Bill Canady Discusses the New Tariff Landscape on the Directors and Boards Podcast

Welcome to executive session from directors and boards.
I don't think that DEI is a doour issue. I don't think it's an issue of the day. I think it's a foundational piece of what you want in companies and what you want in terms of the boards that are helping to provide that oversight, foresight and insight.
That was Maggie Wilder, chair of DocYsine. More from Maggie later in this episode. Hello and welcome to Executive Session, the official podcast of Directors and Boards. I'm your host, Bill Hayes, editor-in-chief of Directors and Boards. In this episode of Executive Session, we'll also discuss the concept of the superstar CEO with Marita Coloulston Davis and the new tariff landscape with Bill Kennedy. This episode is brought to you by RSM, a proven provider of high-quality assurance, tax and consulting services that enable companies to flourish no matter their complexities. Now, let's get to our first interview. I think it's safe to say that we are living in a time of sharply divided opinions as it relates to the role of everything from society to government to, of course, business. In an environment such as this, where if 50% of the population is one opinion, then you can probably be assured that 50% will have the other. How can a board go about engaging a company's stakeholders? We were lucky enough to discuss this topic with Maggie Wilder, chair of DocYsine, and director of Costco, Lyft, and Santa Biotechnology. Maggie, what is it about our current environment that makes it difficult for boards and companies to engage their stakeholders?
Well, I think the current environment has headwinds to it. So, when you when you think about the work that boards do you know we're very focused on our key stakeholders of which shareholders is a number one priority um but we're also focused on our customers our partners and our employees in how we do the engagement for for shareholders and to make sure that as we think about creating shareholder value we're going to talk to those shareholders about their perception of what value creation is uh and then we're going to look at How can we find common ground on making sure we're working as a board to satisfy those stakeholders and their expectations?
Are there steps that boards can take to better understand the nature or belief systems of their stakeholders? Or is that engagement more dependent on the company's values so that it doesn't change regardless of stakeholder attitudes and beliefs which of course shift?
Yeah, I think that that you can't stay stag either the stakeholders or the boards or the companies. And I know for example at several of the companies that I sit on the board of, we will we will engage with shareholders on an annual basis. We'll take our top 20 shareholders and um the the chairman of the board and the the chairs of each of the committees. We as a group will either do a Zoom meeting with those stakeholders or an in-person meeting to talk to them. about what's on their minds, what do they care about, what do they think we're doing well, what what do they think we need to do to improve? And we also get that opportunity for them to get to know who we are and our capabilities in terms of creating that shareholder value and holding the the different people that we're working with and for within the company accountable to deliver.
When you're working with stakeholders whose beliefs can be diametrically opposed, how does a board balance that and how does it affect how it communicates with those stakeholders or the company?
You know, sometimes even with your shareholders, you have let's say an ESG group, but you also have the the profitability group, right? And one of the things that we've learned to do is when we engage, we make sure that both of those constituents under that same umbrella of the same company are in the room with the shareholders. I mean, with us with with us to to look at them as shareholders and stakeholders and to have them understand that sometimes what they tell us is contradictory to what the other group tells us. And by having them all in the room, we can have those discussions to say, you know, you you're our shareholders, but you both have different perspectives of where we should prioritize. And we'd like to have one voice from all of you, not two different voices that vary, you know, dramatically. So, help us understand what are the top priorities you have as shareholders of this company that we can meet those expectations but not be at crosshairs with other groups within your firm.
As a chair of a public company, can you give us some insight into how you work when expectations of the company and board may vary across stakeholders? How does it affect your role? Or is it again important to remain consistent regardless of stakeholder viewpoints?
Well, I think as a a chairman of the board is a facilitator. We're not dictators. We're not there to make the decisions. We're there to get consensus on the best decisions that need to be made. So, sometimes as a board chair, someone will say something, right? You know, one of uh you know, one of our employees or partners or customers. And you know, your Dilbert cartoon is, well, that's the stupidest thing I've ever heard.
But what comes out of your mouth is help me understand why you think that's a good thing for us to do. So you try to keep the dialogue going um and get underneath the wise but to do it in a way where you're asking questions instead of making statements. And I think for a a lot of boards uh when you engage and you have some people on the board that are very smart and capable they they want to to show how smart and capable they are versus is how do we get to the right answer based upon all of the pieces being in place?
We obviously have a shift in positions going on around DEI initiatives in the workplace and corporations. How does that sort of shift in thinking affect the way we're engaging stakeholders? Is is that any sort of major change as a result?
I don't think that DEI is a doour issue. I don't think it's an issue of the day. I think it's a foundational piece of what you want in companies and what you want in terms of the boards that are helping to provide that oversight, foresight and insight to the company. So, you know, diversity of thought, diversity of backgrounds, diversity of experiences that that board directors have had is is important, but you know, having equity in terms of how you think about decision- making with no one in charge is about taking the time to get to the right consensus and sometimes that takes time and it takes multiple meetings in order to do that and having um having folks feel like they are included. You know, it's not unusual for me as a board chair if I say, "John, you know, you haven't weighed in on this yet. Let us know what your opinion is on this or how do you feel about this topic?" So, you make sure you get all of the pieces on the table um in order to to make the right decisions. That was Maggie Wilder, director of Soma Biootherrapeutics and Tanium. Next up, we'll cover the concept of the superstar CEO with Marita Coloulston Davis. Whatever your feelings are on the concept of the superstar CEO, there is no doubting that if you are lucky enough to have someone who qualifies for the moniker running your company, it can bring along with it some serious benefits. Superstar CEOs can inspire all manner of stakeholders and can also ensure that a company keeps its name in the news, which of course leads to brand recognition and hopefully excess revenues. But are there headaches that that come along with the superstar CEO? Could a superstar CEO lead to perhaps a board placed on the back burner and as a result compromised decision-making among other things? As you will hear in our next conversation, Marita Coloulston Davis director and member of the audit and compensation committees of priority technology knows superstar CEOs and today she discusses the pluses and minuses. Marita in your accomplished career you have had the opportunity to work with several highly recognized CEOs many of which could easily fall into the category of the superstar CEO or a CEO whose success and charisma becomes almost synonymous to the company and is seen as inextricably linked to that company. What would would you say your general thoughts are on the superstar CEO theory? What makes a superstar CEO? And I suppose can the term be overblown?
You know, I think about my uh career because I I do get asked this and I try to, you know, lump things in in categories when I'm on boards with CEOs and different nonprofit work. But I think it comes down to and I'll go back through these, but you know, visionary leadership, you know, they have to have a clear and comp nice compelling vision for the company and they have to be able to articulate it so that they can inspire others. They have to have charisma. You got to be able to attract talent and retain talent but get talent that wants to follow you. Innovative thinking, thinking outside the box. If it's just more of the same or, you know, cut paste from what we see on the street, um they're not typically considered to be superstars. You have to be willing to take C calculated risks to achieve breakthrough results in my opinion. Um, great communication skills. How you communicate an idea and build consensus across diverse groups. And then sort of the last one, you need a track record of success. People have to know that you've been there, done it.
What would you see as one or two of the main benefits for a company of having a CEO who is seen as a superstar? And on the flip side, are there dangers? And if so, what are One or two of the most prominent aspects that boards and companies need to monitor?
One or two of the benefits of having a superstar CEO is they know how to attract talent and investors. You know, when you have a high-profile CEO, they can draw top talent to the company and that also says that they can draw top investments. Um, the reputation of a a vision can create a magnet pull, bring in people along with them. You know, Warren Buffett's an example of that. Satia Nadella is an example of that. Bill Gates, there are wide variety of people that you know, Steve Balmer that can attract great talent. Um, but you know, Buffett is really great at attracting great talent and great investors. And then you have to have a a pretty solid media and market attention. Superstar CEOs often generate media buzz. Some can be good, some cannot be good, but can boost the company's visibility and brand recognition uh with that media buzz and uh it can be translated into higher stock prices, customer interest and a stronger market position. I've also seen people who are brilliant that just don't have the media present and the market attractions. I think you asked me something about one of the drawbacks um and or two of the drawbacks and I you know when I think about it or I thought about that is the overdependence on one person. You know the company can become too reliant on the CEO's vision and direction and then it leaves vulnerability because if everybody is looking up or looking to the CEO it stifles what I spoke about from the beginning that innovative thinker and um it prevents the development of strong next generation leaders which leaves companies in a in a tough spot. And from a board perspective There can be ego imbalance. A superstar CEO has charisma and can influence and and lead a company, but they can also have a level of imbalance where no one will challenge them, no one will ask questions. And I've been in board situations where I've seen other board members, not myself because I kind of speak to what I feel, um, where they're like, boy, you know, I wish I could have asked this or I wish I should have asked that. and it can result in decisions being made based upon the CEO's preference rather than the collaborative process. And I think the collaborative pro there are times when a CEO's got to make a decision period. But overall the collaborative process in my opinion is is what really um makes companies go from good to great.
As we said earlier, you've had the chance to work with some high-powered CEOs, whether that be Bill Gates or Steve Palmer at Microsoft or Jenny Romedi or Satcha Nadella at IBM. Without making you names, how did you find that they they conducted themselves in their roles? Were they conscious of not trying to be seen as a superstar to their managers and personnel? And then as a leader within those companies, how did their status affect how you operated with them? Or is it as simple as everyone puts their pants on one leg at a time? What Do you think?
Well, I mean, I think that when you think about any of them, whether it's Bill or Steve or Jenny or Satia, I I don't think any of them ever set out to be superstar CEOs. Their status certainly influenced how they operated, but I don't think anybody woke up one day and said, "I'm going to be a superstar CEO." Each one of them brings something different. You know, when you think about Gates and his transformational leadership style, he was great at being concise with his vision. I think later on down the line or very early on getting people to buy into that and encouraging creativity and innovation is there's no question that as a tech visionary help to attract great talent and foster a culture of excellence at at Microsoft. When you foster that and you're so brilliant, you almost throw people off at times and they might be afraid to speak up. Conversely, Steve brought a different energy to Microsoft and um his his super passionate and some people would say at times intense leadership style both of strength and challenge. I personally do better with somebody who's passionate and has a very strong leadership style because I'm passionate and I have a strong leadership style. So I think Steve oftens times get over gets overlooked and it as it relates to his brilliance because he's very very very smart and sometimes people lead with his enthusiasm for motivating people and lose sight of the fact that you know if you go out to USA facts you know I mean come on who's actually doing AI work on a 10K report for the US government and he's brilliant right and the idea that he came up with that I think that there were a few, you know, the street could argue some high-profile missteps. Maybe one could say we missed the opportunity as far as mobile and certain markets. I I don't really know, but I think sometimes missteps and misfirings overblow who the person is and how absolutely great they are. I think Jenny came in at a time at IBM where, you know, she transformed She was a transformative leader with a clear vision. Her her her leadership style was very dem democratic um and and and her team was involved in making decisions and fostering innovation and resilience. She carried the weight of multiple positions because she was a CEO like I said you know brilliant superstar CEO but she was also a female and so I think the market put an added layer of pressure on her to promote diversity inclusion which came very automatic to her and I think she did in all the cases you know each one of them brings benefits and challenges and they have to I think they each brought their own personal experiences from their lives and their personal leadership style and expectations and pressures. I think all three of them did a great job of surrounding themselves with the right teams and that's probably what made them superstars.
How would you say that your experience working with superstar CEOs has affected the way you serve as a member on public company boards?
I always think through a few things and there are probably five areas. I look very early on at I listening to a vision or am I caught up in the charisma how it's being delivered. Superstar CEOs are very charismatic leaders. Um and if they're really good, they're charismatic and they have a clear vision. and they can inspire people but you have to see the difference. Delivery is important but a vision is super important. What's the performance impact and how and what do they what do they expect the performance impact to be? You can bring great energy to the table but performance and making sure that the right metrics are out there as you communicate it to the street as you communicate it to the board as you communicate it to your employees. There's a lot of interplay there from social, economics, and other factors, not just one in particular. So, how do they see overall performance? And there are times when there will be a dip and then it'll rise back up. Uh, and and then the great CEOs, I've seen it. Um, what are the risks and the challenges? And do they know how to manage those or is everything it's all upside? I I don't think there's anything wrong. Well, boards may misdiagnose problems and and um they want to go out and get charismatic successors during that crisis period which doesn't doesn't yield long-term success. So you have to really understand what the risk and the challenges are and you got to you know this is where you got to lean in and ask the questions even though sometimes when you're a superstar CEO you don't want to have to answer those questions. What's the compensation and expectations? They they command higher compensation packages, which is important, but it also leads to scrutiny and legal challenges. Their compensation can sometimes be justified by their visionary contributions, but it can also be seen as excessive. So, it's it's it's not just where do you see the company in 5 years, 10 years, three years, four years, how are we going to deliver on this particular quarter, how we going to end the year, but is there clarity on how they're going to get comp compensated. How much is base? How much is bonus? And how much is it when they hit the overall metrics and their teams hit the overall metrics? And then, you know, I mean, I think we talked about this earlier, the long-term versus the short term. Sometimes CEO, superstar CEOs work focus on short-term gains for shareholder or long-term strategies for sustainable growth. I will tell you, I I think I'm a little jaded in that I'm a huge Steve Balmer fan and I always feel like Steve um prioritized the team and um thoughts about the long term and I think you know he he listen he listens to others. Now Steve would have to be the one that answers and says out of all the years I was a CEO superstar CEO which are the situations that I wish I hadn't listened to or which ones I had listened to the ones on the boards that I'm part of. they really are about employee well-being and that's important to me. So when I get interviewed to be on a board, I really do want to understand how much is is is is it about the employee or or is it just about shareholder value? Um because you have to actually have a combination of both in my opinion.
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You know, tariffs more than probably any other thing in my business uh through my 30 plus years have have shaped what we do. The thing that's unusual that's going on today is just the speed of them going in and out. So we've had tariffs, we've given tariffs, we've taken tariffs uh for for as long as I can remember. If you just think about India, for instance, they've had 7% tariffs on us for for a number of years uh for it. So So we're used to dealing with it. Uh what's happening today, I think we have had uh uh uh Mexican and Canadian tariffs in and out at least three if not four times in the last uh uh 60 days. on. So, it's an exciting time to to be in the business world as always. It's also slightly frightening time to be here.
We talk about the risks of a tariff heavy landscape, but what about the opportunities? What opportunities could be available for companies because of increased tariffs?
Well, someone much wiser than me once said, "During times of chaos, there's great opportunity." And that's exactly what's happening here. If you think about uh those of us who've been doing this a while, I spent the first 20 years of my career taking my factories and things like that over to to Asia particularly China and it was just a labor arbitrage is what it was I think I'm going to spend the last 20 years of my career bringing bringing them all back right so what tariffs does is it really focuses around how can I get around them traditionally what was happening when we put a tariff say on China uh the Chinese manufacturers would move to other places in the world particularly Mexico particularly uh places like uh Vietnam and things like that still same ownership uh but coming through an area that didn't have terrorists once you go to Mexico particular or Canada, you've basically gotten everything that's coming in uh to to the country if you if uh if if you start there. In addition to that, a lot of the places are going. So, let's say you want to go to Indonesia, they just don't have the infrastructure to do it. So, uh the opportunities that you have now, if you if you are if you're you know, it takes a little while, but uh but you're going to start moving your supply chain back coming in. So, one of the things that we've struggled with for for decades is it's easy to say I'm gonna get it out of say China, but now you've got um uh uh inventory for 16 weeks on the water coming over. It stretches your supply chain out. Something goes wrong, you've got to take and deal with that. The opportunity as we look forward is you almost have JIT just in time. You can get something right in your backyard and bring it in. Now, that's great for the country. It's great for the economy. It does a lot of things for that. What can happen is you can go a little too far with this, which which uh you know will cause uh disconcern uh and people aren't sure exactly what to go do and you wind up paying more.
What action should boards take to ensure that the management of their companies are are ready for the effects of tariffs and what are the traits that a board must display to ensure that it is at best able to help its company navigate tariff uncertainty?
There's two areas I think that we all have to be looking at. So even though the vast majority of tariffs that have been uh promised for us have not come in, I'm already seeing price increases in. So if you look across my companies, we have about 8,000 suppliers. Every day I'm getting dozens of price increases coming. in same thing that we're doing. We're sending dozens of price increases going out because we know they're coming. We're just not sure when they're going to get here. And the moment that they actually go in, you owe them, right? So, so by doing uh the proactive piece, putting it out there, it gives you an opportunity to start negotiating with both your suppliers and your customers. A lot of our contracts have things like uh you got to have 30-day notice. Many of them have contracts that says you can't you can't change your pricing. Now, if you have something like this going on, you have what's called as a force majour. Uh going back number of years ago. We have that in all our contracts today. So if some act of God happens, we have the ability to break the contract and ultimately the customer is going to decide where do not they want to actually go with that. So one is be proactive. The second one is the thing that we're finding is to be a fast follower. And what we mean by that is we're not trying to get ahead of anyone, right? We're just trying to set ourselves up to see what's happening. So whether they're 10% or 25%. Think about this. For the majority of companies out there today, most earners whether you call it iba operating income net income are not above that 25% range. So if you have a 25% tariff and you don't pass that on you're immediately losing money. So be proactive support your team but demand that your team demand that your CEO is actually looking at this taking it very seriously and has got his team organized around it. But if you go too fast just be prepared for it to change as it has already has multiple times. Thank you so much to Bill Kennedy, Marita Coloulston Davis, and Maggie Wilder. And thank you for joining us for this episode of Executive Session. Please look out for our next episode. And if you enjoyed this episode, make sure to share it with your friends and colleagues and let them know they can look for it on the directors and boards website or wherever they find podcasts. Also, make sure to check out directorsandboards.com where you can get all of the articles from our magazine as well as so much more. You might also be interested in our weekly newsletter which you can subscribe to at our website. Speaking of articles from our magazine, the quarter 1 2025 edition of Directors and Boards is now available in full on our website. It is themed around shareholder activism and features stories on the true beneficiaries of shareholder activism, the difference between appropriate shareholder activism and inappropriate shareholder activism, and the key traits of lead directors and board chairs of companies who are experiencing shareholder activism. Read all about it at directorsandboards.com. So once again, I'm your host, Bill Hayes, and until next time, consider this executive session closed.