Corporate boards face many challenges, internal and external alike, but the political environment in which they operate stands to be one of the most complex. To effectively advise the company they’ve been tasked with championing, directors must stay on top of evolving market trends and be prepared to adjust their strategies accordingly.

But what if those trends change so quickly that it becomes impossible to predict what will

happen next?

Arguably, this is the case with the current U.S. political climate. Much has happened since Donald J.

Trump was sworn in as the 45th president of the United States, and right now, directors everywhere

are working to ascertain what the shift means to them in the context of their role as members of

the board.

The singularity of the situation at hand requires a customized strategy. To continue to succeed in

the months and years to come, directors must be adaptable, creative, and above all else, ready for

anything — however unexpected.

The Impact of the Political Climate on Board Dynamics and Decision-Making

BUSINESS AS UNUSUAL

There’s no question that it’s a difficult time to be making critical

business decisions. Since the election, the Dow Jones Industrial

Average has risen by more than 2,500 points and reached record

highs for 12 days straight, while the Standard & Poor’s 500 index

reached a record high in late February, as Reuters1 reported. It’s a

similar story with the Nasdaq and Russell 2000 indexes, according

to CNBC2. Although The Atlantic reported3 that investors were

“terrified of a President Trump” prior to the election, Trump’s pro-

growth economic policies have had a direct effect on the direction

of the stock market.

At the same time, the Organisation for Economic Co-operation

and Development (OECD) reported in its Global Interim Economic

Outlook for March 20174 that while Global GDP growth is projected

to “rebound modestly to 3.6 (percent global growth) by 2018,” there

is “low trust in government, and that clouds the policy environment.”

examine the state of stress across the country and understand

its impact.” The most recent results show that two-thirds of all

Americans now exhibit record-high levels of anxiety about the

future of the country.

“People are saying they’re more stressed now than they have

been in quite some time,” Lynn Bufka, associate executive

director for practice, research and policy with the APA, tells

USA Today8. The APA reports that 62 percent9 of respondents

in urban areas say the outcome of the election is a very or

somewhat significant source of stress. Regardless of location,

72 percent of Democrats felt this way, while 59 percent

of Republicans said they are worried about “the future of

the nation.”

Overall, 57 percent of Americans are stressed about the current

political climate, and 66 percent worry about the country’s future.

Political Issues Stressing Americans

% reporting very/somewhat significant source of stress

Results from January survey (Source: The American

Psychological Association)

POLITICS AND ITS PLACE ON THE BOARD

Politics has always influenced the way corporations and their

boards operate. Just consider the study that was released last year

by University of Washington Foster School of Business. Assistant

professor Abhinav Gupta found10 that conservative boards pay their

CEOs more than liberal boards do. Conservative-leaning boards

are more likely to tie pay to performance, the study finds, raising pay

People are saying they’re more stressed now than they have been in quite some time.

The Impact of the Political Climate on Board Dynamics and Decision-Making

It’s not unreasonable to wonder whether the Trump administration’s

trade policies, led by “anti-China economist”5 Peter Navarro, along

with Trump’s immigration ban, could still have a negative effect

on the economy. As Shawn Tully, an editor-at-large with Fortune

magazine, wrote in a piece titled “The Promise and Peril of the

Trump Economy”6: “Put simply, America has never witnessed such

a contradictory mix of free-market and anti-growth policies in the

White House. Or a President who operates in such an unorthodox

and unpredictable way.”

This uncertainty takes a toll on the business world and the

general population, as evidenced by the results of the American

Psychological Association (APA)’s annual nationwide “Stress in

America” poll7. For 10 years, the APA has surveyed Americans “to

1 “Dow hits 12th record high close; Trump talks up infrastructure spending,” Reuters, Caroline Valetkevitch, February 27, 2017, http://www.reuters.com/article/us-usa-stocks- idUSKBN1661KL

2 “Dow, S&P, Nasdaq and Russell notch new record highs, up more than 10% since election,” CNBC, Fred Imbert, February 21, 2017, http://www.cnbc.com/2017/02/21/us- markets.html

3 “Why Investors Are Terrified of a President Trump,” The Atlantic, Derek Thompson, October 24, 2016, https://www.theatlantic.com/business/archive/2016/10/donald-trump- business/505097/

4 “Global Interim Economic Outlook, March 2017,” The Organisation for Economic Co-operation and Development, March 2017, http://www.oecd.org/eco/outlook/economicoutlook.htm

5 “Trump names anti-China economist as trade council chief,” Al Jazeera, December 22, 2016, http://www.aljazeera.com/news/2016/12/trump-names-anti-china-economist- trade-council-chief-161222132749189.html

6 “The Promise and Peril of the Trump Economy,” Fortune, Shawn Tully, February 16, 2017, http://fortune.com/2017/02/16/president-donald-trump-economy-executive-orders-policy/

7 “Stress in America,” American Psychological Association, February 2017, http://www.apa.org/news/press/releases/stress/index.aspx

8 “Poll: ‘Political climate’ is freaking most of us out,” USA Today, Kristen Jordan Shamus, February 16, 2017, http://www.usatoday.com/story/news/nation-now/2017/02/16/poll-two-thirds-americans-stressed-future-us-politics/97986834/

9 “Stress in America,” American Psychological Association, February 2017, http://www.apa.org/news/press/releases/stress/index.aspx

10 “Political ideology of corporate boards influences CEO compensation,” Foster School of Business, October 31, 2016, http://foster.uw.edu/research-brief/political-ideology-corporate-boards-influences-ceo-compensation/

Future of our

Nation

66%

Current Political

Climate

57%

Election

Outcome

49%

kinds. As Business Insider recently noted12, L.L. Bean was among

the companies added to the #GrabYourWallet boycott campaign

after the granddaughter of the company’s founder, who is also an

L.L. Bean board member, made a large donation to a pro-Trump

political action committee. Business Insider also reports13 that

companies including Nordstrom, Uber and Macy’s have severed

ties with Trump and various Trump brands in an effort to remove

themselves from boycott lists.

All of this puts corporate directors in a difficult position. Factors like

the economy, the Zeitgeist and consumer trends affect corporate

strategy. When the economy is in a state of flux as policies — such

as Trump’s immigration order and travel ban, which was recently

revised14 — continue to change, it isn’t easy for boards to deliver on

what’s expected of them. What happens to a company’s relationship

with existing global allies, for example, if Trump’s “America First”

maxim15 alienates China and Mexico? How can directors vote on a

potential international expansion as part of an evolving corporate

strategy without knowing whether or not Trump will impose a 35

percent tariff16 on businesses that open a factory abroad?

to reflect strong earnings and stock returns as well as penalizing

CEOs when the company’s performance isn’t as favorable as the

board feels it should be.

If political ideology can affect the board’s perspective on running

a business, it stands to reason that a turbulent political climate will

impact the way board members function as well. As the Harvard

Business Review reports11, a survey of more than 4,000 global

business directors that was conducted in 2015 found that 65

percent of directors regard the economy as the political issue they

care about most. Corporate tax rates and political instability rank

22 percent and 18 percent, respectively.

The study also shows that directors are generally pessimistic

about the state of the economy over the next three years. “Why

does all this matter?” ask Boris Groysberg and J. Yo-Jud Cheng,

authors of the HBR article. “Because board members are likely to

factor in their pessimism as they advise their companies on firm

strategies, merger and acquisition activity, resource allocations,

and expenditures in the coming year.”

To complicate matters further, consumers’ political affiliations

have resulted in economic protests that impact companies of all

The Impact of the Political Climate on Board Dynamics and Decision-Making

11 “The Political Issues Board Directors Care Most About,” Harvard Business Review, Boris Groysberg and J. Yo-Jud Cheng, February 16, 2016, https://hbr.org/2016/02/the- political-issues-board-directors-care-most-about

12 “The anti-Trump boycott of 70 retailers won’t back down — here’s how it could affect sales,” Business Insider, Leanna Garfield, January 21, 2017, http://www.businessinsider.com/trump-boycott-companies-will-it-work-2017-1

13 “Here are all the companies that have cut ties with the Trump family,” Business Insider, Hayley Peterson and Kate Taylor, February 7, 2017, http://www.businessinsider.com/companies-cut-ties-with-trump-2017-2

14 “Trump signs new travel ban directive,” BBC News, March 6, 2017, http://www.bbc.com/news/world-us-canada-39183153

15 “After Trump pledges ‘America first,’ the world responds with protests and dismay,” The Washington Post, Griff Witte, January 20, 2017, https://www.washingtonpost.com/world/demonstrationsand-apprehension-mark-worlds-response-to-trumps-inauguration/2017/01/20/6f1f2dc2-dce4-11e6-918c-99ede3c8cafa_story.html?utm_term=.81e1c3a6035c

16 “Donald Trump Warns of 35% Tariff For Companies That Move Abroad,” Fortune, Mahita Gajanan, December 4, 2016, http://fortune.com/2016/12/04/donald-trump-tariff- company-regulations/

The Political Issues Board Directors Care Most About

Percentage of directors who say the issue is important11

8% National Budget Deficits

65% Economy 6% Unemployment

59% Regulatory Environment 5% Equal Rights for Women

38% Cybersecurity 4% Foreign Policy

22% Corporate Tax Rates 4% Economic Justice

18% Political Instability 4% Immigration Policy

18% Health Care Costs 4% Personal Tax Rates

14% Environmental Sustainability 3% National Retirement Program Costs/Expenditures

11% Education 3% Carbon Tax

8% Energy Costs 5% Other

The Impact of the Political Climate on Board Dynamics and Decision-Making

BATTLE UNCERTAINTY WITH FLEXIBILITY AND POLITICAL DIVERSITY

Directors are expected to make educated business decisions

designed to grow a company, and those decisions have to stand

up against any investment and economic climate, including ones

that may seem enigmatic. Whether faced with an unpredictable

political climate or politically fueled differences of opinion within

the board itself, directors’ best strategy is flexibility.

When volatility, uncertainty, complexity and ambiguity17 reign,

companies must be ready to pivot quickly and respond with the

best interests of the company in mind. In other words, directors

must come to the table with an open mind, ready to tackle every

possible scenario.

It’s tempting for directors to take a fixed approach to board decision-

making. Unless they know with certainty how to resolve an issue,

or feel they can accurately predict how their fellow directors will

react to an idea, they are sometimes reluctant to move forward.

But strong corporate governance requires that directors adapt to

change, inside and outside of the company. As turbulent as today’s

political climate may be, there are always challenges beyond a

board’s control, and knowing how to face them is crucial to

ongoing success.

Consider the outlook of the U.S. Securities and Exchange

Commission, which analyzed the work that directors do and shared

several principles “critical” to corporate governance. According

to Luis A. Aguilar18, former SEC commissioner, “in today’s volatile

world, how a company prepares for and responds to major

disruptive events — sometimes referred to as ‘resiliency’ — has

become increasingly critical to the protection and growth of a

company’s assets.”

The current political climate aside, politics will always have a

place in the boardroom. As Boris Groysberg and J. Yo-Jud Cheng

discovered in their survey19, political affiliation can have a strong

influence on board members’ decisions. For instance, while both

Republican and Democrat directors consider strategy to be

the skill most needed by directors, Republicans value financial/

audit expertise and industry knowledge. Democrats, meanwhile,

prioritize risk management and technology skills.

“Political affiliation is another form of board diversity — one that

is rarely discussed, but could have profound implications on how

corporate boards function and set priorities,” Groysberg and

Cheng write. While they add that “having directors with a range of

political philosophies can invigorate board discussion and ensure

that a wide array of issues and solutions reach the boardroom,”

directors must know that politics can — and likely will — influence

both decision-making and board dynamics.

EMBRACE CREATIVITY

Directors should be encouraged to start conversations with

“What if?” and to think creatively, both in order to maximize board

members’ expertise and to reduce the possibility of complacency.

The common practice of presenting solutions finalized long ago

without giving thought to how they fit into the evolving political

atmosphere fails to take full advantage of a board’s inherent

creativity, born of the combined expertise and experience of

diverse directors. What these professionals know about market

trends, the competitive landscape, demographic shifts and more

gives a board the power to assess and effectively tackle the

issues that matter most — no matter what kinds of changes may be

in store.

In a way, the current political climate presents a valuable

opportunity for boards to change the way they make decisions.

As part of a series on leadership and management, Canadian

newspaper The Globe and Mail offers20 two questions designed

to promote creativity: “How do we get there?” and “What do we

have to do differently?” Regardless of the problem at hand, these

questions can help organizations create innovative solutions that

also differentiate the company from the competition.

“Creativity is driven by declaring a goal without knowing exactly

how it will be achieved and doing the hard entrepreneurial work

to figure it out,” Roy Osing, former executive vice-president of

Telus, writes20. “It’s about having the intestinal fortitude to enter

uncharted waters, pointing your ship in the direction you want to

go, and navigating — creating — as you go.”

A flexible and creative board is resilient and prepared to deal

with all external challenges. To build and grow a company in

unpredictable times, versatility and judicious decision-making are

key. The most successful companies will wholeheartedly embrace

these strategies.

17 “What VUCA Really Means for You,” Harvard Business Review, Nathan Bennett and G. James Lemoine, January-February 2014, https://hbr.org/2014/01/what-vuca-really-means-for-you

18 “The Important Work of Boards of Directors,” U.S. Securities and Exchange Commission, Commissioner Luis A. Aguilar, October 14, 2015, https://www.sec.gov/news/speech/important-work-of-boards-of-directors.html#_edn33

19 “7 Charts Show How Political Affiliation Shapes U.S. Boards,” Harvard Business Review, J. Yo-Jud Cheng and Boris Groysberg, August 23, 2016, https://hbr.org/2016/08/7-charts-show-how-political-affiliation-shapes-u-s-boards

20 “Two questions leaders should ask to get the creative juices flowing,” The Globe and Mail, Roy Osing, July 27, 2016, http://www.theglobeandmail.com/report-on-business/careers/leadership-lab/two-questions-leaders-should-ask-to-get-the-creative-juices-flowing/article31016575/

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