Friday, March 6, 2009

The View from the Board Room About the Economy

Here's a guest post submitted by Blythe McGarvie, CEO and Global entrepreneur. Her latest book is called SHAKING THE GLOBE: Courageous Decision-Making in a Changing World.

Blythe encourages U.S leaders to reconsider their global perspectives in order to compete in the global marketplace. Given the recent economic cycle meltdown, business decision-makers require both a broader perspective and the courage to act on it. Innovation is required to take advantage of changing demographics and a new reliance on entrepreneurial activity throughout the world. Protectionism is the death knell of global GDP growth and prosperity, and a sure way to perpetuate the country’s economic downturn.

McGarvie’s study reveals:
- 95% of consumers reside outside of the United States
- Developing emerging nations now account for 49% of the global Gross Domestic Product (GDP)
- Companies with more women board members outperform those with fewer female representatives
- Requirements for Going Global incorporates the mental capacity to synthesize what is happening; physical stamina to travel and be where it is happening with personal strength to handle tough situations when they occur.

The view from the board room about the economy

The current economic meltdown simultaneously affecting all countries and industries provides evidence of the interconnected world. Decision-makers require a broad perspective to succeed in today’s economic environment. A new generation of entrepreneurs is shaking the globe by taking advantage of changing demographics and new business opportunities. Innovation is key to private and public sector leaders throughout the world if they are to improve economic performance or maintain standards of living. When economic growth depends on a global economy, protectionism is the death knell of global GDP growth and prosperity.

As I serve on several highly visible boards of directors, I offer four themes from the board room:

1. Optimistic: The new administration in Washington will lead to new ideas and a fresh start on tackling the country’s economic problems and opportunities to set the stage for recovery. We are now in the "New Era of Responsibility". CEOs are generally optimistic. Although many surveys suggest that trust in CEOs is shaken, not all CEOs are Bernie Madoff. Most CEOs that I know are talented, know how to innovate and will help lead their teams to future prosperity. But, it is not just the CEO but each one of us must be responsive to our customers’ needs.

2. Interconnected: An earthquake in one part of the globe shakes another part of the globe. There are three responses to the financial volatility we experience in the stock markets and by reading the headlines. We can be like a cat that sits on a hot burner and learns not to sit on it again. Of course he won’t sit on a cold burner either. This response is avoidance. A second possible response is opportunistic. Search for facts and look at the implications. For example, as bailout funds in the trillions are being taken from taxpayers and being controlled by the U.S. Government, learn where the funding opportunities are and find a way to participate. We will not be able to determine if the government changes its strategy and funding, but at least companies might have better financial results in the short-term. Besides doing nothing or being opportunistic, the third response is to shape the company’s strategy to both reduce costs and to invest for the future. Looking at a broader horizon for ideas outside of the domestic market will reveal plenty of possibilities.

3. Timing matters: As of this month, the Conference Board reported the lowest level of CEO Confidence since the second quarter of 1976. (Today we are at 25 of 100. Anything over 50 is positive.) We were celebrating this country’s bicentennial that year! We also believed that the Japanese management process and methodology would take over the world. This was the era of Japan, Inc. and Edwards Deming. The economy will take several years to de-leverage. In addition, it will take several years for people to forget about the shocks and volatility. As a result, taking symbolic gestures for public relations purposes will soon end and reasonableness will return. Timing of actions depends on what is most important for the customer and employees and what is necessary to keep or grow market share.

4. Hidden implications: What happens in one industry, such as the housing market, effects many people and has –not a rippling effect– but a tsunami impact. In my recent book, I cited Iceland and wrote "The real lesson of Iceland’s predicament is that Iceland is not alone in borrowing recklessly from global investors….With unknown supply and demand figures reverberating in markets far and near from the original transactions volatility soars and economies shake." I did not predict the hidden implications that the severe cash crunch would lead to bankruptcy of Iceland and a precipice drop of currency value of nearly 50% in one week. However, the debt to economic output indicated to me how vulnerable the country was to a staggering economic collapse. Major international financial intermediaries with foreign assets worth nearly ten times the country’s GDP was an unsustainable situation. We now try to think about first and second derivatives from a decision and commensurate action in order to minimize hidden implications.

As we respond to this shaking globe, we can make a difference by doing several things differently in the weeks and months ahead:

Seek help from other global citizens. There are many programs available for practitioners, activists, journalists, and scholars.

Seek knowledge. The Peterson Institute for International Economics is an example of one of many private, nonprofit, nonpartisan research institutions. It is devoted to the study of international economic policy. It is one of the very few economics think tanks that are widely regarded as "nonpartisan" by the press and "neutral" by Congress, and the quality media cites it more than any other such institution.

Seek competence from our political leaders. Monitor the changing economic indicators and vote for policies that will tear down the walls of protectionism. The economic cycle in which we find ourselves will turnaround, at various rates throughout the world. It depends on each of us embracing the opportunities of the free market and restoring the confidence in trade and reinvestments in our businesses.

Blythe McGarvie serves on the board of directors of 4 highly visible large public companies and speaks to a variety of groups to shape the decisions of policy makers.
McGarvie was appointed Senior Fellow for Northwestern’ University’s Kellogg Innovation Network. She was a pioneering CFO, and in 1995, was one of only ten female CFOs in the Fortune 500. Prior to LIF Group, from 1999 to 2002, Ms. McGarvie was Executive Vice-President and Chief Financial Officer of BIC Group and launched her international business career with Sara Lee as their Chief Administrative Officer-Pacific Rim.

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