which of their customers risk profiles have changed because of the size of the impact that has been brought upon them because of the pandemic? And then the third item is, companies are coming to us and saying, how do we protect our clients that bring us the greatest revenue? How do we help to grow in this environment by targeting those companies that have been impacted? So across both the sales and marketing tranche, the traditional credit risk, and then the supply chain disruption, we've seen questions coming across all three universes. What Dun and Bradstreet has done is we've taken a phased approach. First and foremost, we tried to get into information very quickly out there to all three types of questions to quickly do a scan of a company's portfolio of records and be able to identify whether or not their portfolio of records whether its suppliers, customers, prospects have been impacted, and whether or not we can provide a relative understanding of that level of impact. What that did was it provided an initial assessment for companies to be able to say, has my business been significantly impacted or not? But with any good information, it leads to more questions. And so the next level of questions that we were asked was really, can you help me identify a more granular view of who was impacted and what I can do to mitigate that risk? And so what we've done is we've created some indexes to help create relative rankings of risk, and that relative risk is based on three components. The first is a company's location. The second is the company’s industry that they're in. And the third is the overall credit health of both that company and the network of businesses that that company interacts with. When you put all that together provides a more holistic view of the overall impact to a business. The final thing that we've done is we've been able to create an understanding of when we're starting to see green shoots of recovery. And this is critical because businesses need to know how their relative risks of their clients or suppliers, or prospects are in relation to pre COVID-19. So they can understand where they should be investing where they should be continuing to mitigate risk. And this has been critical, and this is the question we're dealing with now. This is the point in which businesses are trying to act now. How do we understand when we will return to normalcy and what will normalcy look like?

Sam 16:52
I love the idea of prepping for the green shoots appearing. What do you do and perhaps this is a little bit more subjective than data driven, but what are your thoughts on the global recovery, and do you think we're going to start to see signs of recovery sooner than then some may say? And part of the reason I asked that is because there's a huge disposition between the economy and what the markets are saying the markets are looking actually relatively buoyant. Yeah, the economy is looking like it's about to go into a historic recession. And I would love to say, I think the markets wrong, but you can't say that because the markets are judged by 500,000 professional traders around the world. And well, you know, I'm certainly no better than they are. But from an economic perspective, we were just at the start, surely, you know, furloughing stops, unemployment begins, and it feels like we're going to see a fair amount of pain before those green shoots. But what's the data telling you and what are your thoughts?

Brian 17:43
That's an interesting question, and it really depends on what lens you're taking. Clearly, if you're looking at stock markets, that's probably not the best indicator of where we're seeing the economy in general. But when you start to look at some metrics like delinquency, it is natural that delinquency is on the rise, right, because businesses have been impacted. Business has not been returning. In many parts of the world, though, you're starting to see economies open back up. The question is, how long will it take for those economies to return to normal levels, especially when you look at other metrics such as unemployment. Unemployment continues to rise and that means that there's going to be a considerable weight placed on demand that we are not sure how demand is going to recover. The other aspect that I think is important is starting to understand other aspects of demand. So are we starting to see foot traffic go up in countries and regions of the world where you're starting to see those economies open up and we are starting to see foot traffic increase, but we're not starting to see enough metrics turn to tell us that we're starting to see signs of recovery. I think what's important is to continue to gather the right metrics to start to see when supply chains continue to open up, when their supply chains are starting to realize in greater shipment orders, when shipment orders start to translate into more goods sold. Because we're starting to see demand. We have not seen that dichotomy of combined results come together yet. But the good news is we are starting to measure all of those lines of defense understand how the economies of the world are going to start to see a relative change in recovery.

Sam 19:30
If we're thinking about providing advice and guidance, and I don't just mean from necessarily a D&B perspective, what kind of advice would you have businesses that are trying to weather the storm? And I mean, aside from the supply chain stuff, and how would you help suggest to a business that it tries to guess reinvigorate itself and grow?

Brian 19:49
That's interesting, taking it from multiple lenses, small businesses, which make up an overwhelming disproportionate large size of businesses in the world have to react very differently, than larger companies that drive the overwhelming amount of revenue that drives global GDP. So it's unique in how each of them face these challenges. On the larger side of the business, I think all businesses understand that they need to do a better job of understanding who their core third parties are, who their core clients are, and understanding how they can protect the revenue they have and understand when and where they should selectively identify opportunities to grow. Data is the primary driver of that.

Sam 20:39
In a lot of business leaders minds, particularly in the SMB / SME world, data is expensive data and analytics is reserved for the medium and large sized companies. You don't have to be a data scientist or a chief data officer to make most of this stuff do you?

Brian 20:55
No, in fact, that's a great point. I think smaller businesses that are more consistent need to take a slightly different approach. They still can make strong decisions based on facts, but they need to understand on a much smaller scale, what their key drivers are. You know, for example, my wife is a small business owner. And the decisions that she has to make are the same decisions that larger companies need to make. It's just what assets she has at her fingertips to be able to determine when she can open up, when the demand will come back, and when the demand comes back, where's she spent her money to ensure that she gets the maximum return on value? Those types of questions are questions that all small businesses are trying to assess right now. First and foremost, it's when they can open up. And we're starting to see that small businesses around the world, especially in Asia and Western Europe starting to open back up, in the US or a few weeks behind, but we're also starting to see and to receive feedback from our government about when we're going to start seeing small businesses being able to open up. Being able to take this insight and understand when they should start opening up? How can they start scaling back up their employment? When can they start driving demand? And that's going to be really contingent on the consumer, the end user and whether or not they come back. But I will tell you, there are metrics of success that each business has to help determine if customers are coming back.

Sam 22:24
It's interesting you say that a company I'm on the board have met recently and when we were talking about reset of a number of different areas. For example, overheads, can firms cut back on offices of the people that have been furloughed, which ones were actually necessary and which ones weren’t? And then you think about it on the government side, it's not just about the loans, who these people are receiving plans receiving interest free, but it's the R&D tax benefits that they probably never took advantage of before because they weren't aware of them, or any other number of generosities and I think this, this reset is going to be both a gift and a curse. It's definitely going to be interesting and I think different industries, obviously are going to react to it very, very differently.

Brian 23:26
One point on that I think it's pretty interesting is taking a data driven approach. It's interesting to see that both in Europe and in the US, there have been different approaches to this. And we've seen different levels of success. And so the question bears, you know, only time will tell and it is great to be able to look back on history and say what was right and what was wrong. I think what's going to be interesting is when you start to look at some of the numbers, different governments tend to do different things to drive stimulus. And here in the United States, where government divided the stimulus into a different couple of different ways, direct to the individuals through checks to those that qualified and then a stimulus package to businesses, to your point to keep employees employed to try and weather the storm. And what you seeing now as you're starting to see some of the early returns on participation rates. What we see in the US at least is an overwhelming majority, or at least a larger percentage of individuals that receive checks decided to save the money as opposed to utilizing it to stimulate spend. Additionally, we have about 140 billion dollars of the 650 billion that was set aside as part of the Care Act to help stimulate small businesses through loans and grants. We still have about 140 billion of it left. And the reason is, small businesses have decided not to take advantage of it. You know, as we start to look at countries around the world, how is that impacting and translating to unemployment growth, to the ability for companies to start back up? And I think now we're going to have to see it wait and see what government programs drove what stimulus and how did they respectively work and recharging the economies of the local economies.

Sam 25:01
I think that analysis of the aftermath is going to be absolutely fascinating. And obviously something we track very closely here at D&B, but –

Brian 25:08
It is.

Sam 25:08
I mean, it's going to tell an amazing story, right?

Brian 25:11
It is, it's gonna be interesting to watch.

Sam 25:13
Yeah, it certainly is. We're doing our best to play a role in many respects, with product offers and ways for businesses to help protect themselves, to help with their credit ratings to help grow their businesses. We've done upgrades with them free solutions, all that sort of stuff we haven't covered and different government agencies. But there's no amount of brainstorming that can really solve this. It's something of unseen proportions with really no playbook to take lead from. So we should undoubtedly, and this is an action on my side, we should do a podcast on the aftermath. We should break it down and do a bit of analysis you and I on what this has spelled about six months on and maybe six months on again so that our listeners can get that so data driven sequential update. How does that sound?

Brian 25:58
That sounds great. It's interesting, Sam, I used to say that 2008 downturn was the greatest education I ever received in understanding how businesses can persevere in most difficult situations. And I never thought that I would be able to say that there was another lesson I'd be able to learn greater than what I learned in the 08 downturn. And history has proven me wrong, because this pandemic has created a new set of business challenges. But I don't think we could have predicted and forecast the magnitude of when we first heard about what COVID-19 was in early January.

Sam 26:36
I couldn't agree with you more. And that's a great place for us to take the final stages of this podcast, you know, lessons learned. What are some of the greatest career lessons you've learned Brian's so far in your career, and you just cited 2008, perhaps there was some there?

Brian 26:50
Well, in 2008, I think what was interesting, as a starting point, there was no precedent that we could rely on to understand the math magnitude of change that we were going to witness. Now, the Federal Reserve wrote in hindsight that they build models, statistical models to understand outcomes based on hundred-year storms, what could possibly happen? And the idea that drove the 08 downturn was never even thought of as a potential scenario for the Federal Reserve to react to. I think what we're seeing here is we're seeing a similar storm and magnitude in 2020, about the global nature of this downturn. You know, what is so unique is that over the last 20 years, businesses have become so much more interconnected cross border, and understanding that interconnectedness and the impact and the ripple effect that it has had on the global economy is incredible. You know, it's early on in February- March timeframe, as Dun and Bradstreet was trying to get its arms around what the potential impact on businesses is of COVID-19, we start to look back other, I fear, not say pandemics but other viruses that we would be able to measure the economic impact of. And SARS was one that came to mind back in 2003, or 17 years ago. And we clearly see that the magnitude of this current pandemic is far larger. But one thing it taught us was back in 2003, China made up a very, very small percent of global GDP. So, today trying to make up over 20% of global GDP. So it's unbelievable that as time continues to change and the global nature of our interconnectivity changes, we have to understand the impact that this has. This has been a tremendous lesson in how we need to understand much more about who we do business with, how we do business with them, and how we can overcome the challenges that are related to interconnectivity.

Sam 29:03
The point you raise is a fascinating one. I think the world that we live in today is really, I think John Thompson, the Chairman of Microsoft said it best on a podcast, in fact, that the rate of change will never be as slow as it is today, which is a terrifying thought given, given how fast we're all going and how hyper-productive we are all sitting in front of our screens at home. But you think about population growth. There's this video for our listeners if you just Google or go on YouTube and Google population growth video. And it's fascinating. It's a world map. It's nothing glamorous, and it's kind of cartoon style. And it starts 2000 years ago. And every time a little yellow dot appears on the screen with a million people, the population, and these little yellow dots start appearing and they get faster and faster and just crescendo, and it turns the world until 1800. To get its first and billion people on the planet. The next hundred years was all it took to get to its second billion. You think the 10s of thousands, millions of years of humankind and the history of the planet, it took just 100 years to get that second billion between 1900 and 2000 we added another 5 billion. And then by 2050, we're gonna have 10 billion people on this planet. The world is changing at an extortionate rate, it's compounding, it's exponential, and it's quite terrifying. And the one thing I’m certain of Brian is that the data that we are collecting is not just going to be interesting, it's going to be more important than ever before. And it's going to create insights that don't just help businesses thrive or protect themselves and I ultimately, I genuinely believe, which is part of the reason I'm here at Dun and Bradstreet, I think data is going to help humanity survive.

Brian 30:45
I agree. I think that the role data plays is continuing to grow in importance. And that what's most important is it's not just data, it's the insights that are gleaned from data and companies are going to have to learn to take data and turn them into actionable insights faster than ever before. Because they're going to be greater requirements in order to grow faster, to be more compliant, to be more ethical, and to do that with the same or fewer resources. So data is going to be the largest driver of success for the companies that do it best.

Sam 31:22
Well said and no better place to end than that. But this isn't the end. This is just the beginning. We're going to be doing a lot more of these I'm sure Brian, and I'm really looking forward to it. Thank you for your time forward to and thank you most importantly for your insight.

Brian 31:34
Thank you, Sam. Have a great day.