A Wake-Up Call for Boards

Gary Burnison is the CEO of Korn Ferry and author of The Leadership Journey: How to Master the Four Critical Areas of Being a Great Leader.

While the music is still playing, it’s human nature to get lulled into a sense of complacency. But when the music stops and everybody scrambles for a chair, that’s when the finger-pointing begins.

For CEOs and other senior leaders, these are crucial times when reputations can be made or broken, solely on performance. A key part of solidifying one’s reputation is demonstrating the ability to “look around the corner”—that is, to anticipate what’s likely to occur but is still beyond the horizon.

And yet, when it comes to the stock market and the economy these days, I’m shocked, quite frankly, by how few senior leaders seem to be planning for what’s coming next, amid some conflicting signs and signals. Over the current long economic expansion—closing in on 10 years—U.S. GDP has grown by about 40%. Over the same time frame, federal government indebtedness has more than doubled to $20 trillion, and state and local indebtedness could push that number to as much as $30 trillion. That isn’t counting the shortfalls states face on public employee pensions. Then there are healthcare costs… Who knows how high the number could go? Meanwhile, consumer debt is at an all-time high—nearly $13 trillion.

Corporate growth lately has been anemic. Spinoffs are increasing (which is sometimes seen as a sign of market tops), and the stock market keeps pushing into all-time high territory. The S&P 500 has been trading around 18 times earnings estimates, well above the long-term average of 15 times.

This is not to predict a sudden collapse. But I’m having the same feeling I had as a CEO before the last crisis—and I doubt I’m the only one.

Many CEOs and board members are acutely aware that the music won’t keep playing forever. But while it’s common to engage in contingency planning for worst-case, what-if scenarios (such as a major data breach or a workplace violence incident), it’s far less common to find senior leaders who are looking at what happens when the music stops. Senior leaders and boards can’t predict when the cycle is going to turn. But they must fight against human nature’s tendency to believe that, when things are going well, the momentum will stay positive—things are going great, so why change?

But that’s precisely the point, and it’s a conversation I’m having more frequently with other CEOs and board members. The entire board and senior leadership team must prepare for the eventuality of an economic pullback or recession by examining such things as what revenue and cost levers to pull; reviewing the strength of the balance sheet and/or raising money before it’s needed; and setting up acquisition targets.

Preparation also includes internal attitudes. During expansions and continual growth, everyone’s focus is naturally drawn outward on where the next opportunities are likely to surface—they invest more, spend more, hire more. During contractions and slow or absent growth, everyone’s focus is inward: How do we pull ourselves out of this? What went wrong? What should we do differently?

It’s the job of senior leaders and boards to challenge this thinking—to encourage looking inward during the good times and outward during the challenging ones. That’s crucial to keeping a balanced perspective and engaging in contingency planning. As leadership guru Warren Bennis once told me, “You can’t predict tomorrow if you don’t accurately perceive today’s reality.” Sage advice for boards and senior leaders today.

Authors

  • Gary Burnison

    Chief Executive Officer

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