In an unusual season of anxiety and uncertainty, companies need to focus on the long game
It’s a tough time for executives to plan ahead, with U.S. domestic uncertainty, geopolitical conflict and market turbulence buffeting businesses. Wars are raging in the Middle East and eastern Europe, with escalation beyond Israel and Ukraine possible. China’s relationship with the West is tenuous, heightening the risk of conflict along the Pacific Rim. Closer to home, an influx of Central and South American migrants pushing north is creating political trouble for Democrats, and in the House, the Republican Party has a newly minted and untested leader after weeks of chaos that highlighted an inability to govern.
Three macro factors are complicating this period of increasing instability. In the short term, they are laying the foundation for what will likely be a perilous year ahead, one in which political outcomes and economic outcomes will influence each other, with no clear path forward. In the long term, these factors will shape the geopolitical future that companies both large and small must navigate.
- For the first time in a generation borrowing is expensive. Sustained levels of relatively high interest rates are recalibrating balance sheets and tightening lending and borrowing markets. There’s money to be made in this environment, but not in the same way it has been made for the last 20 years, when borrowing was consistently cheap. While interest rate hikes are an antidote to inflation, consumers are feeling the squeeze; wages don’t go as far and prices are higher for everything, including money itself. All that helps explain why, despite the recent equity market recovery, companies are continuing to preserve capital and focus on reducing costs.
- Three conflicts abroad: two hot, one cold. War in Ukraine has reshaped energy and food politics in Europe, and, in the Middle East, the potential for escalation of the Israel-Hamas conflict threatens global energy markets. The third conflict – with China – is playing out with economic weapons, given China’s outsized impact on financial markets and the global supply chain. China’s foreign policy is muscular, but its domestic economy is fragile. Its real estate market is in meltdown; just two companies are carrying $500 billion in real estate debt. The issue of who pays that bill (directly, or as a pass through) will affect Chinese citizens and President Xi’s government.
- Political instability in the United States. Narrow majorities in Congress and intense partisanship have devolved the institution to an angry and factionalized scrum, particularly among Republicans. Congress is now barely able to govern itself, much less the country, and has largely abandoned the well-established model of moving legislation through the “regular order” of congressional committees. Instead, catch-all “omnibus” bills that party leaders negotiate are increasingly tied to political brinksmanship. Meanwhile, the 2024 campaigns are already underway, meaning that winning power is driving everything Republicans and Democrats do.
So how do companies navigate all this, and what do leaders need to be mindful of as they steer their organizations through this tumultuous period?
- Carefully separate the signal from the noise. Leaders can be spared self-inflicted problems by considering, before acting, the impact of each development on the business and on a company’s greatest asset – its people – and then establishing priorities to keep the executive team grounded. Take some time to understand the level of “chatter” among stakeholders. Calibrate accordingly and focus on what can be controlled – i.e., business plans.
- Resist being drawn into issues peripheral to the business. Companies that pick sides ultimately alienate some stakeholders and insert themselves into politics. Be highly selective about speaking out, anticipate reactions and back up words with action. In wars, condemning terrorism – and providing humanitarian aid – is the right thing to do. In politics, so is avoiding pandering to partisans and taking up issues that aren’t business critical.
- Break down internal silos to ensure that the right team with the right expertise is assembled – and then rely on it. Business leaders must employ in-house political experts who can navigate internal pressures, as well as outside advisers who can provide deeper and broader political intelligence, peer benchmarks and broader perspective. Keep the team small, ensuring direct accountability to leadership and the power to reach into different units.
- Dust off the company’s long-term stakeholder communications and engagement plan – and update the scenarios within them. Companies without a fresh plan will find it difficult to navigate the crosswinds of domestic and geo-politics in the moment and plan for the future. Think through multiple scenarios for each issue, including under what circumstances companies might actually want to engage. Factor in all stakeholder perspectives and likely responses.
- Communicate regularly with employees. Leaders who clam up internally risk long-term reputational, recruitment and retention damage. With tight family budgets and a tight talent market, workers have leverage and are seeking support where they can find it – including unions unafraid to strike. Workers today also don’t hesitate to publicly call out employers on political and other issues. To avert potential activism, leaders need to bring employees along by communicating with them.
Above all, leaders need to stay focused on managing what they can control and avoid both the distraction of the daily twists and turns of domestic politics, international affairs and the urge to try make sense of complex issues themselves. Instead, they need to keep an ear to the ground in Washington and other global political centers and lean on outside experts – and their company culture and business priorities – to guide them. In the end, companies that know enough to know what they don’t know, and that stay true to who they are and what they’re trying to achieve over the long-term typically come out of tumultuous periods like this in one piece, with both their business and reputation intact.