As boards look at their agendas for the new year, there are a host of factors that were previously givens but won’t necessarily apply going forward, making forecasting and scenario planning that much more challenging, says Mark Weinberger, former chairman and CEO of EY and a director at Johnson & Johnson, MetLife, Saudi Aramco and Accelerate Acquisition.
“We took many things for granted for the past several years—virtually free money, a growing economy across the world, a peace dividend that provided for reducing cost and building out market share globally,” he says, adding that a lot of asset allocation decisions companies made were based on certain assumptions. “But with inflation so high, and now interest rates going up so fast, those assumptions have changed and you’ve got to revisit those plans. So scenario planning is a big focus—looking at risks, at dependencies of your business, especially around supply chain risks. Plus, you have the old traditional issues of cybersecurity, digital transformation and talent.
“You add all that up and I would say just having time to go through all of the board’s priorities and make sure they focus enough time on the increasingly different scenario planning for your strategy, along with the normal risks, is really challenging to boards today.”
In the following Q&A, Weinberger shares how his boards are managing new and existing risks, how boards can help CEOs think through positions on social issues, and why focus on ESG is not new.
Given how much there is to juggle, with a limited time for board meetings, how are you and prioritizing and maximizing time?
The way you have to do it is you have to be working with management much more to set up the right priorities for your agenda when you come into meetings. It can’t be just the same old things on the list. You really have to reprioritize your agendas. You probably spend more time between meetings having one-off calls when deciding how you’re dealing with big issues. For example, if you’re doing a major spinoff or a major acquisition or a major transformation, a lot of times you’ll have to set up special calls or special board meetings or subcommittees of the board to deal with some of those issues—you’re seeing that quite a bit. And then more work pushed down to the committees. Committees may have longer meetings or meet more often to resolve a lot of issues to bring up to the board.
How would you characterize the mood on your boards going into 2023?
Good question. I would say we probably are balanced a little bit higher towards the risk analysis than we were maybe a couple years ago where everything was a huge opportunity that you could take measured risk on. Now you really want to make sure that you spend more time analyzing the potential downsides, not just the upsides. I mean, you do that anyway, but you certainly want to do the broader scenario planning. So I would say that the mood would be, you know, listen, I think we all feel like the economy’s slowing, the free money days are behind us, and so it’ll be harder to find all the opportunities that might have been easier to do before.
So I think a practical reality of that the economy’s changing and that we have to just analyze things differently. But I wouldn’t say good or bad. Yes, certainly, we have to watch our costs better and more. You always should, but certainly now when the cost of funds are more expensive, the equity markets are not as predictable because of the variation in the equity price. So you’re not getting and raising capital as freely as you might have been in the past, so I’d say the boards are really analyzing even greater the potential transactions that you’d look at with a realism that there could be an externality, whether it be like the pandemic or a war or a recession that could come in and intervene in even the best plan.
So you’re even more focused on the externalities outside your business that could affect your decisions. I mean, you should always be, and we always are, but now you’re not just thinking about what should we do? You’re thinking about what happens if we have a major recession and this happens, or what happens if we have a decoupling with China and we do this? A couple years ago when, when the peace dividend was there and everything was about expansion globally and supply chain efficiency, there was probably less looking at all the potential different externalities that could hinder your plans as now we’re more aware of them, we’re taking that into account more.
Does an increased focus on externalities necessarily mean less time to spend on internal issues like ESG, culture, talent and the like?
I actually don’t think so. Certainly after the so-called Great Resignation—I call it ‘the Great Reassessment’—where your employees were reassessing where life and work meet and how they want to work and what types of things they need to be happy at work. We realize those things are so important to the workforce, and maybe even more so coming through the pandemic that, I’ll be honest, I think we’re talking as much, if not more about talent, people development, the mental health of our people, the importance of culture and attracting and retaining talent—all those things are as, if not more, appreciated and recognized post pandemic.
The other thing that you spend more time on as a board is, as businesses are being pulled into political debates more often, whether it’s ESG and how it’s been weaponized, and talking about whether or not a CEO should take a position on an issue publicly or even internally to its people, the board is just spending a little bit more time on that. I know we have been developing frameworks for management to think about when they take positions and when they speak out about public policy issues so that you’re not caught up in a one-off have to decide what do we say here and there. It’s really important that companies are spending more time thinking about how they are speaking out and whether they are speaking out on social issues. That’s a board issue. So that’s gotten attention on the boards I sit on as well.
Do you see that as being a bigger issue now than it used to be?
It’s always been the case, but yes, absolutely, all these issues have been more weaponized as a result of the pension, the political systems and the social issues we’ve been through the last couple years. Whether it was the voting rights issue or abortion issue, immigration or trade or supporting the inflation reduction act—what, when and where should the CEO take a position and talk internally about where the company is and externally? It’s CEOs in particular being called on more and more to do that by all their stakeholders and by politicians. For one of the company’s board’s I’m on, we put together a whole framework: Does it go to the values of the company? Does it affect our business? Do we have an expertise here? Is it an issue that we’ve typically spoken out on? So a whole lot of things that you’d look at and try and evaluate as to whether you want to take a position so you’re not stuck doing a one-off analysis every time new issue comes up.
So a CEO who was, for example, in Eisner’s situation with “Don’t Say Gay,” this would help him or her to decide whether and when to speak?
Well, the CEO’s going to be on the line no matter what he or she does, but it helps the CEO think through what the board would expect him to do or say in that circumstance, so they don’t have to call board meeting every time a new issue comes up. It’s like additional guidance to the CEO of what the board thinks about when and how we should look at these issues and take a position on them. It’s a tool. It’s more probably thought about and debated in boardrooms today.
Another example would be whether a CEO should sign on to the Business Roundtable’s stakeholder capitalism statement that came out in 2019 with Mary Barra and Jamie Dimon and Alex Gorski, and others. There’s a real legitimate question about, should people do that without the board saying what they think? That’s one example. Another example would be the Disney situation you talked about. Another would be the voting rights issue where Delta got into trouble, right? Does being headquartered in Georgia mean the CEO should or should not be talking about the issue or a particularly piece of legislation? It may be the answer is yes, maybe it’s no, but shouldn’t the CEO have at least input from the board? It’s probably a good idea. So I think it’s the best practice that in a couple of the boards I’m on, we actually came up with this matrix about how to think about whether or not you do you take a public position.
Along those lines, are boards spending more time on ESG?
It’s really unique to the company, but to me at least, ESG is something I bring to every board I’m on. But not in the context of saying, ‘What are we doing on ESG?’ There’s no such thing as ESG, and what are we doing about it, right? We don’t talk about our governance at every board meeting, because we have governance set up, we have bylaws and charters and for our committees and you annually review that stuff every year. But when you talk about the ‘S,’ what are we doing with our risk and supply chain issues? What are we doing in our communities to build brand? What are our talent and people issues? What’s our retention rate? What are our employee engagement scores? We go through that at every board on at least once or twice a year and every board does it. Those are the elements of S.
And then the ‘E’ on the environmental side, I sit on the board of a large energy company and it’s very prevalent. We talk all the time about what we’re doing around carbon capture, what we’re doing around reducing our intensity of carbon, what we’re doing around reforestation, those kind of things. In the ones where it’s not an energy company, we talk about whether we should have goals and then we have metrics to see if we’re on the track for that and those come up when we do our evaluation on our strategy and at corporate review every year. But we don’t sit there at the board meeting and say, ‘What are we doing on ESG?’ It’s built into our discussions around those topics as they relate to our strategy and our business. And it was prevalent before. If you didn’t have that prevalent before it was ESG and became an issue, you probably weren’t a very well run company because all those things are incredibly important to the long term success and de-risking of a business. You may not have talking about them as ESG, that shorthand, but absolutely it’s as prevalent today as it ever was on the board, if not more so.
The ‘E’ is more so because the now we have ways with technology and measurement to capture some of the carbon stuff that we didn’t have in the past. So you’re probably able to talk about that more. And the talent issue may be more because of the recognition of coming through pandemic, just how important all of our workers are and what we need to do now to keep them engaged is different than it was years ago because the millennium is the new workforce and they want and expect different ways of work and different things. That takes more board discussion about how to give that to them because it’s a change—but not that it wasn’t important before, too. It’s just changing.