On the current global stage, geopolitical tensions and uncertainties have raised the stakes for the decisions of both CEOs and board leaders. Daily decisions are so costly and—in many cases—so irreversible that the CEO cannot afford to take their hands off the wheel. Even for a moment.
Over the past few months, I’ve been working closely with Jon Huntsman Jr. to explore these challenges with CEOs across the United States. As Jon was formerly the US ambassador to China and Russia, his perspective is invaluable as leaders grapple with a new world order: a more complex world shaped by escalating geopolitical tensions, higher capital costs, and the rapid acceleration of technology.
Jon, it’s great to see you. I wonder if you’ll humor me for a minute. Could you define the current geopolitical landscape in three words?
I would say first “mind-numbingly incoherent,” which then gives rise to the most important word: “humility.”
There’s so much we don’t know and so much we need to be prepared for. It will come at us with little warning, and we’ll need the structures, talent, and organizations to sustain those moments. We’ve learned a lot over the past few years with the shocks and jolts that have shaken the business community and beyond, but a healthy dose of humility will sustain us as we move forward.
We have all felt that the world order is shifting. If you’re a CEO, how should you think about building resilience in this new era?
CEOs are confronting a new vocabulary of terms, events, and scenarios they never had to deal with—and in some cases they never knew existed. So they need to be fast on their feet and open new lines of communication to people and organizations that they may have never considered.
In the old days, policy was an afterthought. Today, most companies operate in a policy-heavy world, domestically and internationally. And CEOs must understand deeply the pertinence of those policies to their companies and industries and how they will affect trade and investment flows.
CEOs need to create an organizational structure to sustain their companies in the new world order. They need to curate the right bench of talent and build out networks that will augment their capacity to absorb, understand, and communicate information effectively so entire teams can follow with the speed and agility necessary in today’s marketplace. It’s a tall order.
In your mind, have things changed in the aftermath of recent geopolitical events? For example, Russia’s invasion of Ukraine? Has it accelerated our journey into a new world order?
The world is remarkably predictable when you look at the behavior of superpowers. What surprises me is our inability to think clearly about how to respond to these issues—and our shock at some of these events, as if we never considered they would happen.
But it gets more complicated, because the rule book of trade is not keeping pace with the advancement of technology and the changes in the global order. So in a sense, it’s the Wild West. Now, I come from the Wild West, so I’m a bit conditioned to that. But we’re operating less and less in a world that is governed in a coherent and predictable way—as we've seen in calmer decades, shall we say. We’re looking at a world that will be ill-defined for some time.
We could soon see a reordering of the world that largely mirrors what we saw in the aftermath of World War II. More trading, procurement sourcing, and raw material arrangements with our friends and allies. And on the other side, we’re going to see much unpredictability.
The life cycles of geopolitical instability are getting shorter. What should leaders consider as they make increasingly difficult decisions about the future of their business—which are, in many cases, irreversible?
Partnerships—reliable ones—are going to be essential. We can expect to see companies playing in more predictable markets and, in a departure from quieter decades, perhaps not venturing into those that carry greater risk. We’ll see supply chains being rebuilt and a wholesale reevaluation of sourcing, purchasing, and manufacturing. These decisions will be based, in some measure, on long-term stability.
This will take companies into new markets, which also presents a very exciting chance for new markets that we didn’t think about yesterday to become enlivened.
One of the questions we often get from CEOs and private sector leaders is what voice they should have in public discussions about geopolitical issues. What’s your view?
They’re an integral part of speaking out on issues that matter. In particular, they should play a role in educating policy makers, because—most of the time—policy makers don’t come from the business community. They don’t see what business leaders see.
So yes, businesses need to be part of the discussion. They need to stand up and be heard when doing so will strengthen the marketplace. But speaking out on politics just for the sake of politics is potentially hazardous and not necessarily in keeping with serving the best interests of shareholders.
In other words, be proactive but not political.
Perfect way to summarize it.
Finally, Jon, when it comes to geopolitical risk, what are we not talking about that we should be?
Cyber gets a fair hearing, but I am not sure that companies are taking it as seriously as they should. So in today’s world, where nation-state actors are very good at playing the cyber game and potentially disrupting companies and other nation-states, this topic must be established within the thinking of management, teams, boards of directors, and entire institutions.
Exercises need to be held, risk assessments need to be looked at, and outside professionals need to be consulted. Because heaven forbid that you wait and it happens to you. Then, it’s lights out.
It’s not just to your financial detriment but it’s also reputational in many cases. And it can happen in the blink of an eye.
Jon Huntsman Jr. was formerly the governor of Utah (2005–09) and US ambassador to China (2009–11) and to Russia (2017–19). Asutosh Padhi, a senior partner and the managing partner for McKinsey in North America, is based in McKinsey’s Chicago office. He leads the firm across Canada, Mexico, and the United States and serves as part of McKinsey’s 15-person global leadership team. He is a member of McKinsey’s Shareholders Council, the firm’s equivalent to a board of directors.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.
This interview was recorded on August 16, 2023.
This piece was originally posted on LinkedIn.com as part of Asutosh Padhi’s interview series, The Exchange.