While President-elect Donald Trump worked last week with his transition team from the Trump Tower, directors met just blocks away at the Harvard Club of New York City, to address how in the aftermath of his election boards should begin preparing for what could be sweeping regulatory, tax, and social change.
(Left to right) Robert Klatell, Steven Kreit, and Laurie Shahon
Leading the discussion were EisnerAmper’s Chief Risk Officer Peter Bible and Steven Kreit, an audit partner with the firm. While the directors disagreed on the order and priority of policy changes, there was consensus around one point: Uncertainty will rule. Bible and Kreit suggested directors focus on in the near term and shared recommendations directors might take to remain agile in the face of politically driven risks.
How can a director prepare? Boards must engage deeply in strategy in the coming months. Anthony Buonaguro, president of the New Jersey NACD chapter and director of Enclave Homeowners Association, ignited a debate on whether or not boards will develop investment strategies focused on continued investment abroad.
“It resonated with me that we’re facing several years of uncertainty,” Buonaguro said. “Is this going to make boards more conservative? Usually there are two ways that people handle uncertainty: forge ahead as usual, or freeze. If it’s the latter, it’s not good for the economy or stocks. What are boards supposed to do to revamp strategy?” Kreit answered: “You have to put pen to paper and identify scenarios, then plan for them. Will you hit the scenario that happens? Possibly—or not. But if boards don’t strategize, they’re not going to get anywhere.”
NACD Directorship Publisher Christopher Y. Clark asked participants to suggest calls to action. Shaun Higgins, director of Aryzta AG and Carmine Laboratories, reiterated the importance of establishing strong enterprise risk management (ERM) practices. “I think you go into the board meeting and make strategic planning your number one ERM priority,” Higgins said.
Andrea Bonime-Blanc, CEO, founder, and director of GEC Risk Advisory LLC, jumped in: “I think the answer is to know what your top strategic risks are that need to be focused on.” Regarding specific risks, Bonime-Blanc said that when assessing the election’s implications, “We must pick the top five risks to integrate into business planning and factor U.S. geopolitical risk into our own strategic planning in a way that we never have had to before.”
The EisnerAmper hosts shared their near-term advice. “I can’t find a better reason for your companies to have ERM systems and processes in place,” Kreit said, noting that this is not the time for “mail-in” board members.
“I think this is a great time to start thinking about whether the people you have in the boat with you are the people you want to have in the boat with you,” Kreit said.
To see the full list of participants, please click here.
What We Know
Kreit addressed what can be readily understood from the election. “There’s talk about what is going to happen, but no one really knows,” he said. “Board members should really be prepared for anything. Start thinking about some of the concepts Trump has been talking about, what some of his main areas of focus have been.” Work with management to address how the following, possible policy changes might impact business:
Anticipate inflation and its impact on cash flow and management, equity valuations, and borrowing abilities. While an initial jump in equity markets was seen, according to Bible, “the debt market got $1 trillion knocked out of it,” a sign of anticipation of inflation. Companies should begin scenario-planning for changes in borrowing ability.
Expect early review of tax policy. The dominance of the Republican party across Congress and the executive branch indicate the probability of perhaps even speedy tax reform.
Repeal or replacement of the Affordable Care Act. Some changes will come to the policy, and companies should be prepared to address its impact on their workforce.
De-regulation and repeal of the Dodd-Frank Act. Bible and Kreit anticipate the repeal of at least some Dodd-Frank provisions, and, at a minimum, a review of leadership at the Consumer Financial Protection Board.
Changes are coming to trade. One of the major planks in the Trump platform was a general desire to repeal trade agreements and impose tariffs on China and Mexico, as well as opposition to the Trans-Pacific Partnership. Bible and Kreit underscored the fact that one of the American executive branch’s unilateral powers is to control foreign commerce, which could lead to trade wars “that could trigger a recession,” Bible cautioned.
Kreit also outlined the timeline of key power changes in the White House and Congress:
December 19, 2016: The Electoral College convenes to vote.
January 3, 2017: The 115th United States Congress convenes.
January 6, 2017: Congress declares the president-elect.
January 20, 2017: Presidential inauguration marks the beginning of the Trump administration.
March-September 2017: Congress anticipated to debate raising the debt ceiling.
September 30, 2017: The U.S. government’s fiscal year ends, opening the door for Congress to address budgetary and fiscal matters.
These dates could serve as important milestones for developments impacting their companies.
“Back when we were determining a topic for this discussion, one thing I think we could all agree on was that this election could change the course of the country—and, potentially, the world,” Bible said in summation. “I felt very strongly that we should have this type of dialogue for one reason, and that’s because board leadership is essential for success. It’s a brave new world.”
A second post reporting from this roundtable addresses longer-term concerns raised by directors. To continue reading, click here.
“The last several decades have proven that, more than ever, we are all interconnected and interdependent,” said NACD Chair Karen Horn. “We will rise—or fall—together, based on that trust.”
NACD Board Chair Karen Horn
Horn’s opening speech at the recent 2016 NACD Global Board Leaders’ Summit revealed a compelling case for strong, conscientious corporate governance in light of recent political, economic, and social turbulence.
Horn’s governance experience is extensive and includes serving as a director at Simon Property Group, vice chair of the U.S. Russia Foundation, and vice chair of the National Bureau of Economic Research. She also previously served as chair of the audit committee at Norfolk Southern Corp., lead director and chair of the compensation committee at Eli Lilly & Co., and a director of T. Rowe Price Mutual Funds.
Horn began by thanking outgoing NACD chair Reatha Clark King for “her leadership and her positive influence on our organization’s growth,” and praised the audience for their own strength of leadership in the boardroom. She then turned to the guiding concept behind this Summit’s programming—convergence.
“Convergence is an important theme at a time when our world appears to be tearing itself apart,” Horn said. She pointed out that hostility seems to be the prevailing sentiment of our time and that frustrations with the current domestic and geopolitical environments are the impetuses for growing division. “I feel we must focus on a wider, longer view—a more broadly encompassing perspective that leads us back toward convergence,” she said.
Horn—who previously served as president of the Federal Reserve Bank of Cleveland and as an economist for the board of governors of the Federal Reserve—made several recommendations meant to address the evolving relationship between society and capitalism, using conscientious governance. (For more information on the roles of capitalism and corporations, view the NACD blog post “Re-Thinking Capitalism: Best-Selling Author Espouses Higher Calling for Boards.”)
Addressing Income Inequality
Directors can take a role in addressing social issues like income inequality, Karen said, adding that income inequality is an example of a challenge that “affects not only our immediate stakeholders, but everyone downstream who will be affected in the long term as well as the short term.”
Horn agrees that free trade is an excellent driver of economic value across the board, but that the path to growth can unintentionally leave some individuals behind. She suggested public, private, and government entities alike should develop programs that lift up those who are taken advantage of or otherwise harmed on the path to greater economic progress. “Looking at an issue like this from the perspective of those who will not benefit, or may even be hurt by it, is the first step toward finding compromises and solutions that will minimize negative fallout,” Horn said about the corporation’s role in growth as a greater good.
One such program that directors could collaborate with policy makers, social leaders, and other stakeholders on is how to address the controversial debate over minimum wage increases. “Everyone has an opinion, and it is clearly a divisive issue,” Horn conceded to the audience. “If we are to find a solution that works, again, we must become familiar with the divergent perspectives.”
The Imperative to Lead
Capitalism is being impacted by “globalism, social and demographic shifts, new technology, increased transparency and resource scarcity,” According to Horn. In the face of these paradigm shifts, directors have the opportunity to converge with stakeholders to build a better path forward for all, and have a unique opportunity to rebuild the public’s trust in the role of corporations.
“People are searching for leaders they can trust, leaders who are smart, confident and strong—who are understanding and compassionate,” Horn said. “This is a role sometimes filled by government, but trust in government is at an all-time low, so the leadership gap needs to be filled. I believe we are some of the leaders who can and should fill that gap.”
Horn’s address closed with a charge to directors that will resound through her term as chair of NACD and beyond.
“Corporate America has an immense amount of talent, and we need to step up before we are stepped over,” she entreated. “There is no question that we have the ability to take this leadership challenge, but only if we act responsibly, transparently, honestly and with careful regard for different perspectives. If we can do that, we can move our culture back toward civil discourse—toward convergence.”
The 2015 NACD Global Board Leaders’ Summit officially opened Sunday evening with the bang of drums and the bagpipes of the St. Andrew’s Society of Washington, D.C., a local Scottish heritage association. Their performance was followed by an interactive video experience that challenged the audience to question the borders of the screen. Each of these sensory experiences underlined the theme of the year, Beyond Borders: Leadership Evolved. The opening night keynote speakers–NACD Chair Dr. Reatha Clark King, and philosopher and author, Kwame Anthony Appiah–explored how directors should weather the evolution of the boardroom.
King is a fan of challenges. A seasoned director herself who values the good businesses can do in the world, King centered her message on all the work that boards have done to better the world around us—and the work left to do. “We have been successfully adjusting the trajectory of governance systems and have made improvements, but we still have much to do,” said King. “The board’s agenda gets longer. We offer no encouragement that the agenda will get shorter. Instead we prepare ourselves for the greater demand.”
One of the demands King identified was the need for directors to hold fervently to core beliefs. One among the many she cited was accountability: “I am a student of the word ‘accountability,’ and it looms large in my mind for directors to understand and embrace it.” King asked the audience to also embrace leadership in challenging times in spite of the many chances to falter. Among the recommended ways to lead with strength through governance challenges were the concepts of embracing broader perspectives, finding the courage to do what’s right, and to be brave enough to change if needed.
King’s suggestions for leadership to the audience of more than 1,200 were strengthened by Kwame Anthony Appiah’s discussion on honor. Appiah is author of The Honor Code, a best-selling book that examines four points in history where honor outweighed other forces to catalyze social change for the greater good. Appiah distilled his observations on honor into applications for the boardroom and professional practice as a whole.
At the core of his message was that honor will trump money, regulation, and even the coercion of law to guide a person’s moral compass and that only honor holds up in the face of the greatest ethical challenges that inevitably arise.