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The Globe and Mail

A company needs to be ready when a Trump event arrives

Don Lowry is a director, chairman and board adviser, focused on strategy, high-performance governance and the advancement of board diversity. He is former president and chief executive officer of EPCOR and president and chief operating officer of Telus.

By definition, a critical moment is that point when the status quo of an industry or enterprise is interrupted – often suddenly, and sometimes at the expense of the firm's very existence. The source of the critical moment can be internal or external, but most often it is externally driven.

Given the rising volatility of markets today, it's increasingly relevant for boards and senior management teams to understand the implications and opportunities of these critical moments, since they can materially impact their investment thesis. Britain's Brexit vote and now the election of Donald Trump in the United States are good examples of this phenomenon.

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A critical moment isn't always the result of a single event – sometimes, it's the result of the cumulative buildup of multiple small shocks over time, events that many industry participants fail to notice. The development of the Internet and the emergence of social media are vivid examples of this phenomenon. The taxi industry didn't understand the coming of Uber, nor did traditional retailers like Sears fully appreciate the impact of Amazon. On the other hand, Volkswagen's diesel emissions fiasco and Wells Fargo's false accounts illustrate that critical moments can also be self-inflicted. However they arrive, the critical thing is how you respond.

The response from boards and senior management faced with a sudden change in circumstance can range from surprise or denial to capitalizing on the new paradigm.

In a board's role of oversight of strategic execution, there are three core insights that can be drawn from these events that can positively contribute to value preservation and creation.

  • Totally unforeseen critical moments are generally a myth. When you peel back the facts and take a hard look at the “event,” it’s usually something that has built up over time, with many leading indicators pointing to the distinct possibility of its occurrence. From fracking and its impact on oil prices to the demise of the BlackBerry handset and the shutdown of coal power plants, these all were potentially foreseeable events with multiple warning flags. Sorting out the winners and losers in these circumstances, it’s evident the companies that deploy robust integrated strategic planning and risk-management systems tend to explore the potential of such events through scenario planning in advance, as opposed to simply reacting when they happen. Suncor, Exxon, Telus and Apple are examples of companies that have regularly been able to capitalize on critical moments in their industries.
  • If you know your core competency, critical moments can be strengthening or cathartic. The swift responses from WestJet to help citizens in the town of Fort McMurray during this past summer’s wildfires, and from Enbridge’s leadership to fix its oil pipeline leak in the Midwest, demonstrate operating expertise. Some of the best high-performance firms have a strategy planning process that continuously challenges the status quo of their business thesis, as opposed to simply reaffirming it. This often includes bringing in outside critical stakeholders for input. At Hydrogenics and Capitol Power, two companies where I am on the board, we use this technique.
  • Culture is key to being a first mover or fast follower. As they say, culture eats strategy, and unless it is among your organization’s values, your probability of success dims considerably. Tesla’s electricity storage technology and their recent announcement of solar roofing materials highlight their culture and continuing first-mover strategy. Boards should be particularly sensitive to the risk of groupthink as an industry and company. The value of diversity at the board and management levels is critical to ensuring that fresh eyes and minds are trained on the company’s business. At Stantec, anther company where I serve, this is a hallmark of success and differentiation from competitors.

Critical moments are dramatic, but it's what you do with them that makes the difference in a company's performance and outlook. A board's role is to ensure that the linkages among strategy, risk management and performance measurement (often financial) are just as important as the firm's talent and culture.

Investors long for stability and predictability, but in real life, major wealth is made and lost due to strategic steps or missteps in times of uncertainty. To stay ahead of the curve, it makes sense for boards to further develop strategic oversight and governance skills for turbulent times.

Transitioning from a good company to a high-performance one is not about clairvoyancy and always getting the future right. Rather, the benefit and advantage comes from continually challenging the status quo, looking honestly at your results versus your plan and asking the question at all levels: "Is your value proposition still relevant and resilient in a rapidly changing world?"

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