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Hi, enjoy this weeks curated risk and business updates.

Technology Industry Employee Relationships

Employee relationships in the technology industry are changing and in many ways they are becoming more acrimonious and challenging.  Some of the factors driving these changes include the increase of layoffs, return to office (RTO) requirements and the increased use of technology and in particular AI to monitor employees.

Layoffs

As previously noted, technology industry layoffs in 2023 exceeded 240,000, 50% higher than in 2022, see Week #4 email for more details.

Return to Office Policies

Many companies are implementing return to office policies, causing friction with employees who have become accustomed to greater work life flexibility and eliminating stressful and time consuming commutes.  Making matters worse, there is some evidence that these policies reduce job satisfaction with no positive impact on firm performance.

“The RTO push is eyewash for investors to prove that drops in revenue and profitability aren't a result of poor managerial decisions but the result of lazy workers sitting at home in their pajamas. In some ways, it's a genius move for executives — a way to establish control over workers during an unprecedented societal awareness of labor rights (thanks to the striking workers of the Writers Guild of America, SAG-AFTRA, and the United Auto Workers) while also shifting the blame and consequences of poor stock performance onto those least responsible.” --Ed Zitron, the CEO of EZPR, a public-relations company.

AI and Electronic Monitoring

The use of AI and electronic employee monitoring tools has doubled since pre-pandemic, going from 30% of companies to 60% of companies.  Pre-pandemic, the most common form of monitoring was badge swipes. 81% of workers say AI monitoring makes them feel like they’re being inappropriately watched and “45%, of those being monitored say their workplaces have a negative effect on their mental health.”

DelCreo helps companies understand their enterprise risks, including talent and other employee related risks.  Request more information on DelCreo’s Risk Universe and risk assessment services.

Request more information on DelCreo’s Risk Universe and risk assessment services.

As a reminder, here are our Risk Universe categories that we leverage to tackle and understand risk which include:

• External Risk

• Governance Risk

• Strategic Risk

• Product Risk

• Business Operations Risk

• Legal & Compliance Risk

• Financial Risk

• Technology Risk

These high-level risks are fairly consistent between different companies and risk profiles.

We leverage our understanding of risk maps and risk universes to better advise our clients in strategic business decisions and to optimize the management of risk throughout the enterprise.

Weighing the Risks

Weekly Highlights

• Layoffs are focused in Tech and the management of the employer and employee dynamic stands at a tipping point as the two negotiate return to work policies and firm success

• The methods that companies utilize to train generative AI models and large language models may need new risk mitigation processes to avoid IP contamination following the conclusion of precedent-setting New York Times v. Microsoft case

• Workplace flexibility may be more of a boon to employee performance and satisfaction than forcing a return to office

Risk Universe Weekly Updates

External Risk

• Cloud infrastructure saw its biggest revenue growth ever in Q4

  • The cloud-based industry saw large quarter-over-quarter revenue growth during Q3 and this growth is being fueled by AI-based advancements as data management needs increase and correspondingly companies look to cloud solutions

  • Big tech leaders hold sway over the cloud market and this growth is likewise dominated by names like Amazon, Microsoft, and Google which means potential market entrants or current competitors face even more top-heavy market spaces

• Tech industry is poised for comeback in 2024 | Deloitte

  • Despite weakened consumer spending and overall poorer market conditions the Tech industry seems to be poised for a recovery later this year as economic projections have improved

  • Companies can avoid mitigating the risk of missing out on major growth by taking advantage of external advances in technology such as cloud-based platforms and databases, auditing, improving  efficiency and visibility of supply chains, and preparing appropriate, targeted use of generative AI

Governance Risk

• Focused Cuts and Fewer Layers: Tech Layoffs Enter a New Phase

  • Big Tech firms cut the fat as executives look to streamline costs and have been rewarded as stock prices positively respond

  • These changes reflect the changing times as companies are removed from the 0% interest rates that allowed them to spend more freely and retain talent

  • Management teams can follow in Big Tech’s foot steps and endeavor to examine the motivation, merit, and foundation of spending or strategic decisions on their own, removed from industry-wide norms

• We feel betrayed: SAP employees rebel against no WFH policy

  • Return to work policies are a big conflict between employers and employees and the dissonance between the expectations of the former compared with the promises made by the latter echo the growing unrest in workplace culture

  • The reversal of the work from home norms set during the pandemic potentially hinder management teams’ efforts to maintain both employee satisfaction and culture and make the most of investments in commercial real estate spaces

  • Managers should manage talent-related governance risks by balancing return to office policies with the consideration of employee happiness  

Strategic Risk

• Prioritizing Data: Why a Solid Data Management Strategy Will Be Critical in 2024

  • Companies need to prioritize and improve data pipelines and management to properly leverage advancements in AI frameworks and the benefits of cloud based technologies

  • Failure to appropriately source, manage, and monitor data pipelines could force teams to miss out on the growth and innovation accompanying a rapidly expanding area of technology

Legal & Compliance Risk

• With AI, FTC vows not to repeat privacy mistakes

  • FTC regulators look to mitigate the risks associated with rapid growth industries as seen with ongoing data and privacy legal and regulatory developments

  • FTC Commission Char Lina Khan is positioned to prevent any one, or a few companies from dominating the AI market

  • Executive teams should expect competitive market dynamics

• New York Times Versus Microsoft: The Legal Status of Your AI Training Set

  • Ongoing lawsuit between The New York Times and Microsoft could possibly determine the viability of open source AI training models as the NYT looks to block future utilization of their articles in model training

  • Potential upcoming high level risk of “IP Contamination”, meaning intellectual property of which the legal foundation is not sound as portions of that IP are derived from a legally questionable source and found as “infringing”

  • Management teams and developers should examine their tech stack for AI models and the data streams through which they train their AI frameworks to mitigate this risk

Technology Risk

• Morgan Stanley, Bank of America, and the industries and companies AI could impact the most

  • Certain industries, such as banking, financial services and other highly skilled industries, stand to be most affected by the advances of generative AI as many positions could become redundant

  • Executive teams and risk or strategy professionals should plan ahead for teams most likely to be affected or made redundant by investment or utilization of and consider things like reskilling programs or pulling back on hiring