Views from the Boardroom: Sheila Hooda Weighs In on Top-of-Mind Concerns
A Conversation Between Christopher P. Skroupa, Skytop Editor-in-Chief, and Sheila Hooda, Director on multiple public and private company boards / October 15th, 2024
Sheila Hooda, director on multiple public and private company boards. Her board leadership includes chair of the nominating and governance committee and former chair of the audit and risk committees.
Christopher P. Skroupa: The Upcoming Election. How is this effecting company risk calculus?
Sheila Hooda: The election outcome and which party will win carries a high level of uncertainty. This will be a close race with 6 to 7 states being the deciding factor in the electoral voting. The next level of uncertainty is which party would have the majority in Congress or whether it would be split, which would have ensuing policy implications.
Across the above two-dimensional uncertainties, there are further significant differences in the level of policy impact across industries, from financial services to defense to energy—from oil and gas to renewables and from technology to consumer to healthcare and other sectors.
Boards will require management to assess the level of regulatory oversight and taxation rates. It is no secret that one party favors deregulation more than the other. However, within and across industries, policy themes like trade and tariffs, antitrust, defense spending, and labor, for example, would impact companies in varied and visible ways. For instance, changes in the party's geopolitical stance, e.g., China and trade wars, would impact the technology sector's supply chains and potential markets. These changes would also have an impact on antitrust and the accommodation of the M&A environment. Policy changes to the Affordable Care Act would bear on the health care sector. Changes in subsidies in relation to the Inflation Reduction Act would have repercussions on the growth of the renewable energy sector. Changes in support for unions and labor could be more meaningful for the automotive sector
These policy uncertainties and the breadth and depth of impact on the company carries a high level of strategic risk, which necessitates a level of preparedness and agility. As boards provide oversight of strategy, they will want to monitor how management is thinking about and preparing to address the various scenarios and outcomes that could potentially occur across multiple political (Party and Congress) and policy dimensions. Scenario planning outlining the impact on the company’s strategy, finances, operations and human capital will be a key tool and best practice in this context.
In addition, most boards will require their government relations and Washington offices to provide frequent updates on potential directional policy changes while exploring constructive approaches to influence policy, as applicable, once the election outcomes are clear.
Chris: Geopolitics. To what extent are regional conflicts changing company strategy?
Sheila: The world is highly interconnected. Geopolitical risks include a network of global conflicts, economic sanctions, social unrest, elections across 64 countries this year and the addition of a younger, new voting population, misinformation and disinformation, technology related cyber security, AI and increasing regulations around new technologies, inflation and price stability, and supply chain vulnerabilities - all of which impact a company's business.
Boards are focused on identifying, assessing and mitigating geopolitical risks and their impact on operations, supply chains, cybersecurity and insurance needs. While the impact can differ by industry and company size, boards are requiring that management integrate stress testing and scenario planning into their risk management programs and strategic planning for long term resilience, performance and value enhancement.
Chris: Supply Chains. How are companies seeking to diversify against costly interruptions?
Sheila: Global tensions, including ongoing and emerging conflicts, directly impact supply chain integrity. Based on the industry (technology, textile and garment, energy, consumer products, pharma and generic drugs, etc.) of the company, boards are focused on evaluating supply chain exposures and its impact on their operations and the environment and building the required resilience.
A healthy supply chain necessitates a deep understanding of all third parties involved, and conducting due diligence on tier one, tier-two and tier-three entities, including the political stance for the geographies of the supply chains including changing regulations, tariffs and sanctions. Many companies are now reconsidering their supply chain networks, seeking new geographies and partners with decreased or alternate risk exposures. Long-term company resilience and performance could depend directly on supply chain reliability.
Chris: Activist Investors. How are companies working with activist investors?
Sheila: While shareholder activism has traditionally involved demands for changes in corporate strategies, governance, or capital allocation, we are witnessing a shift toward more aggressive calls for outright sales of companies or divestitures following from falling interest rates and a generally more favorable M&A environment. The now-mandatory universal proxy card is making activists increasingly selective in their choice of director nominees. There is also a greater focus on garnering support from institutional investors.
Consequently, companies facing activist campaigns will need to be prepared to engage constructively with activist investors and their nominees. As companies experience sharper scrutiny and calls for change, boards are providing oversight requiring "thinking like activists", reevaluating their strategic plans, addressing potential vulnerabilities, increasing operational efficiency and reassessing the skill sets on their boards, potentially leading to better long-term performance.
Chris: Economic Cycles. What factors are boards considering when managing against the risk of downcycles?
Sheila: Assessing economic cycles is a big part of the board agenda in terms of strategic planning. Scenario planning and stress testing around all macro-economic variables from interest rates, supply and demand, possibilities of recession, employment and potential policy changes following from the election are key considerations towards board decision making around debt raising and capital allocation. Boards are incorporating these factors as the build forward resiliency and long-term value creation.