May 2023

Chris Clark conducts interviews with leading corporate directors and subject matter experts for Stuart Levine & Associates, a global consulting and leadership development company. The Planet Governance™ interview series features the views of corporate directors, chief executives, and governance experts on timely issues from succession planning, board refreshment, and board composition to cyber-resiliency to stakeholder activism.

This highly engaged corporate director says we are in full VUCA (volatility, uncertainty, complexity, andambiguity) permacrisis mode…

Michael Montelongo serves on the boards of Civeo Corporation, an accommodation and food services multinational; Conduent Inc., a global IT business process outsourcing company; and privately held Palmex I Ltd., an international snack-pellet producer. Of note, he will be joining NACD’s board of directors on July 1, 2023.

He previously served as Chief Administrative Officer and Senior Vice President for Sodexo Inc. Montelongo is a former George W. Bush White House appointee, serving as the 19th Assistant Secretary for Financial Management and Chief Financial Officer of the U.S. Air Force from August 2001 to March 2005. He is a lifetime member of the Council on Foreign Relations.

Michael Montelongo

Chris: You’ve had careers in both the commercial and national security domains. Please help us make some sense of this “Hey, it’s crazy out there” geopolitical environment.

Michael: Thanks for the opportunity to be with you, Chris, and your audience and thanks for this important question. “Crazy” doesn’t begin to describe what’s in a director’s overflowing inbox so it’s helpful to first define what we’re experiencing, understand how we got here, and determine how we can address it.

The risk context has dramatically changed. We are witnessing risk oversight expansion in scope and scale. Besides the “traditional” risks in strategy, talent, culture, governance, and compliance, we have more of them like cyber, crisis management, ESG, third party, regulatory, and so-called STEEP risks or social, technology – especially AI, economic, environment, and political. All are occurring more often and they’re more impactful; as if that wasn’t enough, there is a broader set of constituencies to engage with.

Chris, we are in full VUCA permacrisis mode – a world characterized by volatility, uncertainty, complexity, or chaos or crazy, and ambiguity. We now have a very dynamic and highly intense multi-risk environment exacerbated by simultaneous interdependencies, interrelationships, and interconnections that complicate business strategies and free trade – and the timing couldn’t be worse. It’s “buckle your seatbelts” time — creating a need for far more attention, discipline, vigilance, resilience, agility, and flexibility from boards and their companies.

Compounding all this is geopolitical risk which is once again unmistakably center stage. We’re here because history did not end after the Cold War. Many believed in the mistaken promise of “change through trade” meaning economic interdependence would induce stability and desirable reforms, essentially, a utopian, geopolitical risk-free world. It worked for a few decades as business activity went where it could most efficiently be conducted. Laissez-faire globalization, as David Ricardo theorized – based on inexpensive capital, labor, and energy – gave us an unprecedented period of fast expanding and broad-based prosperity where the world economy tripled, almost every country grew richer, and more than 1 billion people escaped extreme poverty to join history’s first global middle class.

Then February 24, 2022 happened and we saw great-power competition reappear, geostrategic ruptures redrawing the global map, and the transition from a unipolar world to a multipolar structure of blocs. Nationalities matter again; nations are taking sides. To paraphrase a popular commercial, what happens in those global hot spots doesn’t necessarily stay there. Our post-neoliberal world is taking shape.

Not surprisingly, a recent McKinsey survey suggests geopolitics is one of the three most important trends in 2023; yet most companies have been reactive. Boards and management teams feel ill-equipped to assess and manage these issues because they’re unaccustomed to doing so. Only 25% of boards regularly consider geopolitical risks; almost half of corporate boards have no formal process to identify and assess geopolitical risks; and only a small fraction of the U.S. director population has geopolitical experience.

Chris: What can boards do to prepare for and operate in a VUCA world and is it prudent to take cues from today’s partisan policymakers?

Michael: Begin with first principles. At a high level, ensure your company is equipped with the right “hardware” and “software.” For “hardware,” install “fit for purpose” risk oversight practices and systems like integrated ERM and Three Lines of Defense processes and protocols, scenario planning, and tabletops; strengthen the company’s government relations and public affairs playbooks and capabilities. Look beyond the “standard” risks and consider “existential” risks – the low probability, high consequence risks. As for “software,” board and senior management composition matters. It’s imperative to have the right directors and a management team that have the right skills, backgrounds, competencies, and experiences coupled with the right attitude, at the right time in the company’s strategic evolution, working together in the right environment – one where everyone is treated, respected, dignified, and served as they would like, led by the right leader – a servant leader who is humble, authentic, vulnerable, and empathetic, and all working on the right things or right priorities in the right way – morally, legally and ethically. 

At a granular level, adopt “corporate geopolitics” into your corporate governance framework. Build geopolitical resilience and make “no-regrets” geostrategic moves like understanding your geopolitical footprint; accessing the right geopolitical experts and competencies; applying strategic foresight and conducting ongoing scenario and active contingency planning; engaging in continuous geopolitical information gathering, analysis, and stress-testing; and integrating learnings into strategy, governance, and reporting.

As for taking cues from policymakers, companies should first understand they are not political actors and should not have their own foreign policy. At the same time, public officials and business leaders are both in the global-security and the domestic-prosperity business so to succeed they should act as mutual force multipliers and avoid working at cross-purposes. That’s why it’s prudent for the business community to engage regularly with policymakers, be part of a coordinated leadership effort with government leaders domestically and globally, inform public officials about diligently thinking through the potential consequences of their decisions, and create an economic strategy that aligns with our diplomatic and national security policies.

As for partisanship on the part of public officials, the good news is that national security has a long legacy of non- or bipartisanship — where our elected and appointed leaders who are members of the armed services and intelligence committees check their partisanship at the door and act in the nation’s interest. I witnessed this first-hand during my Army career, my fellowship tour in the U.S. Senate, and my appointed assignment in the Pentagon. Business leaders should follow that example in matters of national security and geopolitics.

The bottom line is our ability to be influential in matters we care about — whether it’s human rights, climate change, etc. — depends greatly on our geopolitical power, so we as business leaders, government officials, and citizens must get the geopolitics right; if we don’t, nothing else matters. 

Chris: When facing these “tectonic” geopolitical scenarios you referenced earlier, resisting the urge to be impulsive and to stay in your lane is easier said than done. What’s your advice on mollifying these urges?

Michael: In today’s VUCA, permacrisis environment that is fraught with geopolitical minefields, staying in one’s lane rather than poking around in someone else’s is wise. Yet lately, as you’re suggesting, some business leaders — either because of impatience with the inefficiency and tediousness of the policy making process, virtue signaling, activist pressure or all the above — feel compelled to take it upon themselves and dabble in statecraft. That’s irresponsible, pretentious, and dangerous. I think it’s always prudent to channel one’s inner Richard Kipling in these instances – keep one’s head when others may be losing theirs, be calm, and act with forethought rather than afterthought.

Leaving diplomacy to the diplomats and national policy to the policymakers is a sensible default position because they can speak for the country where companies cannot and should not. However, as I suggested in your previous question and at a macro level, U.S.-based boards and management teams do have an opportunity and an implicit responsibility to help secure the vitality and vibrancy of the American economy – one company at a time. In effect, good governance supports a strong economy; by extension, a strong economy enables a strong America.

Chris: You said this VUCA world is characterized by more risks that are occurring more often and are more impactful and are compounded by a broader array of stakeholders. Who are the key stakeholders in this VUCA world?

Michael: This is an interesting question, Chris, given all the recent attention and commentary on stakeholder capitalism and ESG. These concepts, as you know, generally maintain that employees, customers, suppliers, and communities merit as much consideration as do shareholders. While fiduciary duties still require a focus on shareholders, it’s practical and reasonable to consider other key constituents who contribute to the corporation’s success. Following that logic, another key constituency that deserves as much or even more attention is the nation and its citizens. Indeed, the ultimate sustainability imperative in a VUCA world is the country’s national security underwritten by all the elements of national power – economic, technical, military, diplomatic, and educational.

This is not a novel concept but one that has returned to prominence, the denial by some notwithstanding. It’s why we prevailed during World War II and the Cold War when we strategically applied our military, economic, and diplomatic might in a coordinated manner and in concert with our allies to defeat our adversaries. As in previous eras, recent events confirm we no longer have the luxury of compartmentalizing and condoning bad actor behavior – as some governments and businesses did in recent years. Succeeding in a potential Cold War II era will require a similar united front we displayed decades ago. To paraphrase, the 1980s did get their foreign policy back and we in the 2020s had better take notes.

This will not be easy. Defense spending today is only 3% of GDP vs 5-9% in the Cold War; although our military is supposed to prevail in two major regional conflicts at once, it is unlikely to handle one; the U.S. weapons inventory is depleting because of our support to Ukraine; our open markets have helped rivals build capabilities that threaten American interests and friends; our supply chains are vulnerable and our intellectual property is helping our adversaries. All these geopolitical challenges require significant defense investments that are competing with domestic investments.

Chris: Who was the single most positive influence in your career?

Michael: Like everyone else, there are many factors that influence one’s journey and trajectory. In my case, family, faith, a quality K-12 education, a strong work ethic and service orientation, and timely opportunities were all instrumental for me. 

As for someone I’m particularly grateful to and for, it’s all about my many “angels along the way” – my parents, relatives, teachers, friends, colleagues, and mentors who shaped my thinking about life, faith, career, and leadership to help me make informed and prudent choices. They all cared enough to steer me in the right direction and instilled a strong “leading by serving” ethos. You might wonder if I still have angels on my journey. The answer is yes, and she’s my bride – an accomplished, professional palliative care chaplain; a servant leader whose personal mission is to heal hearts, stir souls, and touch lives. She inspires and motivates me to be a better and more self-aware servant leader.

Chris: What is left on your governance bucket list?

Michael: As I indicated earlier, there’s no shortage of concerns for directors – the inbox keeps piling up. And as we’ve discussed so far, geopolitics dramatically changes the risk equation, considerably raises the stakes, and exacerbates all the risk types in a director’s risk bucket; in particular, it widens the aperture and places the debate around energy, for example, in a much broader context and a different and more pragmatic perspective. It provides clarity on how to responsibly address and balance energy and environmental demands that currently challenge boards, companies, regulators, and governments.

Because of the considerable geopolitical headwinds, we now face in an age where some governments believe territorial aggression is a viable path, we’ve already established that economic security is an essential component of national security. Now, seen through that same geopolitical lens, we have an opportunity to carefully consider how energy security relates to both economic and national security and what that means for companies and boards as well as governments.

As I previously suggested, our likelihood of deterring bad actors is higher in this neo-era of great power competition when we can work together to harness all elements of national power, display a united front, and avoid working at cross-purposes or undermining ourselves with siloed solutions that unintentionally handcuff us. In that sense, energy security is economic and national security because it is a critical component of national and geopolitical power. The challenge, however, is we’re attempting to transition our energy sourcing right when we need to rely on it the most. We — companies, boards, regulators, and policymakers — need to do this transition smartly and mindful of the bigger picture and larger imperative, namely, our national security. We need a prudent, well-planned, and balanced “all of the above” transition approach with reasonable trade-offs that ensure reliability of supply, affordability for households and businesses, and environmental sustainability.

Such a thoughtful and balanced energy transition and investment strategy is even more prudent when one considers, for example, that despite all we’ve done — electric vehicles, coal plant shutdowns, working-from-home, and solar and wind substitution — CO2 continues to rise. Moreover, climate models suggest the Earth’s climate would continue to get warmer over the next 100 years even if we stop all human-produced CO2 emissions today. We’re incapable of reducing emissions enough to keep temperatures from rising unacceptably if we rely exclusively on consumption reduction – which, as an unintended consequence, can threaten energy security and, in turn, economic and national security.

Instead of depending solely on consumption reduction to combat environmental externalities, this is an opportunity for companies, boards, regulators, and policymakers to collaborate, explore, and invest in both proven and experimental technologies that can more reliably and realistically address the issue. Examples include modern nuclear energy and geoengineering solutions — human interventions in the Earth’s natural systems to thwart or neutralize climate change like direct air capture and technologies that remove carbon dioxide directly from the atmosphere or make Earth a lot less hot; and solar-radiation management that reflects sunlight back into space. Such an approach could, arguably, enable us to pragmatically address climate issues without undermining our economic and national security and our ability to win geopolitical battles. To paraphrase, getting the energy puzzle right enables us to get the geopolitics right because if we don’t, nothing else matters – a point to reflect on this Memorial Day commemorating the lives sacrificed to get it right.

Chris: Michael, thank you.

Michael Montelongo serves on the boards of Civeo Corporation, an accommodation and food services multinational; Conduent Inc., a global IT business process outsourcing company; and privately held Palmex I Ltd., an international snack-pellet producer.

Chris Clark joined Stuart Levine & Associates as a senior consultant after a distinguished career at the National Association of Corporate Directors. His expertise ranges across a variety of disciplines including corporate governance (with data-driven board assessments and cyber risk diagnostics as cornerstones), strategic communications, conference management, and digital content creation.