How should corporate directors perform their fiduciary duties in the face of the numerous global crises currently assailing the operations of their corporations?
Dean Bhaskar Chakravorti of Tuft’s Fletcher School of International Affairs suggested the appropriate mind-set for corporate boards given always-arising crises (currently in climate, democracy, supply chains, wars, pandemics, inflation). His remarks were made during this morning’s program presented by the New England Chapter of National Association of Corporate Directors.
Directors serve companies the operations of which are impacted by all global crises, which interact in turn with pre-existing confusion emanating from the pandemic and prior US political divisiveness. Determining proper board response is complex as the interactions are complex, but the Dean recommended board focus on what he described as “contextual intelligence.”
That phrase means staying continually abreast of the non-business news as well as the business issues, determining specifically how that news will affect the company in real time, and recognizing also that crises today affect every facet of life and thus every company.
Directors typically have been trained to be expert in some important element of corporate governance or company operations. How do they process the current world in light of its diversity of problems and impacts? A conscious effort must be made to evaluate the entire business landscape holistically, integrating prior knowledge with current global realities. In some ways, this invitation to make sure that directors openly engage in overviews echoes the solution presented a few years ago when, in evaluating enterprise risk, it was urged that corporate committees be established to capture input from a wide variety of corporate operations and groups (“silos”), to be sure that they were mixed together and evaluated as a whole.
While not possible in a blog format to capture ninety minutes of intense content, three examples were explored meaningfully:
Supply chains were upended by the pandemic and lately by government policies. Just in time inventory that had been sourced world-wide has been replaced by stockpiling and recognition of needs for multiple sources. But those solutions can add expense and in the end, says the Dean, “the market always wins” as cost efficiency is paramount. So change will be constant, responding back and forth to world events. Possible options for adopting supply chains quickly will arise as technology creates more and more data and suggests new solutions.
Boards should not follow the path which attracts capital markets, which are a poor indicator. Capital markets seek the next new thing, invest because others are investing and trying to stay ahead of identifying future profit.
Finally, the dean emphasized the need for directors with broad management experience as being the people best trained historically to holistically evaluate and deal with crisis environments. These are people trained to “connect the dots.” Directors without this experience have been trained in narrow key specialties by academic institutions which have organized information in verticals to train specialists, not directors. It almost sounded like a plea for eliminating term limits and favoring boards weighted towards graying heads and former CEOs.