All figures in
£millions
|
2019
|
2018
|
Short-term employee
benefits
|
5
|
6
|
Retirement
benefits
|
1
|
1
|
Share-based payment
costs
|
4
|
7
|
Total
|
10
|
14
|
STRATEGY AND CHANGE
|
|
1. Business transformation and change:
Risk description: The
accelerated pace and scope of our transformation initiatives
increase our risk to execution timelines and to the business's
adoption of change.
|
2019
activity:
● During
2019, planned headcount reductions were completed, allowing the
delivery of annualised savings as expected of the
programme.
● A
range of additional transformation initiatives were successfully
completed, with further ones identified for completion in H1 2020.
See the Audit Committee update on business transformation on p74
for more details.
2020
plans:
● Deliver
the Business Value Realisation (BVR) Plan, that will continue to
further stabilise operations, resources and existing governance
models.
● Continue
to review and make recommendations on further optimisation
programme opportunities.
● Create
a key performance indicator (KPI) scorecard to reflect
stabilisation activities.
● Progress
rest of world phase of TEP.
..
|
2.Products and services:
Risk description: Failure
to successfully invest, develop and deliver innovative,
market-leading global products and services that will have the
biggest impact on learners and drive growth.
|
2019
activity:
● Product
innovation: we
made progress across key markets in implementing product portfolio
management to ensure our products are aligned to our strategy to
achieve target revenue and profitability. We also made significant
progress understanding the competitive and structural threats,
especially to our US Higher Education Courseware business, and made
progress mitigating these.
● Product
and investment portfolio: we
improved visibility into how our products and services contribute
to Pearson's overall growth, and are using that as an input for the
future investment allocation process. We continued to build our
employability capabilities and further clarified our investment
priorities.
● Competition: market
share competition remained high, especially due to pricing pressure
from low cost competitors, including, in US Higher Education
Courseware, open educational resources (OER). The proposed Cengage
& McGraw Hill merger, if it proceeds, will consolidate our two
largest competitors in this market. The impact of this remains
unknown. However, we believe we have the right strategy in place
with our Inclusive Access (IA) programme to tackle affordability
and keep ahead of the consumer trend to
digital.
2020
plans:
● Build
on the 2019 launch of the Pearson Learning Platform (PLP): 60% of
all Revel fall subscriptions on PLP by the end of the year; over
100 MyLab and Mastering titles on PLP in 2021.
● Launch
a new Pearson eText, with an expanded catalogue and enhanced
features that differentiate it from a conventional third-party
eReader.
● Continue
efforts to embed the product lifecycle framework into our
decision-making processes.
● Use
the results of the US Higher Education Courseware baseline survey
we did in 2019 to inform and design new ways of
working.
● Improve
our ability to horizon scan the market and customer behaviours,
which will provide improved trend analysis and agility to respond
to trends.
|
3.Talent:
Risk description: Failure
to attract and retain the talent we need and to create the
conditions in which our people can perform to the best of their
ability.
|
2019
activity:
People
development:
● We
continued with the development of our VP and Director levels, with
the Lead to Succeed programme, which aims to support succession
planning.
● We
refreshed our Manager Fundamentals training across the company,
with tools and resources that are shared with line managers each
month.
● We
continued targeted learning with our internal learning and
development platform, Pearson U, with career development
workshops.
Diversity & Inclusion (D&I):
● We
conducted D&I assessments and dashboard reviews with Executive
team members and their leadership teams.
● We
continued mentoring programmes for female talent, with Board
members mentoring SVP women and Executive team members mentoring VP
women.
Employee
engagement:
● Internal
teams with global employees were created to address company-wide
issues (e.g. silo-busting, performance management, employee
learning).
● An
Employee Engagement Network was created with cross-functional, top
talent employees to provide an employee voice for strategic input
at Pearson. We completed research, gathered insights, delivered
messaging workshops for the Employee Value Proposition which aims
to improve recruiting outcomes and increase talent
retention.
● We
launched the Pearson Proud campaign intended to empower employees
as Pearson advocates.
Structure and
approach:
● Created
the SVP-Learning position reporting to the Chief Human Resources
Officer (CHRO) which is responsible for scaling Pearson products to
all employees.
● Centralised
HR centres of expertise that make up our employee experience under
a newly created SVP-Employee Experience role.
● Refreshed
performance management tool for employees with quarterly check-ins
that focus on feedback, development and to improve performance
outcomes.
2020
plans:
● Work
with each Pearson Executive team member and their teams to make
progress on the 2019 actions from the 2018 Organisational Health
Index, to improve decision-making and role clarity, as well as
driving innovation and learning.
● Roll
out the 'new employee value proposition' programme.
● Reskill/upskill
employees as teams restructure and new roles are created. Assess
and refine the HR global strategy.
● Continue
with the work under way on our recruitment marketing platform. This
will help Pearson to attract and convert passive candidates to
become employees and build our brand in the technology
sector.
● Look
to update Pearson's remuneration philosophy to align with our
five-year strategy and provide flexibility to adapt remuneration
policies for business and talent needs as we continue to build on
our digital transformation.
|
4.Political and regulatory risk:
Risk description: Changes
in governments, policy and/or regulations have the potential to
impact
business models and/or decisions across all markets.
|
2019 activity: In
our two biggest markets, the UK and the US, progress in 2019 was as
follows:
● In
the UK, we continued to build Pearson's position as a leader,
expert and innovator in general qualifications,
technical/vocational education and assessment.
● In
the US, we positioned Pearson as an innovator in the education and
workforce space, among both parties, in state capitals, on Capitol
Hill and with the Trump administration.
● We
maintained fair market access through national and state
partnerships, as well as direct lobbying.
● With
the bipartisan National Governors Association, we shaped the
Chair's workforce initiative which was shared with all governors,
informing state policies.
● We
continued to monitor trade actions and sanctions that could impact
business goals.
2020 plans: The
Government relations team will continue to monitor and advise
on:
● Online
learning legal and regulatory challenges.
● Instructional
material market risks that arise when Governments mandate the use
of state-produced instructional materials and/or content (China,
Hong Kong, South Africa and India).
● Implications
of being a US/UK company in the current global geopolitical
environment.
|
OPERATIONAL
|
|
5. Testing failure:
Risk description: Failure
to deliver tests and assessments (e.g. for Pearson UK, Schools and
VUE) and other related contractual requirements because of
operational or technology issues, resulting in negative publicity
impacting our brand and reputation.
|
2019
activity:
● In
2019, there was a GCE (A level) Maths security breach which was
managed as a significant incident. We have since reviewed, analysed
and strengthened our security options, in conjunction with other
awarding bodies.
● A
complete review, with improvements was delivered to our test fraud
investigations processes, in partnership with our key UK
clients.
● Development
was completed for an improved process enabling more secure access
to live test materials for centres, rather than manual provision
via email or secure file transfer.
● An
improved VQ system monitoring was introduced and we reduced the
frequency and volume of unconfirmed bookings (i.e. test provision
failure).
● All
School Assessment customer-facing products were successfully
migrated to the cloud, resulting in greater scalability,
reliability, efficiency and security.
2020
plans:
● Utilise
technology, moving systems to more stable and secure platforms in
the cloud. Work continues to ensure that any technology changes are
fully factored into all of Pearson's business continuity activities
and adjustments are made to relevant certifications and regulatory
frameworks.
● Work
with our security technology teams to further develop systems and
partnerships towards fraud detection analytic models, AI and
machine learning analysis.
● Ensure
assurance will continue to extend ISO activity across products and
geographies. We will also further mature our business continuity
measures by improving integration of Disaster Recovery (DR) and
Business Continuity (BC) activities. Additional certifications are
under way to further strengthen our security and technology
resilience.
● Ensure
that our service plans will continue to develop a technology-based
solution to reduce or eliminate manual Test Publishing Quality
Assurance (TPQA) processes.
|
6.Safety, safeguarding and corporate security:
Risk description: A
variety of risks that can cause harm to our people, assets and
reputation continue to evolve as our company does. While some risk
has reduced due to outsourcing and divestiture, the diverse nature
of our people's activities require continued focus, resource and
improvement to reduce the potential for harm
|
2019
activity:
Health & Safety and wellbeing
● In
2019, two serious and separate incidents occurred, at the same
Pearson printing facility. Both highlighted the continued need by
staff and managers at a local/regional level for focus and
improvement.
● Continued
to implement all outstanding audit actions, meeting or exceeding
targets for follow-up action closure.
● Mental
health awareness has been included in high impact events sessions
and was extensively rolled out in APAC, as part of the R U OK?
Campaign.
● We
continued to monitor implementation of our Health & Safety
Statement, which sets out our commitment to protecting the health,
safety and welfare of all our employees and anyone else who comes
into contact with our operations around the world, including our
learners, customers and other partners. We also migrated from BS
OHSAS 18001 to the new ISO 45001 standard covering Pearson
Management Services in our UK Head Office.
Safeguarding
● There
were stronger engagements across relevant Pearson business lines
and fresh development of safeguarding policies in PIHE in South
Africa and Pearson College London.
● Productive
conversations and future knowledge was developed with the UK's
Internet Commissioner.
● An
advisory review was undertaken with our businesses in Brazil, which
will continue to support safeguarding practice in the franchise
businesses, and consider how we integrate safeguarding in our
future product offerings.
● At
Pearson College London, we published policies that offer advice and
guidance on sexual harassment, self harm and suicide.
Corporate security
● There
was one catastrophic incident involving Dieter Kowalski, a Pearson
IT manager, who sadly lost his life while on business travel to
Colombo, Sri Lanka. Dieter was a victim of the Easter Sunday terror
attacks.
● Travel
security continues to grow in support of more travellers and new
countries and cities and is no longer limited solely to higher-risk
locations.
● Security
reviews for higher-risk locations were conducted in new
locations.
● High
impact events (HIE) awareness continued across key
locations.
2020
plans:
Health & Safety and wellbeing
● Continue
to further develop the analysis of occupational health data to
ensure proactive and reactive intervention strategies are aligned
for the promotion of employee wellbeing.
● Implement
a global solution to report, escalate, investigate and action
Health & Safety incidents (including near misses).
● Continue
to focus on risk controls in high-risk activities while improving
local oversight of relevant risks in lower-risk environments
(emergency planning, ergonomics, stress and
wellbeing).
● Deliver
wellbeing and mental health awareness and training across North
America.
Safeguarding
● Continue
to develop best practice and policy in regard to online
safeguarding/harm.
● Continue
discussions with external consultants towards ensuring compliance
with best practice and developing legislation.
● Work
towards the global implementation of the programme and effective
support for learners.
● Continue
to develop our incident reporting, analysis and assurance
plans.
● Integrate
diversity into our safeguarding practices.
Corporate security
● Continue
to identify key risks when selecting properties across the globe,
and particularly for higher-risk locations.
● Work
towards 'secure by design' in our new/refurbished
offices.
● Deliver
further high impact events (HIE) awareness.
● Work
with those markets which do not have a dedicated travel provider,
thus reducing risk and improving our response
capabilities.
● Continue
to develop our current intelligence and information third-party
relationships for better sharing of the risk horizon across
Pearson.
|
7.Customer experience:
Risk description: Failure
of either our current, (or future) operations, supply chain or
customer support to deliver an acceptable service level at any
point in the end-to-end journey; or to
accelerate Pearson's lifelong learner strategy and transformation
of our higher education business (direct to consumer business model
and online presence).
|
2019
activity:
● In
2019, our UK back to school period went well, with improved
fulfilment rates and all Service Level Agreements (SLAs) being met.
In addition, our helpline call volumes were down.
● We
continued to see improvements in forecast accuracy in the UK with
the deployment and adoption of new systems.
● We
successfully implemented our Brexit contingency plans with our
existing channel partner, providing warehousing and logistics
services to UK-based customers
● In
North America, we improved capabilities within the team and
implemented improved processes. Warehouse fulfilment rates exceeded
the SLA.
● Our
US Customer Experience team launched a modern digital experience
for learners in the US and Canada. The new Pearson website provides
the first global experience that merges content and
commerce.
● Customer
Support teams continued to make progress in product improvement,
self-help strategy and assisted support improvements.
● Our
focus remained on the performance and stability of all product
platforms.
2020
plans:
Customer experience
● Onboard
additional portfolios to redefine the user experience - e.g. ITPro,
Pearson eText; which will rollout in our UK higher education
market.
● Work
with customer service teams to establish a 24/7 support model for
learners.
● Enable
new commercial models e.g. Buy Now Pay Over Time.
● Expand
the Voice of Customer (VOC) programme for BVR
initiatives.
Customer service and support
● Continue
with core platform deployment across all lines of business to
enable modern support experiences.
● Continue
to work with technology on business cases for increased
efficiencies.
● Continue
partnering with business owners to introduce more differentiated
services to drive loyalty and growth.
|
8.Business resilience:
Risk description: Failure
to plan for, recover, test or prevent incidents involving any of
our products, customers and our businesses' locations. Incident
management and technology disaster recovery plans may vary in
ability/ comprehensiveness across the Group.
|
2019
activity:
● Direct
and prolonged incident management support to key office locations
following the Easter Sunday attack in Sri Lanka.
● Resiliency
visits made to workforces, landlords and critical suppliers in the
US, South Africa, India and the Philippines, to assure local
coordinated incident and business continuity readiness, including
media management. Incident response teams created where none
existed in critical areas.
● Work
continued on the delivery of a Facility Manager bundled service in
North America.
● Improved
capabilities to respond to incidents across Pearson
globally.
● Continue
to drive the risk message as prevention rather than reaction,
towards a change focused on agile resilience.
2020
plans:
● Continue
with global process owners to embed business continuity planning
within their processes.
● Respond
appropriately to major incidents. Resilience resources will
continue to develop local, high-quality teams and
plans.
● Ensure
critical vendors have mature response plans which are annually
resilience-assured.
● Continue
to invest time in all critical vendors to ensure KPIs can be met
during a range of disruptions.
● As
of February 2020, the COVID-19 outbreak in China is a new emerging
risk to the wider economy across mainland China, Hong Kong, and a
growing number of countries around the world. We have invoked our
business resilience plans to help ensure the safety and well-being
of our staff while enhancing our ability to support our customers
and maintain our business operations.
|
9.Data:
Risk description: Inability
to utilise our data to achieve market intelligence and increase
productivity and efficiency, while managing market risk impacts
arising from customer concerns around use of student data, may
significantly affect management of our core operations and
achievement of our strategy objectives.
|
2019
activity:
● Defined
our data governance and toolset.
● Our
data orchestration programme saw a solution director assigned to
commence scoping work and future structures.
● Initiated
four work streams:
- data
privacy
- data
governance
- data
catalogue
- data
KPIs
● Initiated
product, customer, supplier and employee governance work
streams.
2020
plans:
● Introduce
a governance operating model to become operational with an initial
focus on the customer and product, followed by employees and
suppliers.
● Introduce
a data maturity model enabling continuous improvements to be made
as we progress with Pearson's digital transformation.
|
FINANCIAL
|
|
10.Tax:
Risk description: Legislative
change caused by the OECD Base Erosion and Profit Shifting
initiative,
the UK exit from the EU, or other domestic governments'
initiatives, including in response to the European Commission State
Aid decision regarding the UK CFC exemption, results in a
significant
change to the effective tax rate, cash tax payments, double
taxation and/or negative reputational impact.
|
2019
activity:
● State
Aid - the
Group appealed against the Commission's decision and continues to
work through the implications of the decision with support from
external advisers.
● Reputational
risk - the
third annual tax report has been published. Pearson has signed up
to the B-Team tax principles and is actively participating in the
B-Team tax working group.
● Legislative
changes - the
Group continued to assess and monitor proposed changes in the
international tax framework, including proposals to address the tax
challenges arising from the digitalisation of the
economy.
2020
plans:
● State Aid
risk - the
specific next steps depend on the response from HMRC and any update
on the EC legal case, and are likely to include the requirement for
a payment on account. However, we will continue to confer with
external advisors to protect the Group's
position.
● Tax
legislation - work
continues to mitigate the impacts of changes in the international
tax environment and to monitor the ongoing OECD
work.
|
LEGAL AND COMPLIANCE
|
|
11.Information security and data privacy:
Risk description: We
have from time to time experienced, and may continue to experience
in the future, security breaches of our systems despite our best
efforts to prevent them. We also risk failure to comply with data
privacy regulations and standards. The above could result in damage
to the customer experience, our reputation, and a breach of
regulations and financial loss.
|
2019 activity:
Information security
● For
our people, refreshed security awareness training and policies were
launched to ensure all employees understand their responsibilities
for securing information.
● We
enhanced account access controls through Multi Factor
Authentication and Privilege User Management.
● Pearson
continued to evolve our security controls to enable IT
simplification and other transformation programmes.
Data Privacy
● In
2019, we put plans in place to ensure that we were appropriately
prepared for the California Consumer Privacy Act, including updates
to privacy notices, execution of relevant vendor terms,
implementation of processes to respond to user right requests and
extensive training and guidance.
● Held
privacy summits with key product and tech teams focused on
embedding privacy by design.
● Notified
affected customers of unauthorised access to school and university
AIMSweb 1.0 accounts. See https://www.pearson.com/news-and-research/announcements/2019/07/pearson-customer-notification.html
2020 plans:
Information security
● Our
people will have access to role-based security training and
resources to further influence our security culture.
● We
will complete roll-out of enhanced laptop and mobile security
controls, to track best practices.
● Information
Security resources, tooling and practices will continue to be
embedded in our learning, enterprise and infrastructure platforms
to ensure comprehensive security by design.
● We
will enhance our ability to detect and respond to potential
security incidents through development of automated security tools
in our Security Operations Centre.
Data Privacy
● Globally
assess new laws and regulations coming into force and prepare for
their implementation.
● Expand
scope of processes to address new user/data subject right
requirements in additional jurisdictions.
● Work
with product teams to review and update retention
schedules.
● Continue
to engage with relevant teams to drive privacy by design in product
development.
|
12.Intellectual property:
Risk description: Failure
to adequately manage, procure, protect and/or enforce intellectual
property rights (including trademarks, patents, trade secrets and
copyright) in our brands, content and technology may impair the
value of our core assets, or reduce profits.
|
2019
activity:
● Continued
to reduce our multiple brand identities, streamline and strengthen
Pearson's brand and patent key strategic technology assets (PLP,
Aida, etc).
● Expanded
internal governance and best practices to ensure effective rights
management and mitigation of infringement risks across
IP.
● Targeted
IP enforcement against key third party infringers of Pearson
copyright (piracy), brands and patents.
2020
plans:
● Continue
2019 activities with focus on improving IP practices and governance
across growth geographies and reorganised product
groups.
● Monitor
increasing risks posed by local legislation and global treaties
aimed at reducing copyright protection of educational content and
partner with local associations to resist these policy
shifts.
|
13.Compliance:
Risk description: Failure
to effectively manage risks associated with compliance (principally
ABC and sanctions risk), including failure to vet third parties,
resulting in reputational harm, Anti-Bribery and Corruption (ABC)
liability, or sanctions violations.
|
2019
activity:
● Completed
the rollout of a third-party due diligence programme globally and
over 32,000 third parties have undergone ABC and sanctions due
diligence.
● Created
and launched a learning course for third-party due diligence in the
UK, US and Canada. This will be rolled out to the rest of the world
in 2020.
● Our
annual Code of Conduct rollout achieved 100% completion in record
time, and we implemented a global conflict of interest policy as
part of that launch.
● We
launched our SpeakUp campaign in certain key markets, and
incorporated it into the Code of Conduct. As a result, reports into
the PearsonEthics.com portal have increased by 69%.
2020
plans:
● Focus
on sanctions compliance best practice in 2020 in light of the 2019
US Department of Treasury guidance.
● Continue
ABC risk assessments to monitor implementations of our ABC and
sanctions compliance programme policies and procedures, as well as
to identify areas of continuous improvement.
● Evaluate
a prospective interactive Code of Conduct, for potential launch in
2021.
● Finalise
any legacy third-party due diligence efforts.
|
14.Competition law:
Risk description: Failure
to comply with antitrust and competition legislation could result
in costly legal proceedings and fines of up to 10% of global
revenue; other financial consequences such as class actions,
damages, void contracts; and could adversely impact our
reputation.
|
2019
activity:
● Continued
holding training and refresher sessions for our
employees.
● Formed
a working group in the Lawyers Network, dedicated to performing an
in-depth assessment on Pearson employees involved in industry
association groups.
● Set
up a working group to assess on resale price maintenance risk in
all countries where Pearson is active, to match the recent trend of
enforcers to target this type of infringement.
● Launched
eLearning modules on information-exchange risk.
2020
plans:
● Develop
our approach to industry associations and information-exchange,
which will include work on specific training and monitoring levels
of awareness.
● Continue
efforts on resale price maintenance with the working group to
assess risk and issue recommendations.
● Raise
awareness via the efforts of our Antitrust Lawyers
Network.
● Convey
and encourage compliance measures to all teams, as part of our
antitrust compliance programme, as recognised by
enforcers."
|
|
PEARSON
plc
|
|
|
Date: 17
March 2020
|
|
|
By: /s/
NATALIE WHITE
|
|
|
|
------------------------------------
|
|
Natalie
White
|
|
Deputy
Company Secretary
|