How boards should prepare CEOs for a recession

The response to a potential recession will look different than that of 2008, but some strategies will remain the same: providing transparency to stakeholders, creating a long-term vision for growth, and robust scenario planning.

It’s okay to see a small dip in revenue or growth, says Asha Collins, a board director at IDEXX and a former executive at Genentech and McKesson who currently serves as general manager at DNAnexus. What’s more important is to “make sure that you’re still focused on the long-term strategy and not looking at quick wins to address things immediately,” she tells the Modern Board.

The board’s role is to make sure C-suite management is prepared to weather all obstacles, and today’s challenges extend beyond a simple dip in consumer spending. Volatility is “the new norm,” Collins says.

Jason Schloetzer, associate professor at Georgetown University’s McDonough School of Business, says business leaders should take care to minimize debts, consider alternatives to layoffs such as investments in technology that make teams or departments more efficient, and collect feedback from leaders within the company to make market-specific adjustments.

Schloetzer says that particularly during tough times, organizations benefit “from the knowledge of employees who are actually closest to the environment,” and while board leaders and executives are inclined to sequester themselves to make company-wide decisions, this can actually backfire because local employees “have the most current and accurate information.”

Though the previous recession provides leaders with important lessons, such as how to manage cost structures, today’s executives must rethink their assumptions of what makes for an effective strategy. “What assumptions are inherently undergirding these decisions? What are we actually assuming right now because it’s been true for all of our careers? These are just some of the most important questions executives should ask themselves,” Collins says.

For these reasons, board leaders are emphasizing transparency with customers, employees, and shareholders. Mandy Fields, CFO at e.l.f. Beauty and a director at Allbirds, where she chairs the audit committee, says the board should “help management think through setting expectations internally with their teams, but also externally.”

Boards must work alongside CEOs to clearly communicate their intentions, aggressively pressure-test business strategies and contingency plans, and develop a long-term path to growth despite declining sales. Fields warns that the long-term view “sometimes can be lost in moments of panic or uncertainty.”

For publicly-traded companies especially, business leaders must instill confidence in shareholders about the company’s plan even if sales decline, and demonstrate that the company is capable of weathering a storm. Managing employee sentiment should also be part of scenario planning, especially given how competitive talent markets have been lately.

“Making sure that the employees have visibility into the road ahead is very important,” Fields says.

Aman Kidwai
[email protected]

Headlines

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EV quality concerns.  Car quality on the whole is in decline, but especially for electric vehicles, according to JD Power. Tesla ranked seventh from the bottom out of 33 brands. Polestar came in last. Believed to be a clean-energy solution for the future, electric vehicles are failing to meet reliability standards that are table stakes for less flashy brands. And because of the technology involved in those vehicles and the ongoing chip shortage, EV makers are struggling to include the features and accessories that can help them stand out in a competitive market. The Verge

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BOARD MOVEMENT

Former PwC managing partner DeAnne Aguirreis joining the board of Hercules Capital and the board’s nominating and corporate governance committee. J.M. Smucker Co. President and CEO Mark Smuckerwill become chair of the board in August. Wai-Fong Au, a former financial services executive, and Carolyn Schuetz, former COO of HSBC’s group retail and wealth management division, have joined the board of Altus Group. Former Cisco SVP Alison Gleesonhas been appointed to the board of ZoomInfo. Frank Williams, formerly CEO of Evolent Health and The Advisory Board Company, has joined the board of benefits platform provider Nayya. Reddit EVP Shariq Rizvijoined the board of Cushion, a fintech startup. Toshiba has electedNabeel Bhanji, senior portfolio manager at Elliott Management, and Eijiro Imai, managing director at Farallon Capital Management, as new board members.

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Winni Wintermeyer for Coins2Day

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In an interview with Coins2Day’s Phil Wahba, Liu talks about racism, her immigrant origins, her management strategy, and the advice Sheryl Sandberg once gave her.

Read the full story here.