Fortune 500 board members share how they’re mapping scenario plans for a recession, market volatility, and global shocks
What will the future look like? And what are the best companies doing to prepare for it?
Pamela Craig, who sits on the board of directors for Progressive, Corning, Merck, and 3M, wrapped up a panel at a leadership roundtable in New York last month with that prompt. Long-term forecasts, she said, have to take into account a long list of business horrors: ongoing inflation, a potential recession, wobbly supply chains, labor challenges, and a weak global economy.
Craig was asking the right room. The event, coproduced by the Women Business Collaborative and board software maker Diligent, which sponsors this newsletter, brought together prominent directors. Scenario planning—an exercise that asks businesses to react to a range of potential future outcomes—emerged as the preferred tool to help boards cope with a barrage of challenges.
“One thing the pandemic taught us is how to manage through uncertainty, and scenario planning was a big part of that,” said Paula Price, who sits on the boards of Accenture, Bristol Myers Squibb, and Warner Bros. In recent months, the boards she serves brought in former defense secretaries and other experts for context on macro events like global inflation and the Ukraine-Russia conflict. One benefit of holding virtual meetings is that it makes booking top speakers easier, she noted.
Relatedly, Lisa Edwards, Diligent’s president and COO, who sits on Colgate-Palmolive’s board, urged companies that haven’t held a thoughtful conversation about the most severe threats to their operations to do so. “We have enterprise risk matrices for a reason,” she said.
Boards should assess their portfolio of products and services and “push on all the tipping points” to find weaknesses, then cull as necessary, added Maria Morris, a board member at Wells Fargo and S&P Global.
Global diversification is essential right now, said Mary McDowell, chair of the board at Mitel and board member at Autodesk and the U.K.-based ed-tech firm Informa. During the U.K.’s economic free fall earlier this autumn, she said, Informa was able to tell investors, “We are a global company, so we are impacted, but it’s not wiping us out.”
Scenario planning, however, was the most commonly cited tool to help boards respond quickly to unknown circumstances. Moreover, it takes the emotion out of a corporate response because leaders can refer back to scenario-planning results to justify their actions, Craig said. “It’s like, ‘We said we were going to do this if this happens, and that’s what we’re going to do.’”
A Word of Advice
“Tech companies age much faster than non-tech businesses, and are thus more exposed to management mismatches. Troublingly, it is precisely in these companies, where the need for corporate governance is greatest, that we (as investors) seem to have acquiesced to structures that give us the least power to push for change.”
—Aswath Damodaran, professor of finance at NYU's Stern School of Business, in Seeking Alpha
On the Agenda
👓 Read: In his deep dive into corporate governance and Meta (cited above), Aswath Damodaran shares a few provocative opinions about how boards and investors contributed to recent crashes in tech.
🎧 Listen: For the Academic Minute, Sumantra Sarkar, a professor of management at Binghamton University, explains which employees are most likely to become the weak link in a company’s cybersecurity strategy and what to do about it.
📖 Bookmark: This is a piece to save and revisit when tech is flourishing again—a look at why the tech firms now laying off scores of employees overestimated how big their workforces needed to be.
Isabel Ge Mahe, managing director of Greater China for Apple, joined the Lululemon corporate board. Gap Inc. added Richard Dickson, COO of Mattel, to its board. Douglas Steenland, lead independent director of the AIG board, is resigning from that role next year. Paola Bergamaschi, a finance industry veteran, will become a director. Seagate Technology announced that Bob Bruggeworth, CEO of Qorvo, is joining its board. NCR tapped Joe Reece, cofounder of SilverBox Capital, to become a director. Gerhard Eschelbeck, ex-Google CISO, joined the board of the cybersecurity company Acalvio. Catherine Hughes, nonexecutive chair of Shell and a longtime oil executive, joined the Valaris board.
Longtime Levi Strauss chief Chip Bergh shared his reasoning for choosing Michelle Gass, CEO of Kohl’s, as his successor.
Experts questioned the governance at Tyson Foods when the company gave the CFO role to a Tyson heir and son of the board chair. Last weekend, the young man was arrested for public intoxication and criminal trespassing.
At COP27, Cargill, Archer Daniels Midland, and several other global food firms outlined plans to eliminate deforestation in their soy, palm, and beef supply chains by 2025.
With a recession on the horizon, companies are looking for short-term cost savings.
I first learned about the Shakespearean drama playing out between two digital currency billionaires (and former friends) from Fortune’s crypto editor John Jeff Roberts, who gave our newsroom a heads-up on Tuesday. “Hi all, the crypto world has gone totally haywire—even for crypto—in the last few hours,” he wrote on Slack. Since then, I’ve been following the wild story of how Changpeng Zhao, or CZ, head of Binance, took down Sam Bankman-Fried, a.k.a. SBF, head of the FTX exchange, through smart dispatches from Roberts and his team. If you’re a director at a company exposed to crypto or just curious, check out Roberts’s “plain English” explainer.
Here’s a snippet:
“It’s likely CZ did this in part because he wanted to squash a rising competitor. But part of it was personal. In recent months, regulators have been getting aggressive toward the crypto industry, and both Binance and FTX have been scrambling to stay on their good side. Amid all this, CZ came to believe SBF was whispering poison in the ears of U.S. regulators—possibly suggesting to them that CZ was tied to China—and so CZ opted for revenge.”
Read the rest here, and watch your back this weekend.