Recent fears of a global recession have corporate board members conferring with each other about possible strategies they can implement that will help their company survive a major economic downturn or quite possibly flourish during it. Unfortunately, recent data suggests that the percentage of directors with strategy experience is declining at a time when that skill may be needed most. In a world where economic conditions change rapidly, corporate boards are under more pressure than ever to develop effective business strategies that can lead to sustainable growth. Directors with strategy experience can help.
According to The Conference Board, the percentage of board members in the Russell 3000 with business strategy experience declined from 67.7% in 2018 to 62.9% in 2021. Directors with strategy experience in the S&P 500 declined from 69.7% to 67.5% during the same period. This decline means that board members with strategy experience will likely be in high demand over the next few years.
With fewer directors with strategy experience available, corporate boards need to do a better job of emphasizing the connection between corporate governance and business strategy. Often when companies are faced with harsh economic conditions, one of the first things the company does is to begin laying off workers. This is what many companies did during the first year of the Covid-19 pandemic. And now, many companies are laying off workers or preparing for layoffs amid numerous predictions of a coming recession.
While layoffs are surely one move among many that could lower operating costs and protect shareholder profits, the board and management should make an honest effort to develop additional strategies that could possibly take advantage of the downturn or put the company in better position to reap benefits when the economy rebounds. For example, What is the plan to communicate how the company will navigate the recession (high inflation) to shareholders, regulators and consumers? Do all these moves support long-term sustainable growth for the company? Is there a strategic acquisition target that is more affordable now that economic conditions have lowered its stock price, and is the time now to make a bid? Is it time to enter a different market segment, or ramp up production in a particular market to capitalize on shifts in consumer spending due to inflation (or recession)? What is the plan for the company workforce after the recession ends (were layoffs temporary or permanent)? Can the management team execute the strategy after it is vetted?
Asking these and many tougher questions is essential to developing a sustainable, long-term business strategy for any company, but it can only be done if the board has created an environment of deep trust among its members and management. Board members must be focused on engaging in a solution-oriented discussion. Directors must maintain an open mind and be willing to defend their ideas without being offended if they are challenged. And perhaps most of all, they must be respectful of their colleagues and be willing to learn from them. Corporate directors can expect to be called upon to develop and adjust the company’s business strategy many more times in the future and helping current board members better understand what effective business strategy looks like is the quickest way to strengthen an essential skill for the modern corporate board.