Tariffs: Reducing the Risks

The audit committee is talking about them. The risk committee is talking about them. The compensation committee is talking about them. Indeed, tariffs are pretty much the main topic of conversation for every committee of every board.

But now some key areas of focus are emerging. For firms, trade-war issues may center around eliminating financial guidance, scrambling to reconfiguring supply chains, and adjusting prices. But at the board level, directors are weighing areas that range from the impact of tariffs on liquidity to disclosures around risk and strategy. According to a survey of about 400 directors, tariffs rank as the top priority of boards—outranking compliance issues, AI, and shifting M&A-activity policies. “Tariffs represent the trunk of a huge decision tree for boards, with many possible branches,” says Michelle Lowry, a professor of finance at Drexel University’s LeBow School of Business.

With leaders and management focused on the near-term impact of tariffs, Lowry says, boards can easily get caught up in the day-to-day or quarter-by-quarter impact of tariffs—and lose sight of what’s best for the business in the long term. “The challenge is how to make decisions that are inherently long-term in nature when the situation is rapidly changing,” she says. Indeed, Alan Guarino, a vice chairman in the Board and CEO Services practice at Korn Ferry, agrees, noting that directors across committees are focused on ways to derisk decision-making around tariffs. Already, boards have stepped up communication, both with management and between committees, to keep pace with the daily whirlwind of tariff-related developments. They are also pushing management to develop contingency playbooks for dozens of different scenarios around capital allocation, cost containment, communication protocols, workforce engagement, and more.

Beyond that, boards are also forming new committees or ad hoc working groups that will dive deeper into the risks tariffs pose to AI strategy, cybersecurity, and other long-term issues, says Anthony Goodman, head of the Board Effectiveness practice at Korn Ferry. “Boards are looking for more flexibility to deal with tariffs than the traditional committee and board structure provides,” he says. To be sure, Goodman says, part of the challenge with tariffs is that they are being instituted as much for political reasons as economic ones. He says that using tariffs in this way—not just to rectify trade imbalances, but also to address concerns around national security, immigration, innovation, and other non-economic issues—complicates traditional risk-assessment efforts. At the same time, however, delaying long-term decisions because of tariffs could end up causing as much damage as the tariffs themselves. “Leaving jobs open, not making that strategic investment, or delaying that M&A deal could harm growth in the same way,” Goodman says.

For boards, the difficulty is to help the CEO and other executives analyze the risks without knowing how long the trade wars will go on. Or as Goodman says, “Boards have to see tariffs as being more than an immediate risk. The disruption will continue until there’s certainty, and that may never come.

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