|
All figures in £millions
|
2017
|
2016
|
|
Short-term employee benefits
|
12
|
6
|
|
Retirement benefits
|
1
|
1
|
|
Share-based payment costs
|
2
|
1
|
|
Total
|
15
|
8
|
|
STRATEGY AND CHANGE
|
|
|
Business transformation and change:
The pace and scope of our
business transformation initiatives increase our execution risk
that
benefits may not be fully realised, costs may increase, or that our
business as usual activities may be impacted and do not
perform
in line with expectations.
Incorporates 'Data quality and integrity' risk: Unavailability
of
timely complete and accurate
data limits informed decision-
making and increases risk of
non-compliance with legal,
regulatory and reporting
requirements.
(Increase in impact and probability)
|
Existing controls
➢
Transformation programme
office
➢
Global learning platform (GLP) and
the enabling
programme (TEP) are standing Audit Committee
agenda items. See 'Governance' p76-77
➢
Regular updates with Pearson
Executive
➢
Executive owned Steering
Committees in place
➢
Independent assurance on key
programmes
Outcome of 2017 activities:
In 2017, we continued to invest in the digital
transformation and simplification of the company. The volume and
accelerated pace of change combined with execution
interdependencies as we go into 2018 are keeping this our highest
rated (and slightly increased) risk. We also have capabilities we
need to continue to develop internally to deliver transformation
and change (See Talent risk on p52).
The £300m 2017-2019 cost efficiency programme remains on track
to achieve its targets. Following the planning phase culminating in
the August 2017 announcement, the programme transitioned to
implementation.
HR Fusion, part of TEP, successfully went live in the US in June
2017. Significant progress was also made regarding data governance
as our quality focus and scope expanded in 2017 to global data. We
now have a much more top-down view of product data, moving on to
sales, marketing, rights and royalties and fulfilment. We also
started putting in place
customer data governance.
2018 outlook and plans:
Business transformation and change initiatives will continue to
support our strategic goals to accelerate our digital transition in
higher education, to manage the print decline, and to reshape our
portfolio,
as outlined by our Chief Executive on p8-10 and
covered in more detail under our strategy in action
on p41-21.
In 2018, we will continue with the development of the GLP, a
single, cloud-based platform to support learners and our digital
transformation, as well as the next phase of TEP to further
progress the simplification of our business. Both programmes will
continue to be closely monitored by the Audit Committee at each
meeting (you can read more
about their oversight of key programmes in the report from the
Chair of the Audit Committee on p76-77).
Successful execution of all our change programmes in 2018 will
depend on having the right change management skills (see also
Talent risk on p52).
The focus on data quality in 2018 will be supporting the TEP North
America implementation. In addition, the new EU data privacy law,
the General Data Protection Regulation (GDPR) which will apply from
May 2018 and spans all our underlying systems, is a
priority.
|
|
Products and services:
Failure to accelerate our shift
to digital by developing and
delivering (to time and quality) market leading global products and
services that will have the biggest impact on learners and drive
growth; ensuring Pearson offers products to market at the right
price and with a deal structure that remains
competitive as well as
supports our strategy.
(Decrease in probability)
|
Existing controls
➢
Global product lifecycle
process
➢
Portfolio
management
➢
Audit Committee oversight of
GLP
Outcome of 2017 activities:
Successfully managing this risk underpins two of our key strategic
priorities - growing our market share through digital
transformation plus investing in structural growth opportunities
(see p14-17).
The likelihood of this risk occurring reduced in 2017 due to the
progress we've made towards implementing portfolio management
practices and strategic investment recommendations, as well as on
pricing strategy and governance in US higher education
courseware.
In 2017, we progressed our understanding of the competitive and
structural threats, especially to our courseware business in terms
of general and student buying behaviour and have taken steps to
mitigate these. For example, we are making good progress in
shifting the business from ownership to
'pay for use', we reduced the price of a number of eBook rentals
and also launched a print rental programme to give greater
convenience and value to students.
2018 outlook and plans:
Turning this risk into an opportunity -successfully accelerating
our shift to digital as well as investing in and delivering the
right products and services - is as key to successful business
performance in 2018 as it was in 2017. A new Chief Strategy Officer
joined at the start of 2018 see p63.
We will continue to improve the US higher education courseware
integrated business strategy, product lifecycle and governance, as
well as pricing strategy. In addition to the development of GLP, we
are investing in other innovations, such as Artificial
Intelligence, to ensure our products stay relevant and to become
more agile in our delivery. We are
also prioritising investment in our fastest growing businesses
across Pearson. See p16-17 in Strategy in action.
Market research and analysis activity across Pearson was
centralised into one Global Insights team in January 2018. Their
remit is to develop customer insights to inform portfolio, product,
channel and business strategy.
|
|
Talent:
Failure to attract, retain and
develop staff, including adapting to new skill sets required to run
the business.
(Decrease in probability)
|
Existing controls
➢
Consistent performance, talent and
succession
management processes
➢
Employee policies including the
Code of Conduct
(see p27 in Sustainability)
➢
Employee engagement forums and
action plans
➢
Turnover data monitored on a
monthly basis
➢
Exit interviews conducted and
monitored globally
to identify any trends and concerns
➢
Learning programmes now offered on
a single
platform for all staff (Pearson U)
➢
Revamped external careers website
and talent
acquisition approach to improve attraction of
digital skills
➢
Wide range of employee
benefits
Outcome of 2017 activities:
The likelihood of this risk occurring has reduced due to the
mitigation activities successfully implemented in 2017. However,
talent remains an ongoing priority for the company, with a focus on
building the talent needed to deliver the business strategy for
2020 especially in key areas such as digital and change management
skills.
Work was undertaken to ensure we have clarity on the key
capabilities required to achieve our 2020 goals, using this to
support learning and development, assessment, development and
talent attraction.
Throughout 2017, there was a strong focus on leadership
communication of the Pearson strategy, as well as increased
visibility of the Pearson Executive and leadership
teams.
Employee engagement action plans communicated across Pearson and
the Executive are reporting progress to the Board on a quarterly
basis. Highlights from these plans are listed on p27 in the
Sustainability section.
An organisational health survey was conducted, and results and
action plan shared in Q4.
Our platform for learning and development was upgraded in 2017,
increasing accessibility to learning and development solutions and
greater flexibility in goal-setting. Academies were also launched
for leadership teams as well as Technology, Product, Marketing and
Finance. These aim to increase both our capabilities and
retention.
2018 outlook and plans:
Pearson will implement further programmes to improve connection
with the Pearson strategy, and to increase engagement and
organisational health.
In order to build the talent we need to deliver the 2020 business
strategy, there will additional focus on direct sourcing and
construction of targeted talent pools to target skills (digital),
address succession gaps, and increase diversity in leadership
roles. We will also continue to support change activities through
Change Leadership training and handbooks.
In 2018, there will be a stronger focus on development planning
linked to further roll-out of career workshops. We will expand and
upgrade Pearson U learning, launching new Sales Academy and
leadership programmes that support succession planning and increase
retention. We will also further refine the careers website to
increase employee attraction.
The Pearson Executive will maintain their focus in 2018 on talent
actions for the senior leadership group and succession through
quarterly reviews.
|
|
Political and regulatory risk:
Changes in policy and/or regulations have the
potential
to impact business models and/or decisions across all
markets.
|
Existing controls
➢
Board and Executive
oversight
➢
Government relationship
teams
➢
EU referendum Steering
Committee
Outcome of 2017 activities:
Although there has been no overall change in the risk rating,
significant work has been done to ensure we can more proactively
identify and mitigate political and regulatory risk.
Over the last two years, there has been a specific focus on
leveraging resources across the US and UK to build global
political/regulatory relationships, and an international political
profile in order to understand future international risks
and
proactively mitigate them.
In the UK, 2017 was the year that GCSEs began their changeover from
grades A*-G to 9-1 with English and
Maths. Our focus was on working with government, regulator and
other awarding organisations to demonstrate the professionalism and
solidity of the system, which resulted in a stable set of
results.
In the US, we continued to implement our ten priority state
strategy engaging with new and existing office holders in key
states and worked to shape the state and federal regulatory and
legislative environment in favour of Pearson strengths. This work
focused on Pearson solutions
to affordability and access with stakeholders in Congress, the
Administration and priority state capitals.
The full impact of the UK's pending departure from the EU is still
unclear, but we remain vigilant to potentially material risks for
Pearson. Work continued throughout 2017 (led by a Steering
Committee chaired by the CFO) to identify and
mitigate any potential impacts on our principal risks below, such
as treasury, tax or data privacy, or on other areas such as UK-EU
supply chain and workforce mobility, including in the event of a
'no deal' exit scenario. We continue to believe that Brexit, in
whatever form it takes, will not have a material adverse impact on
Pearson.
2018 outlook and plans:
Pearson will continue to position itself as a leader in the
education space, an innovator in higher education and establish the
company as a key engine in workforce development and economic
growth. We are also driving opportunities to engage directly with
other businesses.
In the UK, there is ongoing concern about the amount of testing
(and the sheer difficulty of the new tests) in primary schools. As
a test administrator, we are mitigating this through a stakeholder
outreach programme on assessment.
In addition:
➢
The new 9-1 GCSEs will be awarded
in almost
all subjects
➢
Technical education: as the
government becomes
more clear about the role of T Levels we will need
ongoing government relations, media and thought
leadership work.
Across our educational markets in 2018, we believe the trend for
more intrusive and voluminous regulation in our sector will
continue. We will continue our work from 2016 and 2017 to mitigate
this.
We will continue to assess the potential impacts of the UK's
decision to leave the EU as the model that will replace our
membership becomes clearer.
|
|
OPERATIONAL
|
|
|
Testing failure:
Failure to deliver tests and
assessments and other related contractual requirements
because
of operational or technology
issues, resulting in negative
publicity impacting our brand and reputation.
|
Existing controls
We seek to minimise the risk of a breakdown in our student marking
systems with the use of:
➢
Robust quality assurance
procedures and controls
➢
Oversight of contract performance
Investment in technology, project management and skills development
of our people, including software security controls, system
monitoring, pre- deployment testing, change controls and the use of
root cause analysis procedures to learn from incidents and prevent
recurrence
➢
Use of Amazon Web Services (AWS)
in Clinical and Schools
➢
IBM counter-fraud
tool.
Outcome of 2017 activities:
Pearson is an education content, assessment and related services
company and, as such, managing this risk remains a
priority.
In the US, the majority of student testing is now conducted via
AWS, resulting in improved availability and stability.
In the UK, we successfully delivered the UK summer
exam series in 2017 to a high standard of quality.
2018 outlook and plans: The
drive to continue improvements to availability and stability of
testing systems continues. The migration and retirement of legacy
systems in use will continue.
Given the high stakes nature of the UK testing business, there
remains a risk of breaches of security either as a result of error
or of a malicious nature. We are reviewing what additional measures
we can put in place for 2018 to further mitigate against potential
question paper security breaches.
The plan to upgrade Pearson's bespoke online marking system - ePEN
- in the UK will continue throughout 2018 with full implementation
due by the end of 2019, taking into account the complexity of our
systems as well as external marking contract
obligations.
Clinical's Q-global will be moving to AWS in Q1 of 2018. Additional
technology stack updates will be implemented during 2018 to address
2017 issues.
|
|
Health and safety:
Failure to adequately protect the health, safety and wellbeing of
our employees, learners and other stakeholders from harm could
adversely impact our reputation.
This risk previously incorporated Corporate security which is now
part
of risk 9 'Corporate security and business
resilience'.
(Decrease in probability)
|
Existing controls
➢
Global health and safety (H&S)
team
➢
Global policy and
standards
➢
Global assurance and incident
reporting system
➢
Audit
programme
➢
Regional
training
Outcome of 2017 activities:
The likelihood of this risk occurring has decreased as a result of
the outcomes of the following:
➢
Overall implementation status of
Pearson's H&S
minimum standards continues to improve globally
➢
The 2017 global H&S audit
programme was
completed across a wide range of our locations
➢
Our global H&S coordinator
role has been
formalised with a new terms of reference
➢
The global H&S team became a
registered centre
to teach the globally recognised Institution of
Occupational Safety and Health (IOSH), Managing
Safely course
➢
A completely revised global
H&S Policy (with
improved governance and responsibilities) and
standards have been developed, which now
include good practice goals, recognising the
H&S maturity in many of our key markets
➢
Good progress was made across
our
15-17 H&S Strategy.
2018 outlook and plans:
➢
Implement the new global H&S
Policy and
standards and continue to improve the application of our H&S
standards
➢
Refine and Implement a new 18-20
H&S Strategy
➢
Deliver the IOSH Managing Safely
course to our
global H&S coordinators
➢
Review our H&S systems to
ensure they continually evolve to reflect our changing
business
➢
Enhance our global assurance
programme to not
only provide risk-based auditing of key locations,
but to also include advisory reviews and focused
risk-based H&S Projects
➢
Continue to evolve our key risk
reduction programmes covering:
- Ergonomics
- Occupational Road Risk
- Occupational health risk management
and wellbeing.
|
|
Safeguarding:
Failure to adequately protect
children and learners, particularly in our direct delivery
businesses.
|
Existing controls
➢
Safeguarding
policy
➢
Internal procedures and
controls
➢
Staff Code of
Conduct
➢
Third-party risk management
policy
➢
Safeguarding Steering
Committee
➢
Local safeguarding
coordinators
Outcome of 2017 activities:
We continue to view safeguarding as a fundamental obligation to our
learners and a high priority. Although the risk has been reduced
due to our disposal of the majority of our direct delivery
businesses, we are exposed to greater online risk as we move to
more digital services. There is never a zero risk of a safeguarding
incident and organisations should always challenge themselves and
look to improve their practice. Hence the overall risk remains the
same.
An exercise was conducted to test the response of selected
businesses to an online safeguarding issue regarding a member of
staff, the results of which were used to further refine training
and awareness, ready for implementation in 2018.
A sexual harassment policy for our further education business has
been developed and currently training is being produced to support
its implementation in Q2 2018.
2018 outlook and plans: We
will continue to develop and question our practices around
safeguarding in 2018, with a focus on ongoing training and
awareness across the business, especially with regard to online
safeguarding.
We will also further refine our safeguarding metrics and the system
used for reporting, as well as developing and implementing a system
for external validation of our safeguarding practice.
|
|
Customer digital experience:
Challenges with reliability and availability of customer
facing systems could result in incidents of poor customer
digital experience and impact our customer service
responsiveness.
|
Existing controls
➢
Real-time monitoring of systems
(for service
disruptions) and reporting of operational
performance used to identify issues
➢
Project management disciplines in
place to
ensure enhancements and new products
meet required standards
Outcome of 2017 activities: Managing this risk is
critical to achieving our
strategic goal of accelerating our shift to digital products and
services, and, crucially, becoming a trusted partner. Therefore
this risk remains high, despite the significant improvements in
2017 to our product stability and execution.
Mitigations were put in place to prevent a recurrence of the 2016
back-to-school (BTS) issues experienced by customers. BTS stability
in the second half of 2017 was significantly improved, resulting in
only a few minor incidents and the highest availability levels seen
in the last three years.
Further investment was made in 2017 in our global learning platform
(GLP). You can read more on this and how it underpins our strategy
and the learning experience in 'Our strategy in action' section on
p14-15.
Customer support also improved response times for incoming calls
and improved outgoing customer communications during the recent
outages.
2018 outlook and plans: In
2018, there will be a continued focus on the performance, stability
and usability of all product platforms as well as customer service
quality and responsiveness.
Our GLP development, critical to our digital transformation
strategy, will continue in 2018, with the first pilots due to go
live. This platform will allow us to innovate faster as well as
better support our learners.
|
|
Corporate security and business resilience:
Corporate security: Failure to
ensure security for our staff,
learners, assets and reputation, due to increasing numbers of and
variety of local and global threats.
Business resilience: Failure to plan for or prevent incidents at
any of our locations. Incident
management and technology
disaster recovery (DR) plans may not be comprehensive across the
whole Group.
Risk definition has changed from 'business continuity' in 2016 and
now incorporates corporate security, previously reported as part of
risk 6 'Health and safety'.
|
Existing controls
➢
Security and resilience
policies
➢
Security minimum protection
standards
➢
Incident management
process
➢
Resilience governance Steering
Committee
➢
Incident management and DR
teams
➢
Global notification and incident
reporting tools
➢
ISO audit
programme
➢
PQS & VUE - ISO 22301
accredited
Outcome of 2017 activities:
There were an increased number of incidents in 2017, which
fortunately did not impact Pearson directly.
➢
Continued work across the 'Top 40'
locations for planning, testing and response
➢
Increased collaboration across the
organisation, improving understanding of current and future risks,
particularly regarding incident response and DR
planning
➢
Training of global incident
management teams for
different response levels
➢
A mass notification system was
deployed in the UK and will be further deployed globally during
2018 in order to better communicate with our staff and confirm
their safety during an incident
➢
We strengthened our travel
security programme, including greater support provision for higher
risk trips
➢
In physical security, the security
policy and global property guidelines were released in early
2017,and contain advice and direction for all projects involving
the build, refurbishment and disposal of properties. Security
reviews in specific locations resulted in a reduction of risks and
therefore improvements for staff and learners.
2018 outlook and plans: In
2018, we will:
➢
Continue to drive security as a
proactive rather than reactive activity, with ongoing physical and
travel security reviews
➢
Refine the incident response model
towards a broader regional/geographic response
➢
Continue work on the sustainable
and data specific roll-out of the Everbridge mass notification
system
➢
Mandate travel security training
for travel to high risk countries (due for deployment in
February)
➢
Work to refine DR planning for any
legacy systems and applications, as well as our support of the GLP,
TEP and the £300m 2017-2019 cost efficiency
programmes
➢
Grow our knowledge around
cloud-based technologies and implement future digital
resilience.
|
|
FINANCIAL
|
|
|
Tax:
Legislative change caused by the OECD Base Erosion and Profit
Shifting initiative, the UK exit from the EU, other tax reform or
domestic government initiatives, potentially in response to
the
ongoing EU anti-tax abuse
activities, results in a higher
effective tax rate, double
taxation and/or negative
reputational impact.
(Increase in impact)
|
Existing controls
Our tax strategy reflects our business strategy and the locations
and financing needs of our operations.
In common with many companies, we seek to manage our tax affairs to
protect value for our shareholders, in line with our broader
fiduciary duties. We do not seek to avoid tax by the use of 'tax
havens' or by transactions that we would not
fully disclose to a tax authority. We are guided by our taxation
principles, which include complying with all relevant laws,
including claiming available tax incentives and exemptions that are
available to all market participants.
Oversight of the tax strategy is within the remit of the Audit
Committee, which receives a report and risk deep dive on this topic
at least once a year (see p78 for details). The CFO is responsible
for tax strategy; the conduct of our tax affairs and the management
of tax risk are delegated to a global team of tax
professionals.
Outcome of 2017 activities:
This risk increased in 2017 due to the US tax reform changes
legislated in December and the announcement in November of the
European Commission opening decision on the United Kingdom
Controlled Foreign Companies exemption [see note 34, contingent
liabilities on p175).
In August the Audit Committee received an update on our tax
strategy and approved our first tax report which was published in
September. A further update was given to the Audit Committee and
Board in December mainly focusing on the impact of US tax
reform.
US tax reform is not expected to have a material impact on our
effective tax rate, however we continue to work through the detail
and assess whether any changes to our strategy
are appropriate.
The outcome of Brexit remains insufficiently clear to assess any
impact on tax but we continue to monitor.
2018 outlook and plans: We
will continue to assess (and implement mitigation plans if
required) US legislation changes as well as monitoring potential
tax law changes globally, along with Brexit implications and the
State Aid situation.
2018 will see the publication of our second tax
report.
Media and public scrutiny on tax issues will continue to be
actively monitored by group tax and corporate affairs.
|
|
Treasury:
Failure to manage treasury
financial risks e.g. debt
repayments, key corporate
ratios, counterparty risk,
rising interest rates and
transactional FX exposure.
(Decrease in impact and probability)
|
Controls
➢
Treasury policy (see note 19
starting on p156)
➢
The treasury strategy and policy
is also subject to an Audit Committee risk 'deep dive'. See
p78
Outcome of 2017 activities:
Overall treasury risk has reduced over 2017 due to a proactive
exercise to reduce gross debt and strengthen our balance sheet
which has had a direct impact on refinancing, counterparty and
interest
rate risk.
Pearson has no debt maturities in 2018. We anticipate that cash
from operations, our existing cash balances and cash equivalents,
together with availability under our existing credit facility, and
cash from operations, will be sufficient to fund
our operations for at least the next 12 months.
Pearson maintains investment grade credit ratings with Moody's and
Standard and Poor's which facilitate good access to capital
markets. These credit ratings in February 2018 were Baa2 (negative
outlook) with Moody's and BBB (negative outlook) with Standard and
Poor's. The negative outlooks reflect perceived business risk as
the business transforms, particularly in US Higher
Education.
See note 19 starting on p156 for more information on credit,
counterparty, interest rate and transactional FX activities in
2017.
2018 outlook and plans: In
2018, we will continue to operate in line with our treasury policy.
More on this can be found in note 19, starting on
p156.
|
|
LEGAL AND COMPLIANCE
|
|
|
Data privacy and information security:
Risk of a data privacy incident or other failure to comply with
data privacy regulations and standards,
and/or a weakness in information security, including a failure to
prevent or detect a malicious attack on our systems, could result
in a major data privacy or
confidentiality breach causing reputational damage, damage to the
student experience, lack of
compliance and financial loss.
|
Existing controls
➢
Information Security and Data
Privacy Offices
➢
Privacy impact assessment
process
➢
Regular audits
➢
Automated
tools
➢
Annual data privacy training and
awareness week
➢
Risk management
framework
➢
Vendor
oversight
➢
Audit Committee risk 'deep dive'.
See p78
Outcome of 2017 activities:
Risks concerning cyber-security and data privacy remain high due to
complex external factors.
We now have clarity on the increased regulatory obligations and
their impact on Pearson, such as the new EU data privacy law, the
General Data Protection Regulation (GDPR) which will apply from May
2018 and introduce more onerous privacy obligations and more
stringent penalties for non-compliance. The UK's departure from the
EU is also adding another layer of uncertainty with regard to the
regulator, and customers are also demanding more from us in terms
of data privacy (e.g. GDPR and data sovereignty).
We continued to roll out our GDPR programme in 2017; our work to
improve the security of our critical products; as well as our
privacy impact assessment process for new vendors and
programmes.
Many information security risks previously identified have been
addressed, plus there was increased vendor oversight in 2017.
However, ongoing assessments uncover new vulnerabilities and risk
areas arising from increasingly sophisticated attack strategies, as
well as Pearson's ongoing transition to digital products, services
and cloud adoption.
In 2017, the information security team focused on an improvement
programme for critical applications, core platforms and
infrastructure to enable Pearson's digitisation and simplification
strategy. In addition, we also instituted a
programme to review our top vendor contracts to ensure they have
the most up-to-date data privacy and information security wording
and that they align with GDPR where relevant.
2018 outlook and plans: The
Data Privacy Office continues to monitor developments relating to
the UK's departure from the EU and, where necessary, adapt to any
new UK specific privacy developments. As Pearson operates across
several EU Member States, we will still need to comply with GDPR
when the UK leaves the EU.
The information security team will continue to drive security
maturity (and also thus security compliance to GDPR, PCI, HIPAA,
FERPA and other regulatory requirements). A new risk management
tool has been deployed so that security risk accountability can be
cascaded effectively.
We are conducting an inventory of what personal and other sensitive
data we hold and where in the organisation to better focus our
resources and attention.
Joint data privacy and information security activities to build
security and privacy controls into the design critical products
(including the new global learning platform) will
continue.
Increased vendor oversight is a critical initiative for security
and broad compliance.
|
|
Intellectual property and rights, permissions and
royalties:
Failure to adequately manage, procure, register or protect
intellectual property (IP) rights (including patents and general
copyright) in our brands, content and technology or to
prevent
unauthorised printing and
distribution of books and digital piracy may prevent us from
enforcing our rights which will reduce our sales and/or erode our
revenues.
Failure to obtain permissions,
or to comply with the terms of
permissions, for copyrighted or otherwise protected materials such
as photos resulting in potential litigation; risk of
authors
alleging improper calculations or payments of
royalties.
(Decrease in probability)
|
Existing controls
➢
Policies in place to manage and
protect our IP
➢
Global trademark monitoring
platform
➢
Cooperation with trade
associations
➢
Monitoring of technology and legal
advances
➢
Patent programme in
place
➢
Establishment of Anti-piracy
Committee
➢
Legal department provides ongoing
monitoring and enforcement of print and digital copyright
piracy
Outcome of 2017 activities:
Overall risk has reduced due to careful litigation management, the
continued negotiation of preferred vendor agreements, as well as
the ongoing work to implement a new rights and royalties system
which will further mitigate this risk. We started our phased
implementation of this system in the UK in 2017.
We established an Anti-piracy Committee to manage piracy related
risk in a coordinated manner. We conduct internet monitoring,
takedown and internet 'search result' scrubbing to reduce digital
piracy. We have also worked with our larger North America channel
partners to adopt best-practice anti-counterfeit
measures.
In 2017, we launched patent management technology to further
improve our asset tracking, as well as implementing a global
trademark monitoring platform to improve visibility of
potential infringement threats.
2018 outlook and plans: We will continue to streamline our
portfolios; procure and register expanded rights in our high value
IP globally, including aggressively expanding our patent portfolio;
monitor activities and regulations; and proactively enforce our
rights, taking necessary legal action.
We will
continue to implement the newly developed royalty and business
practices, along with the new rights management system across the
US and Canada during 2018.
A new
author agreement is being rolled out in the first half of
2018.
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Compliance:
Failure to effectively manage risks associated with compliance
(global and local legislation), including failure to vet
third-parties, resulting in reputational harm, anti-bribery and
corruption (ABC)
liability, or sanctions violations.
Expanded from the previously reported anti-bribery and corruption
risk.
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Existing controls
➢
Audit Committee
oversight
➢
ABC policy
certification
➢
Internal procedures and
controls
➢
Risk-based third-party due
diligence
➢
Employee and business partner
codes of conduct
➢
(see also 'Respect for human
rights' under
➢
Sustainability on
p28)
➢
Local Compliance Officers
(LCOs)
Outcome of 2017 activities:
Internal procedures, controls and training continue to mature,
which are designed to prevent corruption. Pearson's Code of Conduct
was refreshed and rolled out for all employee certification in
September 2017, including references to ABC policy and requirements
(also discussed under 'Sustainability on p28). Pearson's ABC policy
reflects our zero tolerance towards bribery and corruption of any
kind by establishing a consistent set of expectations and
requirements regarding ABC for all our personnel and business
partners to adhere to.
Pearson's 2016 ABC programme self-assessment served as a roadmap
for work for 2017-2018. Progress was made on ABC risk assessments
of the various regional and local business units.
We conducted due diligence on our highest risk third-parties and
developed roll-out plans for further phases.
Pearson's ABC infrastructure includes a network of LCOs based in
country, mainly members of the legal team. This programme continues
to be successful with greater knowledge and competencies of the
LCOs and better leadership, guidance and helpful tools and
resources provided by the global compliance office.
2018 outlook and plans: In
2018, we will:
➢
Implement a comprehensive plan for
risk-based roll-out of further ABC third-party due diligence,
including new tools and resources
➢
Roll out a comprehensive refresh
of the training programme on ABC and Code of Conduct
globally
➢
Continue risk assessments in 2018
to ensure that the ABC programme reflects local market and business
model risks, as well as plan actions to remediate issues revealed
during those assessments
➢
Employ a more robust analytic
framework to our investigative data to spot trends and root
causes.
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Competition law:
Failure to comply with anti-trust and competition legislation could
result in costly legal proceedings and/or adversely impact our
reputation.
(Increase in probability)
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Existing controls
➢
Global policy
published
➢
Training and
guidance
➢
Regular internal
communications
➢
Lawyer network
Outcome of 2017 activities:
This risk increased during 2017, reflecting our participation in
industry associations, including Board membership, as well as the
recent activity of associations being challenged by anti-trust
authorities such as in Spain.
A global policy, general training and guidance were launched in
2017 and contain all the measures, indicators and actions required
to ensure anti-trust and competition compliance.
A lawyer network was launched in 2017 and training has taken place
to improve their expertise around competition/anti-trust laws. An
increasing number of employees have also been trained. All
employees will need to be certified.
2018 outlook and plans:
Training, including e-learning modules, is being further expanded
in 2018 with metrics being developed to track engagement. The
lawyer network is contributing more data to feed into training and
risk assessment indicators.
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PEARSON
plc
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Date: 04
April 2018
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By: /s/
NATALIE WHITE
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------------------------------------
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Natalie
White
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Deputy
Company Secretary
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