Governance During A Geopolitical Crisis

Corporate boards—already grappling with rising inflation, labor market shortages, and the impact of the Covid-19 pandemic—now face the challenge of Russia’s invasion of Ukraine. Here are three steps companies can take to navigate an environment of increasing geopolitical instability.

1. Engage the board

CEOs should reach out to their full boards now to let them know how the company is—or could be—affected by the situation in Ukraine. During the pandemic, management stepped up the level of communication with the board, increasing the level of transparency and trust as well as banishing to the past the notion that management must have all the answers—and perfect ones at that—before talking with the board. CEOs should capitalize on the bonds of trust nurtured during the pandemic to provide management’s best assessment, imperfect as it may be, of the situation in Ukraine as it unfolds. They can use informal video calls and periodic emails as well as formal board meetings. That increased communication will reduce the risk that directors are surprised or blindsided, enable the board to fulfill its oversight duties, and enlist the board’s experience and expertise throughout the crisis.

2. Don’t view this crisis as an isolated event.

As we wrote in the summer of 2021, companies should “be prepared for multiple crises to occur at the same time—for a long time—and to address risks as issues that intersect, not as episodic issues or events.” In the near term, boards should ensure that management has considered the connections between the Ukraine invasion and other risks (such as cybersecurity), and has the staff, structure, policies, and processes to handle multiple crises occurring over an extended period.

In addition, the Ukraine situation should be a catalyst for boards and senior executives to reassess their approach to crisis management. Executives at many companies believe there are shortcomings in crisis management at both the board and management level. During the pandemic, 73 percent of executives said their companies’ crisis management plans were inadequate, and just 30 percent of C-suite executives said their board was able to respond well in a crisis. While nearly half of CEOs now say their firms are well prepared for a crisis relating to a pandemic, only 28 percent say they are prepared for a supply chain crisis and 37 percent for a cybersecurity crisis. Amid all the other priorities, boards need to make time for a candid discussion of crisis management—and if management doesn’t come forward, boards should prompt the conversation.

3. When it comes to board composition, remember geographic diversity.

As boards focus on increasing their gender, racial, and ethnic diversity, they should not lose sight of geographic diversity. That does not require having directors who currently live or work outside the US, but it does mean having directors with international experience. Even as the world has become more interconnected—not only in terms of customers but also supply chains—the level of international experience on boards has declined, from 17.5 percent of directors in the S&P 500 in 2017 to 13.1 percent in 2021, and from 9.2 percent of board members in the Russell 3000 in 2017 to 6.8 percent in 2021. Directors with international experience can help spot issues and opportunities others may miss: for example, European executives have consistently tended to rank global political instability as a greater concern than their US counterparts.

Many boards have emerged from the past two years of the pandemic in better shape than before, with enhanced ability to address multiple challenges simultaneously; greater agility in responding to evolving circumstances; and deeper awareness of the strengths of the board, its management, and the company. With this latest crisis, companies should follow the playbook used during the pandemic in maintaining an elevated level of communication between the board and management. They should also begin to address shortcomings in crisis management and reverse the trend toward boards with decreasing levels of international experience.