This week’s new reading on inflation and the subsequent selloff is a sign of two things: Inflation isn’t going anywhere anytime soon (sorry), and Fed Chairman Powell’s message is finally getting through: The Fed won’t be slowing rate hikes for a while. The old saw on Wall Street is worth re-sharpening: Don’t fight the Fed.
We’ll know we’re closer to the end than the beginning of Powell’s March not when gas prices hit $2 a gallon, but when workers start second-guessing themselves before jumping ship or demanding a big raise. Labor market capitulation will be the true turning point for the inflation fight and getting there is going to hurt.
Directors know it. In a recent, yet-to-be released poll by Corporate Board Member, we found nearly two-thirds of directors we polled saying that the balance of power between companies and labor was unhealthily tilted to labor. That sentiment may not be popular—or populist—and it may make people uncomfortable. But it’s also true.
So what can/should boards be doing right now? Three interrelated themes pop out from conversations I’ve been having lately:
• Digital and Automation. You know this. This is the future, and you’ll want to make sure management isn’t mortgaging it as they work to hit quarterly goals amid comp incentive programs concocted during the good (or bad) old days. It’s also vital that directors keep a wide-angle view here to make sure management isn’t getting locked into faddish business models (see Netflix, Zoom, Peloton, DocuSign) past their due date.
• The Supply Chain. Disruption here is now a permanent feature, not a bug. So many of us grew up in an era where it made sense to source something on one continent, have it shipped to a different continent for assembly and then have it brought to a third for sale. What worked then may not work going forward. How will you make money in a new environment? Does management know?
• Focus and Simplify. Talking recently with Raj Gupta, one of the more experienced directors around today, for his recent article in Corporate Board Member was very clarifying. He’s seen it all over the last few decades, and his big thought for boards today is to reassess sprawl—products, divisions, projects, geography. Complexity has inherent risk, and that’s compounded by wave after wave of external risks—geopolitical, economic, societal, regulatory. His advice: Take a hard look at the portfolio, divest intelligently and wait in ambush for opportunities.
And finally, there’s the big, uncomfortable wildcard in the background, one that’s out of our hands, the one that poses the biggest systemic risks: the rise of authoritarian regimes around the world amid widespread societal instability.
Ram Charan, the best-selling author and C-Suite adviser known to so many of you, told me recently that this is the key thing corporate leaders should be making time for understanding right now—but aren’t. It isn’t just Russia and China—though they’re prime movers to be sure. Anti-democratic regimes are sprouting up around the world (Italy, Brazil, Hungary, Turkey et al.) and the trend shows little sign of abating.
Talking through how you’ll operate in a hotter, faster, more restless, more authoritarian age may not be fun. But, unfortunately, it’s probably what we all need to be doing. No, it isn’t 1938. But it’s not 2018, either.