Amid Heightened Risk, Get Ready For Contingency Planning

The 2022 What Directors Think survey—fielded in the fall of 2021—revealed directors were increasingly concerned over cybersecurity and further disruptions in their supply/value chain. Then came a war.

Every year, Corporate Board Member polls public company directors on what’s top of mind for the year ahead. This year, the top two concerns heading into 2022 were cybersecurity and supply chain disruptions, well ahead of any other issue—and that was before Russia’s attack on Ukraine heightened the risk in both areas.

Fully three-quarters of the 400 directors surveyed by Corporate Board Member and the Diligent Institute in our 19th annual What Directors Think survey conducted in the fall of 2021 rated cybersecurity as their number one concern (we discuss this and what directors had to say about it in this recent article), and 46 percent list supply or value chain disruption as an area where they’re most concerned about confronting a crisis today.

At the time this article is being written, “Ukraine” is the top term being used by corporate leaders in the news, followed closely by “Russia,” according to the Diligent Institute’s AI-powered Corporate Sentiment Tracker. These terms now outrank other top-spot issues like “growth,” “future,” “inflation” and “pandemic.”

The Sentiment Tracker also organizes the terms being discussed by corporate leaders based on the World Economic Forum’s International Business Council ESG metrics, and right now, “Resource Availability” is the top topic being discussed, beating out “Biorisk” for the first time since the Tracker was launched in June 2021.

It’s clear that what’s happening in the world today is compounding the risk for business. Yet, a great proportion of the directors surveyed said there’s very little companies could have done to contingency plan for the disruptions we’ve been experiencing over the past two years. The tsunami of events that have come together to create the whole of the current situation would have been very difficult to forecast, they said.

As recently as January 2022, we witnessed thousands of flights in the U.S.—including those carrying cargo—being cancelled due to Covid-related staffing shortages and extreme weather events. Across the country, the “Great Resignation” has decreased many companies’ ability to meet increased consumer demand, sending inflation to 40-year highs. Meanwhile, intermittent Covid lockdowns in major manufacturing centers in China have contributed to ongoing supply shortages globally. And today, the war on Ukraine is fueling more disruptions than could have been imagined just two months ago, at the start of the year—not to mention the continuous climb in oil prices.

These and dozens of other similar disruptions have created bottlenecks, shortages and uncertainty throughout the global supply chain that could take years to correct. Scott Gibson, a director on the boards of Northwest Natural Gas Company and Pixelworks, says few companies could have had the foresight and wherewithal to create contingency plans for this type of disruptions.

“The rapidity of demand nearly ceasing to exist in March of 2020 to suddenly exploding in certain areas like supplying work-from-home needs, everything from furniture to PCs—I can’t imagine how someone could have anticipated that,” he said when interviewed in January 2022.

Those who did, however, benefitted. Bob Ducommun, director of Ducommun, a Tier 1 supplier in the aerospace sector, recounts an overhaul of its supply chain agreements a few years before the pandemic hit.

“We reduced the number of critical suppliers significantly,” he said. “When combined with the aggregation of our purchasing power across the enterprise, that rationalization resulted in a commitment to place much more of our business with those that survived that process.” The company was able to set clear expectations on pricing, availability and delivery, with the understanding that suppliers who perform will earn larger chunks of its business.

And therein may lie the lesson. “The truth is the companies that do best at this are the ones that had been thinking about these issues before this arose,” said Robert Shapiro, a director of the board of Overstock.com and a former advisor to top White House officials, including President Bill Clinton, Vice President Al Gore and Secretary of State Hillary Clinton. “They already had the personnel, and they know how to approach these issues. Like the way we deal with cyber. You have a plan.”

Easier said than done, perhaps. Still, there’s a sense of urgency for boards and their leadership teams to take action to further mitigate risks. Kathleen Camilli, a director on the boards of AGF Management and UniFirst Corporation, says, as a starting point, boards need to have a discussion with management about where the supply chain should be in the future. “I think that’s the bigger issue that companies are really addressing now; Do you want to bring it closer to home?” she said in an earlier conversation with Corporate Board Member.

Boards should consider placing contingency planning atop the agenda of their upcoming meeting because it may be hopeful to think we’ve seen the worst of it yet. Some questions to consider for the discussion:

• Thinking about supply chain disruptions over the past two years, what have been some of the lessons learned? How can those learnings be leveraged when thinking about supply chain activity going forward?

• How is your board engaged in creating strategy for ongoing—and perhaps other unexpected—supply chain disruptions in 2022 and beyond?

• How have companies in your organization’s industry, location and peer group fared in comparison? What were some of the strategies they used to mitigate negative impacts?

To help boards and leadership teams navigate these turbulent times, Corporate Board Member is offering a series of events designed to address current challenges such as cyber risk, inflation, the future of work, and more. Check out our events page to learn more. We hope you’ll join us.