After being burned by Russia’s Ukraine invasion, CEOs worried about the Taiwan crisis should prepare for the worst

The forthcoming issue of Fortune magazine features a riveting inside account by senior editor-at-large Geoff Colvin examining McDonald’s months-long decision to sell its 853 stores in Russia after Vladimir Putin ordered Russian troops into Ukraine.

Geoff’s essay, which Fortune subscribers can read here, is a masterclass in executive leadership. McDonald’s CEO Chris Kempczinski took 81 days to make the call—and was widely criticized for not withdrawing from Russia more quickly. But Geoff explains in detail how complicated such decisions can be. Kempczinski had to weigh the impact of his choice on the lives of the Russia business’s 62,000 employees, the entire company’s finances, and McDonald’s global reputation and brand. He told Geoff: “My general approach on leadership stuff is, don’t make a decision until you absolutely have to make a decision,” adding that, when the stakes are so high, he’d rather “be a little slower than rush and get it wrong.”

Kempczinski seems to have gotten it right. McDonald’s sold the Russian operation to a local businessman on the condition that he retain all restaurant employees for at least two years. And while McDonald’s has taken a $1.3 billion charge in its earnings related to the sale, the company’s share price, which slumped nearly 15% in the weeks after the invasion, has recovered its pre-invasion level.

But I was struck by the article’s opening paragraphs in which Kempczinski acknowledged that he, like many other CEOs, assumed right up until Feb. 24 that Putin was only bluffing on Ukraine. “There seemed to be this sense of saber rattling,” he told Geoff. “Surely this isn’t going to lead to any sort of invasion.” Then came the midnight phone call from McDonald’s president of international operations. “Okay, yeah—we’re in a different world.”

Calls like that are every CEO’s worst nightmare. But reading Geoff’s piece here in Hong Kong, I couldn’t help but wonder: what if that call had been about Chinese President Xi Jinping deciding to seize control of Taiwan?

In McDonald’s case, perhaps, that might not be a total disaster. In 2017, Kempzcinski’s predecessor, Steve Easterbrook, sold an 80% stake in McDonald’s businesses in mainland China and Hong Kong for $2 billion to Citic, a state-owned conglomerate, and the Carlyle Group, a private equity firm. Even so, a mainland assault on the island, which is self-governed but considered by Beijing to be a renegade province, would create wrenching dilemmas for hundreds of Fortune Global 500 CEOs—including Kempzcinski. (McDonald’s China franchise is so huge, with 4,000 stores and 180,000 employees, that even the company’s reduced stake in China is likely far more valuable than its Russia business was.)

Putin’s attack on Ukraine has inflicted enormous pain on businesses from the U.S., Europe, and Japan. But, as Bloomberg’s Hal Brands points out, “a major war over Taiwan could create global economic chaos that would make the mess produced by Russia’s war in Ukraine look minor by comparison.” Brands ticks off a long list of potential risks: accelerated commercial and financial decoupling between the U.S. and Chinese economies, closure of global shipping lanes, and disruption of global supply chains. Washington and its allies might use economic and financial sanctions to punish China. Beijing might retaliate by seizing the assets of U.S. or other Western businesses. And, on the literal front lines of such a battle: Taiwan’s semiconductor foundries in which 90% of the world’s most advanced semiconductors are manufactured.

The consensus—among business leaders, investors, and political and military analysts—remains that Xi is unlikely to attempt to take Taiwan by force. I have laid out the case here why I think Putin’s invasion of Ukraine makes it less likely—not more—that Xi will attack Taiwan.

But, as was the case with Putin, the consensus is often wrong. So while the risk of a mainland military strike against the island may be low, it certainly is not zero. House Speaker Nancy Pelosi’s possible visit to Taiwan in August has added to cross-strait tensions. Pelosi has yet to confirm the trip publicly, but she has invited fellow lawmakers from both parties to join her—even though President Joe Biden told reporters earlier this week that the U.S. military thinks the trip is “not a good idea right now.”

Xi highlighted China’s concerns about a Pelosi visit to Taiwan in a rare call with Biden Thursday, warning pointedly, “Those who play with fire will perish by it.” In an essay in Thursday’s New York Times, Bonnie Glaser and Zack Cooper denounced Pelosi’s possible trip as a reckless provocation and warned that the U.S. is “sleepwalking into a crisis.”

Business leaders seem far more alert. The Financial Times reports that rising corporate anxiety about the possibility of war over Taiwan is proving a boon to risk consultants and military analysts as companies seek to develop contingency plans. It’s not enough for CEOs to pray they never get a midnight call about Taiwan. This time around, they should prepare for the worst.

More news below.

Clay Chandler
– clay.chandler@fortune.com

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This edition of CEO Daily was edited by Eamon Barrett