Companies continue to face significant global economic uncertainty. Although U.S. economic prospects have improved in recent years, structural weaknesses in other regions pose significant challenges for multinational companies. To ensure their organizations thrive in this volatile environment, boards and senior executive teams must pay close attention to regional trends and international politics and how these affect the growing interdependence of markets worldwide. During a presentation at the 2015 NACD Global Board Leaders’ Summit, Kaushik Basu, chief economist and senior vice president of the World Bank Group, identified four major market conditions that will influence the growth prospects for many businesses.
The shape of the post-crisis recovery continues to change. In recent years economists have been hard-pressed to forecast how global markets will behave. After the 2008 financial crisis in the United States, economists initially anticipated a V-shaped recovery, in which the market hits bottom and then recovers. As it became clear that the recession would continue, they altered their predictions, asserting that the recovery would be U-shaped instead. When the European debt crisis occurred, economists then foretold a W-shaped recovery. The lesson seems to be that economic cycles have become less predictable and no longer adhere to historical patterns. In response to this increased uncertainty, directors and management teams must now expand their strategic planning process to incorporate a range of possible economic scenarios.
The economic fortunes of emerging economies are not uniform. Brazil, India, and China are often touted as emerging centers of economic power; however, . In the past year only India and China saw growth in their gross domestic products, while Brazil—which has endured corruption scandals, tax increases, and spending cuts—has experienced virtually no economic growth. When discussing potential investments in these foreign markets, boards should require management to provide forward-looking country assessments in order to responsibly evaluate the potential risk and rewards.
Economies are porous. Directors need to be aware that local economies are inextricably intertwined, and that deteriorating economic conditions in one country can therefore spread quickly to other nations. For example, the ramifications of slowing growth in China are significant because so many countries are increasingly dependent on continued Chinese investments and consumption. Africa, Latin America, and Germany are likely to suffer most as major exporters to China. Conversely, India’s economic growth has recently accelerated, due in part to structural tax reforms that have created a more welcoming investment climate, resulting in a rapid surge of foreign direct investment in 2014.
Increasingly disparate monetary policies among the developed nations will have global economic ramifications. Directors will be expected to understand the consequences of divergent policies—especially those of developed countries—for the world’s biggest economic blocks. For example, the Federal Reserve is debating a possible rise in interest rates after seven consecutive years of record-low borrowing costs. While a rate hike would ostensibly strengthen the U.S. dollar by encouraging investments in this country, it could also raise the prices on U.S. exports and undercut the economic viability of U.S. products in foreign markets. In the Eurozone, the European Central Bank (ECB) has in recent years maintained loose fiscal policies, increasing the supply of money flowing through international markets in hopes of facilitating economic recovery. A U.S. interest-rate hike would result in a weaker euro, which in turn could lead to a boost for Eurozone economies because buying trends would begin to favor domestic products. On the other hand, tighter U.S. fiscal policies could readily be undone by the European Central Bank injecting even more liquidity into the markets to keep euro values low and maintain the viability of Europe’s export market. Emerging markets, too, might experience a negative impact from these proposed policy changes. Because they have been borrowing money in U.S. dollars at near-zero rates, these countries will almost certainly see an increase in debt and decreased economic growth if U.S. interest rates rise.
Meet Jeannine Strandjord, a seasoned public company director whose board experience has spanned information technology to retail, and whose executive résumé includes the role of chief integration officer at Sprint, where she oversaw the transformation of the telecom giant during a period of radical change. She recently spoke with NACD Directorship magazine about her path from being a first-time director to becoming a boardroom leader and shared her best advice for new or aspiring directors.
Just what should newly minted or aspiring directors keep top-of-mind? “First of all, learn what you have to offer to that board,” Strandjord said. “Be sure that it’s something that adds value—not just that you’d like to be on a board. Second, if you really want to serve on a board, you better learn how to network. Meet as many other people as you can and find a great mentor who could be helpful in finding the right board for you. A wonderful mentor provided much of the reading material and later helped recruit me to his board, and I’ve acquired other mentors along the way through networking.”
Strandjord currently raises the bar for boardroom excellence at Euronet Worldwide, MGP Ingredients, American Century Mutual Funds, J.E. Dunn Construction, and the Ewing Marion Kaufmann Foundation. To advance her boardroom education and enhance her director skills, she decided to pursue the NACD Board Leadership Fellowship. “I believe I owe it to my boards to continue my education,” she said. “Continuing education is extremely important for all board members. You can’t be as effective in any endeavor unless you keep up your skill sets, because things are changing too quickly.”
NACD Fellowship, the gold standard for director credentials, is a comprehensive program of study developed to educate directors about perennial and emerging boardroom issues and best practices. Completion of this rigorous program demonstrates a director’s serious commitment to exemplary board leadership. “NACD brings the most value in terms of the education that they provide—and I’ve been to programs at the New York Stock Exchange and the Investment Council Institute,” Strandjord said. “NACD’s program is terrific, and I really believe in it.”
Read the full interview with Jeannine Strandjord in the September/October 2015 issue of NACD Directorship magazine, where she also talks about the biggest disruptors she faced at Sprint, her experience as the first and only woman on a board, and how the decision to pursue NACD Fellowship has shaped her board service.
Future issues of NACD Directorship will introduce you to other outstanding NACD Board Leadership Fellows. To learn more about the program and how you can attain the NACD Fellowship credential, click here.
Dawn Mahler and Jesse Rhodes contributed to this piece.
“Putting a Boardroom Lens on Cyber,” one of the final panels of the 2015 Global Board Leaders’ Summit, continued themes heard throughout Summit sessions. The panel focused on how to ask management the right questions about the state of their enterprise’s cyber security and how to assess the strength of their preparedness to manage this risk.
The panel was packed with leading technology experts: Nicholas M. Donofrio, director of NACD, Advanced Micro Devices, BNY Mellon, Delphi Automotive and Liberty Mutual, and former executive vice president of innovation and technology, IBM; Alfred Grasso, president and CEO, The MITRE Corp.; Christopher Hetner, cybersecurity lead, Technology Controls Program, Office of Compliance Inspections and Examinations, U. S. Securities and Exchange Commission; and Kimberley S. Stevenson, director, Cloudera Inc.,and CIO, Intel Corp. Bill E. McCracken, director of NACD and MDU Resources Group and former CEO of CA Technologies, moderated the discussion.
Below is a summary of the high points from that discussion.
Recognize that cyber criminals are constantly changing methods and targets. When it comes to security breaches, “The bad people are getting better, faster, and you have to assume, therefore, that you have to move quicker,” Donofrio said. For example, cyber criminals increasingly exploit human error by using social engineering—especially with “spear phishing” emails. These emails look like legitimate business from trusted sources, yet contain dangerous malware. One employee opening such an email could compromise an entire network’s security.
Scrutinize whether management really knows where key data assets reside. It’s essential to gain the confidence that management knows the location and how “crown jewel” data assets in often highly distributed IT environments are being protected. Management needs to also demonstrate an understanding of the rationale for access rights of both employees and contractors. The fine print in third-party contracts could jeopardize data security, as cloud storage companies sometimes have “quality control” clauses granting access to your data.
Ensure that general management is held accountable for effective cyber-risk management. Cybersecurity is no longer an IT issue, but a significant business risk as technology is now a critical component of most business processes. As a result, general managers must share formal accountability with IT for the strength of cybersecurity. They must foster a risk-aware culture. If, for instance, the IT department sends dummy malicious emails to test open or click rates in the network, a problem would be detected if the rate goes up. “We track the number of employees who click on malicious emails,” Grasso said. “It’s less than two percent, but if it rises, we’ll move quickly and change our training policies.”
Demand that technology leadership avoid jargon and communicate complex concepts in easy-to-grasp language. “We have our own vocabulary as IT professionals, and we have a hard time translating that into everyday language,” Stevenson said. Technology leadership must be careful to clearly communicate concepts to board members whose first imperative is to understand risks. Technology management should craft language that non-expert directors can readily grasp.
Beware the consequences of your own oversight approach. Directors must carefully craft the questions they ask management when examining cyber risks. Donofrio recommended that board members focus carefully on the questions they ask of the C-suite to avoid sending the wrong message: for example, boards that focus exclusively on the costs associated with cybersecurity could undermine much-needed investments by management in better defenses. “We as board members can mess this thing up,” Donofrio said. Continued technological literacy is integral to asking the right questions, understanding experts’ briefings, and appreciating the full impact of cyber-risks across the organization.