Helping boards manage geopolitical risk with Jon Huntsman Jr.

| Podcast

Assisting management in navigating today’s geopolitical complexity has become one of boards’ most important and difficult tasks. In this episode of the Inside the Strategy Room podcast, Ziad Haider, Celia Huber, and Jon Huntsman Jr. discuss how boards can address this challenge. Huntsman spent nearly two decades in US public service at the state, national, and international levels in roles including deputy assistant secretary of commerce for Asia and US ambassador to China, Singapore, and most recently, Russia. He is also the former chair of the McKinsey Geopolitics Advisory Council. Today, he sits on the boards of Ford, Mobileye, Chevron, and Mastercard. Ziad Haider, who coleads McKinsey’s geopolitics service line, previously served in a range of senior roles in the US government, and Celia Huber leads our North American board services sector. This is an edited transcript of their conversation. For more discussions on the strategy issues that matter, follow the series on your preferred podcast platform.

Sean Brown: In your experience leading our board sector, what are the biggest challenges that boards of directors face?

Celia Huber: First, there’s increased shareholder and stakeholder complexity. Second, there’s increased business complexity: the need for speed, agility, talent, and resilience in dealing with changes in the business environment. Finally, market forces have become more intense not only in terms of greater macroeconomic volatility but also volatility across business models due to technological advances and geopolitical tensions.

Sean Brown: With complexity on so many fronts, where are boards focusing their time?

Celia Huber: About 25 percent of their time is on strategy; close to 20 percent is on performance management. These are traditional topics on board agendas. But increasingly, we see hot topics such as geopolitics, AI and technology, cybersecurity, business model innovation, and evolving risks around supply chains and labor. As a result, board members spend a lot more time preparing. We survey boards every year, and the number of days that a board member spends preparing and attending board meetings is 33 days a year, and that has been rising steadily.

Sean Brown: Are boards expanding their memberships to gain the capacity to address these growing mandates?

Celia Huber: Adding more board members often doesn’t reduce the amount of time each director spends, so we don’t see boards doing that, but they are handling more work in committees. Many boards also have added virtual meetings to their in-person meetings.

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Jon Huntsman: It’s not about the number of people around the table but about the individuals who fill the seats. The demand for international and risk knowledge is at an all-time high. Just as sustainability is a critical area that board members must understand, so geopolitics is rapidly becoming that kind of discipline. I also see public policy and sustainability committees becoming over-the-horizon indicators for the entire board, gathering information and translating it into board actions.

Sean Brown: Is one of the consequences of these shifts the need for deeper expertise on the committees? And has their role evolved?

Jon Huntsman: The audit committee has been the repository of enterprise risk, but we have entered a time when overseeing geopolitical risk is too much for the audit committee. I see some boards expanding public policy committees or even establishing dedicated risk committees. Companies need the capability to see things over the horizon, interpret them, and make sure that boards can process them. Management teams also have to transform their corporate structures as boards work to transform their governance structures.

Sean Brown: How much of our current geopolitical volatility was predictable, and how do you see it evolving?

Jon Huntsman: Much of what we’re dealing with today was not predicted, so companies had to turn on a dime to respond, and this environment won’t change much anytime soon. It’s important to note that half of the world’s population will go to the ballot box this year. The stakes are enormously high, considering that democracy has been backsliding for about 17 years due to the rise of disinformation, election interference, and other factors. These elections will have a corollary impact on economic policy, trade, and global economics. What’s more, when asked about the most important issues the US faces, four in ten Americans now prioritize foreign policy. Never before have I seen the American people show this much interest in foreign policy—and you can substitute geopolitical risk. That then translates to the policies that Congress is likely to take up.

Sean Brown: How should boards and management respond to these realities?

Jon Huntsman: Companies need to take a multifaceted approach, keeping an eye not only on the global markets but also on domestic policy and legislative trends. We are living in the most economically disruptive moment since World War II, and I don’t think we stop enough as boards to really process that. Typically, in the past, we would have an annual dinner where we’d bring in a speaker on geopolitical risk. We’d have a nice roundtable discussion, and we’d go our separate ways. I would submit that those days are gone. Today, geopolitical risk insights and capabilities must be central to every corporate strategy and leadership team because how you lead and problem solve during this period without a rule book and without precedent will make or break the success of your corporate strategy. Leadership teams need to build new disciplines and new muscles. Old silos need to be replaced with alignment around the risks that the company faces.

We’ve seen the global order transform. In my life, I have seen a bipolar world during the Cold War years, and even though we were on the edge of our seats due to the possibility of nuclear annihilation, I remember the predictability that came with that world. That morphed into a unipolar world after the collapse of Soviet communism. Today, we are in a multipolar world where many unresolved global conflicts are manifesting themselves in different corners of the world. That’s compounded by the post-COVID increase in sovereign debt, slower growth, and less reliable supply chains. The Russia–Ukraine conflict, which seems to have no end in sight, will continue to play out in labor markets, energy costs, and the displacement of people. We’re also seeing the rapid advancement of technology, moving particularly quickly in the United States and China, but the rules of the road are ill-defined. Finally, we see the disappearance of trust in critical institutions and dysfunctional politics not only in the United States but also in many key markets around the world.

In this environment, boards must be the tip of the spear. So how do boards get and stay ahead in an environment that carries more risk than ever? What kind of talent should sit around the table, as Celia noted? Is board member education commensurate with your corporate strategy and risk?

Sean Brown: Ziad, you have written about this paradoxical state where the world is more connected than ever in terms of the flows of people, services, and ideas but also experiencing increasing levels of geopolitical fragmentation. What’s the business sentiment around these expanding geopolitical fissures?

Ziad Haider: When we survey business leaders about their views on risk, geopolitical risk is understandably at the top, and the biggest emergent risk in 2024 is postelection political transitions. Interestingly, when we ask those business leaders about their top priorities, geopolitical and political risks are toward the bottom. It’s puzzling, and our hypothesis is that this is a new discipline for companies. Many executives have never dealt with so many geopolitical fractures. In effect, they’re saying, “We have a pretty good sense of the problems, but we don’t have a great sense of the solutions.”

Sean Brown: What can boards do to help management find those solutions?

Ziad Haider: There are several things that boards can do. First, they need a set of board members with relevant skills—not just someone who knows geopolitics but a person who will roll up their sleeves and problem solve with regulators and policy makers, tell the company’s story, and deal with practical operational issues. Second, as we discussed, board committees may need different jurisdictions than before. Many of the boards we talk to are integrating risk with strategy because, for example, the question, “What should our global footprint be?,” isn’t just a function of risk but of risk versus return. There are markets where risk is high and returns are low, but strategically the company may feel it needs to be in those markets to maintain global relevance. The third point is role clarity, and we see a lot of fluctuation there. Should scenario planning around geopolitical risk involve the board or the management team? Different companies have different answers to that.

Next, you can’t have an informed discussion about geopolitics without a common baseline of facts. Too often, we hear, “I heard this from a friend,” or “I read that in a magazine,” and that’s the basis for decisions. The fact is that geopolitics is personal. Leaders of global organizations consume very different media. Additionally, boards need to raise the clock speed. The annual conversation with a geopolitics expert that Jon mentioned—that luxury is gone. Finally, where do board meetings take place? The locations send a signal not only to the organization but to the market. If you have a commitment to a market, showing up is critical.

Sean Brown: How do you recommend that boards establish that common baseline of facts?

Ziad Haider: There is no silver bullet. You need to build a composite picture. You can get insights from external vendors or experts within the organization if you take the time to listen to local teams. It’s also important to be systematic about meeting with policy makers in different capitals, not just in government but international financial institutions. Comparing notes with peer firms also helps. “What are you hearing? What are you learning?”

Celia Huber: I would add that organizations don’t spend enough time getting alignment between the board and management on the facts that really matter. Where is value really at stake? Then, rather than getting caught up in the latest headlines, they should go back to the strategy and analyze value for the company.

Jon Huntsman: I think this is where networks and partnerships can be multipliers. I chair the World Trade Center, an organization in Salt Lake City that helps companies in the Western US navigate global markets. These companies learn from one another; they share best practices. Organizations like this exist across the country and, indeed, around the world.

Sean Brown: How are boards ensuring that they are sufficiently informed about geopolitics?

Ziad Haider: Some choose an individual to serve as a funnel of insight. Others are establishing geopolitics advisory councils. Industry associations are quite important as well. But insight needs to then lead to oversight. Insight in a vacuum will fizzle. Those insights need to be brought into formal discussions based on the same set of facts.

Jon Huntsman: I have found that what supercharges certain directors is having sidebar meetings with senior operating officials within the company. Oftentimes, we call them tutorials, where board members can learn about different parts of the business. The practice Ziad mentioned of boards holding meetings in other parts of the world can also turbocharge directors’ knowledge, something I’ve personally experienced dozens of times. You’re on the ground in a different operating environment and can bring regulators and policy makers into the boardroom to discuss what’s happening in that market.

Sean Brown: How are boards turning those insights into strategic direction and oversight?

Ziad Haider: One thing we are seeing is the establishment of internal geopolitical risk teams. They don’t have to have the words “geopolitical risk” in their names; government and regulatory affairs teams, risk teams, or bank security teams may fulfill the role. What’s important is that this geopolitical risk team not be a satellite floating in space in sort of a “ground control to Major Tom” scenario. It needs to connect to a member of the board. That pairing gives the unit a champion on the board, both for the team’s insights and to amplify its work, because it can be a lonely uphill fight to try to establish the importance of these themes.

As for how you organize the board’s oversight, one way to do that is to think of categorizing markets by the level of geopolitical risk. An event may be very significant for some organizations, whether positive or negative, and less so for others. It’s useful to be clear about what events and markets matter, what risks flow from them, and what controls you put in place, then use that as a basis for board discussions.

Sean Brown: You mentioned earlier that some companies are reassessing their global footprint. How are they approaching that, and how are boards involved?

Ziad Haider: Companies have to think through the question of, “Can we remain global, and if so, how?” There are several dimensions that boards need to assess: capital, supply chains, innovation, branding, talent, and technology. For example, should we move away from one global tech stack to more localized or completely segmented tech stacks in multiple markets? When it comes to R&D, there are tremendous opportunities and talent all over the world, including in markets that home governments may view as geopolitically sensitive, so how do you think about segmenting your R&D work and what are the guardrails? For example, one leading tech firm maintains an R&D facility in one market but with clear guardrails that no work will be done there on facial recognition or AI.

Another important question is, “Do you maintain a global brand?” It’s a big mental shift to consider moving from being a global organization with a global operational ethos to one which might lead some colleagues to feel like they’re second class. These are very challenging cultural and identity questions.

Sean Brown: You’ve talked about insight and oversight. What about foresight? How can boards incorporate that into the strategic guidance they provide?

Ziad Haider: One way to approach this is to consider, what are the black swans—the unknowable, high-risk events that could have a high impact? Then, what are the gray rhinos, which are known risks with high impact? There are a number of them currently on the horizon. More important, what are the silver linings amid all this geopolitical volatility? Imagine an exercise where the board develops a hypothesis for each of these three categories based on external and internal inputs, then thinks through which ones matter most for the organization and how to make contingency plans around them. “If this scenario came to pass, what would it mean for our supply chains, our people, our data, our competitive posture, our external communications?” We see many boards or management teams embark on such exercises to help them look around the corners.

Sean Brown: What kind of silver linings do you see companies finding, and how are they acting on them?

Ziad Haider: First, you need to pay full due to the clouds around a silver lining, but three types of linings emerge frequently in our conversations. Market silver linings are new market opportunities where companies can, for example, consider supply chain diversification. India, ASEAN, Mexico—these markets are not without complexity, but they are opportunities, nonetheless. There can be silver linings around sectors. We’re seeing pivots in Europe to accelerate the energy transition in the face of the tragic war in Ukraine. Finally, there are silver linings around industrial policies. Those cut both ways, but many companies are thinking about how upcoming elections may change the trajectories of these policies.

Thinking about this, I’m reminded of something Alan Turing, the famous British code breaker, once said. “We can only see a short distance ahead, but in that we see there’s plenty there to be done.” Change and disruption can create opportunities if companies are willing to search for them.

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