How NAFTA Is Testing the Patience of CEOs

From major car manufacturers to equipment makers, the uncertainty just drags on, as yet another round of negotiations between the United States, Mexico and Canada continue over the North American Free Trade Agreement (NAFTA). Indeed, this is now round seven on the future of the 24-year-old pact. 

The issue, of course, is that the U.S. has vowed to alter or even end NAFTA. And while some believe the stalled talks signal fewer changes, the pact's unclear fate has turned many business leaders into expert contingency planners. “Publicly, they may not talk about it as directly, but internally, and at the board level, companies are having to put together various case scenarios with a plan and a point of view,” says Ron Malachuk, a principal at Korn Ferry and member of the firm’s Global Industrial Market practice.

To be sure, the pact's demise or tariff increases could upend many firms across both borders. But most business leaders have said they are continuing to stay the course for now. For example, in the chemicals sector, where the US is a large exporter to Mexico, companies are still forging ahead on new projects, albeit with caution.

“I can’t think of too many if any real example of a company postponing or altogether stopping investment of a production plant based on NAFTA uncertainty,” says Malachuk. “That’s not to say some of these companies might have scaled back; there’s still a fair amount of uncertainty.”

In many ways, the NAFTA situation is just one of many ambiguities facing CEOs in today’s world. Whether its navigating healthcare, tax reform, or the role of artificial intelligence, a leader’s ability to navigate in uncharted territory has become increasingly important in this 24/7 connected world. “Absolutely, the pace and the mix of change has gone up significantly,” Cathy Jacobson, the CEO of Wisconsin-based healthcare system Froedtert Health, recently said. 

The good news is CEOs can and have taken some control over NAFTA. Take the case of Kansas City Southern: a day after President Trump was elected, the 130-year-old railroad lost $1 billion in market cap, with investors fearing that Trump’s rhetoric around Mexico would impact the company, which does half of its business in Mexico. Staying calm, the company’s CEO Pat Ottensmeyer kicked off an intensive lobbying campaign, taking a “friendly but determined approach” to educating legislators about NAFTA and involving himself with the U.S.-Mexico CEO Dialogue. The company's stock eventually recovered as financial results stayed strong.