Boards And Inflation: 5 Immediate Director To-Dos

Following recent CPI & PPI numbers, there’s an even greater urgency for boards to be talking—in depth—to management about how they’re going to tackle one of the toughest leadership challenges that can assail any corporation: inflation.
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It’s no small thing: Nearly two generations of managers have literally no idea what it’s like to operate in an inflationary environment. That has Ram Charan, one of the best-known and well-respected advisors to CEOs and boards in the world, deeply concerned.

Charan is one of the few experts alive with deep, hands-on experience with the nuts and bolts of how businesses must adapt operations in a time of rising everything. Fifty years ago, a young professor Charan was brought in by GE to create a Crotonville playbook for their managers on how to manage through that period.

To help current directors and managers, we’ve been spending time with Ram and his brilliant collaborator Geri Willigan working up a playbook for the C-Suite and directors based on Charan’s considerable experience. We’ll have much more soon, but we didn’t want to wait to share some of his ideas for what directors should be doing—ASAP—with their management teams. His thoughts:

1. A board meeting devoted solely to a discussion of how inflation and recession will affect the company is mandatory. In an inflationary environment, the board of directors has an obligation to ensure that the CEO and CFO are probing how inflation will affect the entirety of the company’s value chain and are establishing mechanisms to contend with those impacts. The board should ask the CEO and CFO to bring that information to the board.

2. Consider a retreat for the board to have management show you various scenarios of the inflation for your sector—not the whole economy—because there are certain sectors that are going to be affected more negatively than others.

3. That’s important: The inflation rate will vary sector by sector, subsector by subsector. Don’t get caught up by one single number for the whole U.S. or the whole world. Granularity will make the difference here.

4. The most critical task for the board is to approve the right short-term goals out one to two years for management to achieve. The CFO, CHRO and CEO need to put in front of the board scenarios for what could be coming in the next eight quarters and a budget for how they’ll adapt. They also need to educate the board on what inflation can do, and has done before.

5. Directors should ask sharp questions, such as: If the inflation rate goes from X to Y, what would that do to our cash position and competitive position? If inflation continues, what are the risks to liquidity, if any?

As I said, we’ll have more soon, including the impact on comp formulas, sales, pricing and so on. The afternoon of March 24, we’re planning to hold a workshop on leading through inflation, with Charan diving deep into his framework, as well as separate sessions on pricing, customer segmentation, strategic cost-cutting and more. The agenda is still in the works, but we have some preliminary information up today. We hope it will help you, and we hope you’ll join us. Learn more >


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