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- [00:01]
A
You're listening to Is Business Broken, A podcast from the Merotra Institute for Business, Markets and Society at Boston University Questrom School of Business. I'm Kurt Nickish. Today we tackle a challenge facing boardrooms right now. The intersection of geopolitics and corporate governance. For decades, companies followed a playbook built on global integration and efficiency. But now that playbook is being rewritten by trade wars, sanctions, and supply chain disruptions. So how do boards navigate a landscape where geopolitical risk is the new normal and where every decision reverberates across shifting borders, markets and social expectations? That's a question we asked at a recent live event. I sat down with Ruth Aguilera Brodsky, Trustee professor in Corporate Governance at Northeastern University, Kevin McGovern, president of the New England chapter of the national association of Corporate Directors, and Roy Shapira, professor of Law at Reichman University and Visiting Fellow at the Ravi K. Marotra Institute for Business Markets and Society. Here's what they had to say. Thanks to such a great panel for being here, and it's really great to speak to such a great audience. Ruth, Roy, Kevin, great to have you. Let's dive right in. And Ruth, I'm going to start with you as an international business professor, can you start just by painting the landscape for us? Macro level shifts that are now fundamentally changing how global companies and their boards have to operate.
- [01:42]
B
Thank you. And thank you for having us here. To answer the question, we need to think about what is geopolitics? So geopolitics is how geography affects politics, and we're thinking about how that affects businesses like global trade and tariffs, sanctions, quotas. The second one is the mobility of human talent around the world. And then a third one that comes to mind is about the global value chain, how the access of resources, it is recalibrated, rebalanced around the world in the global value chain. So I would say these three to start.
- [02:25]
A
Yeah. And just to underline this a little bit, I mean, that those have always been something that you have to worry about if you're a director of a multinational company. What's changing? What's different?
- [02:37]
B
What's changing is that there is a rebalancing on these alliances around the world. Yeah.
- [02:45]
C
I agree with everything Ruth said. Also, I'd add maybe one more, which is the availability of markets entering or exiting markets, and the ease with which companies can do that. But I think the. What puts us really in the center of the conversation for boards today is the fact that all of these are happening right now. At once. And I don't think that's happened in a very long time for most companies that you have all of these issues, availability of talent, availability of markets, availability of supply, all changing within a very short period of time. I think all boards that I work with are very focused on each of these matters, but they also have to be focused on all of them at once, which puts a lot of burden on companies and their boards.
- [03:26]
A
Yeah, Roy, I want to bring you into the conversation too, here. From a legal perspective, if you're a director of a multinational company, what's keeping you up at night?
- [03:37]
D
Too many things.
- [03:37]
A
Yeah.
- [03:38]
D
The board of directors is the organ in charge of risk oversight in a company. Right. And so when bad things happen, when risks materialize, the regulators and investors will usually ask, where was the board? And from a legal perspective, to go to your question, you could be actually held personally liable for harms that the company suffered from. Risks being materialized. So take the Boeing 737 Max debacle. Okay, so two airplanes crash, and there's a human tragedy on a mass scale. More than 300 people are dead. There's also huge attendant financial, legal, reputational harms to the company. For Boeing, the most conservative estimates is $20 billion. And so at that point, the shareholders and regulators will try to hold the boards accountable. How did it happen under your not so watchful eye? So in legal terms, we call it the oversight duties. So boards have to be proactive about compliance. They cannot just sit there and wait until someone flags a problem to them. They have to make sure that there's a system that collects information about those potential risks and that the system escalates the red flags to them and that they respond to the red flags. Now, if you translate it to what Ruth and Kevin just said about the geopolitical risks, I think it's kind of straightforward in the sense that for certain global companies, geopolitical tensions, geopolitical risk these days become critical. It could affect your entire business model. You look at supply chain disruptions, you look at trade wars, you look at visa restrictions and how you hire and how you retain talent. So if something bad like that happens and the company suffers negative adverse economic consequences, and again, the regulators and investors will go into the board and they will say, did you anticipate it? Did you discuss it in real time? We don't expect you to guarantee outcomes. We don't expect you to completely eradicate all those problems, but at least show us that you didn't ignore this.
- [05:33]
A
So, Kevin, we just heard from Roy how you almost have to have the war room set up before something happens. And he gave this example of Boeing that was kind of a nightmare scenario for a company. At Deloitte, you used to advise company boards and now you represent directors at NACD. When a crisis hits, what's on that first 72 hours checklist?
- [05:59]
C
Usually a lot of angst and a lot of crazy kind of energy.
- [06:04]
A
That doesn't sound good.
- [06:05]
C
No, it's not a good situation, quite frankly. Many boards are caught a little bit flat footed because they haven't practiced the crisis management. The time when the crisis happens, who's in charge, who makes decisions, who calls whom. What I've seen most often is the board making decisions, is management making decisions. And I would say that in certain situations it ought to be more management driven. In other situations, perhaps more board driven. But having that conversation in advance is a really important aspect of good governance and understanding what could happen to you. I think the most relevant one today is a cyber attack involving ransomware. But we're talking about geopolitics today. So what happens if we're in a country and our supply chains get shut down? What happens if we are about to launch something in a country and we can no longer do that because of market changes? You have to practice and think about those things. Who's in charge and who gets to make which decisions, which I think most companies do to some degree, but probably not to be fully prepared.
- [07:09]
B
So I do teach a class on. It's called Moments of truth. Right. Like those are the moments that you haven't planned in your risk map. Right? Like you haven't planned in your risk map that there's going to be a tornado or there's going to be a flood or a fire. You know, when I teach, I think my number one takeaway when I teach boards about this is you need to have a consistent message. You need to be very much aligned about what the company is about. So what is the purpose of this company? And then have a consistent message. Then another key part is have very, very clear who your stakeholders are, who is your first line, your primary stakeholders that you need to address and then do that kind of assessment very quickly and then have a very consistent message across the parties and very true to who you are as a company.
- [07:59]
A
It's striking me that if you don't have a good board dynamic, this is one of those moments where it gets exposed.
- [08:05]
C
I remember it doesn't seem like a geopolitical issue, but when the pandemic hit, it very quickly became A geopolitical issue, because the way that different countries reacted, whether they sent everybody home, whether they could send everyone home, whether they decided it was actually better to bring people back to work, what was open, what was closed, created a very diverse map of risks for many of my global, global clients at the time. And this is really when the culture of the board and the board's relationship with management matters. Because you've got all these differing, potentially differing answers to the same question, right? Do we send our employees to work in a country where it's open and the expectation is, do we keep them home? Even though some people may say they're safe for work? It's a very interesting dynamic when the moment of crisis hits.
- [08:50]
D
Kurt, I think that your intuition about poor dynamics being stressed is exactly the point. I think that in 2025, the biggest problem is board bandwidth, because we ask boards so much. We ask them to deal with those geopolitical tensions, and we ask them cybersecurity. Cybersecurity and the climate. And by the way, also the normal things of financial reporting and succession planning and hire the CEO and executive pay, and even if the directors are really, really great and they're independent and the expert, and they have all the information you need, the perfect dynamics, the perfect processes, the perfect pre reading, pre meeting materials, you need everything to be perfect just in order for you to fit all those huge issues into one agenda.
- [09:36]
A
Well, you brought us to the core of this conversation, which is governance. Maybe we should step back for a second. Kevin, at the highest level, what is the board's duty here? Is managing geopolitical risk like an extension of their fiduciary duty? And what realistic influence do they have in a foreign policy sphere?
- [09:56]
C
I think to answer that question, Kurt, we have to go back to what is the baseline responsibility of the board, and it's not to manage the company. So, in part, my answer to the question is no, they should not be in the business of managing geopolitical. What they should be in the business of is asking management, are you ready for this event to happen, that event to happen? Have you thought about this? Where's the playbook for that? There's a saying, and Roy said it this morning in our earlier thing. Noses in, fingers out. That's often the board credo. What that means is stick your nose in and ask the right questions. But you can have your keys on the keyboard. That's management's job. But you have to continually ask those questions. And sometimes they're uncomfortable because, you know, the answer may not be Great. But you've got to do that. That is the board's job as a fiduciary of the organization. You've got to make sure the company is as prepared as it can be for whatever possibility it may face.
- [10:48]
A
And what about externally? It's a funny question to ask, but do boards need to have a foreign policy?
- [10:55]
B
It's kind of going back to the upper height times in South Africa when GM decided to boycott and pull out. So companies all over the world are also asked, why are you in right now during the Russia Ukraine war, why are you not pulling out of Russia or why are you staying in Russia? So you are dumb either way, whether you do something or you don't do something. But what you definitely need to do as a corporation is and from the board is to have a clear message again on what are you doing and why you are doing it. Whether you stay, you leave. But this is a geopolitical decision. And the same sourcing in Europe. Companies are not allowed to source energy from Russia, but then they go through Turkey. So you have to be very true to your message. And obviously there are also sectors such as semiconductors, defense, energy, AI, which are more critical as well. Right? Like there are geopolitics and then these sectors that they are so strategic almost to the national security level to countries. Then there is like domestic politics and international politics mixed up. But do companies, you know, companies are legal entities and they have to have a voice and they do have a voice, sometimes influencing policy even.
- [12:16]
D
So I think just like with geopolitics, as Ruth defined it, also today those political tensions become a critical corporate governance aspect of how you manage the company. And firms corporate political engagement goes way beyond traditional lobbying. We're seeing firms and CEO taking political stances on issues that don't have much to do with their core business, like gender disparity or climate change or what have you. And these comes as geopolitics. These comes with big legal, reputational, financial risks in the US it's very timely these days. You can think of examples like the most classic example of straightforward is consumer backlash or investor backlash, like with the Bud Light advertisement. Or more timely examples of political retaliations even if consumers don't revolt and politicians could revolt, you could have regulatory retaliation or certain enforcement actions and so on and so forth. So that's definitely part of the dilemmas that boards are facing. And some of them are reaching the conclusion. And Kevin, maybe you know otherwise, but some of them are reaching the conclusion that maybe the best solution is neutrality or to Be more precise. Just stick to what you are as a company. Stick to what you are in terms of what is your core business model, what are your values, and try to stay grounded in that. And this will help you kind of navigate these stormy damn if you do, damn if you don't kind of dynamics.
- [13:45]
A
Yeah. Just to jump off of that, Roy, you've done research on specialist directors and some boards are actually hiring like an international relations sort of specialist on the boards. But your research was also a little bit skeptical of having like subject matter experts for different things on a board. Can you just develop that a little bit further for us?
- [14:04]
D
Sure. So I think it's illustrated by what you said just five minutes ago. Meaning? So it's not just geopolitics, it's also politics, it's also cyber, it's also climate. And so do you really bring in the board, being on the board, like someone with a narrow subject matter expertise on each one of these topics, it's not necessarily conducive to the discussions of the board overall. It may not even be conducive to the discussion of the board on the specific topic that you bring the expert on because then you have authority bias where the other directors are saying, I don't need to invest in learning in geopolitics or AI. I can just defer to Ruth, who is the AI expert, and to Kevin, who is the geopolitical expert. So I guess the idea here is you could outsource the expertise, meaning you can bring someone from the outside, you can train your entire boardrooms just so they don't have to be expert, they have to be proficient just to ask the questions. Because just like Kevin said before, their job is not to do the micromanagement. Their job is to do the big picture oversight. So they need to have some expertise or know how in order to ask the right question, not just ask what's in the PowerPoint deck in front of them, but to anticipate future problem and to process the answers. But from my research, what I came up with is that it shouldn't be with narrow subject matter expertise. It's better to do through training, through education, and to bring in experts on specific topics. Because as much as geopolitical tensions are important, you have many other topics on the agenda, so you want to bring them on separately.
- [15:37]
A
Got it. Let's stick with the geopolitics for a second because you can. I don't know how many companies do business both in North America and in Europe. Right. And you may have a situation where Neutrality isn't even an option. You can have Europe saying you got to pay more attention to ESG issues. Europe dei and in a ticket to the extreme, in a Trumpian world, you shouldn't be spending any time on that. We're going to punish you for that. So how do you manage kind of these different expectations from the legal frameworks for even just what a board should be focusing on?
- [16:11]
D
So sometimes they take this decision out of the board's hand. If you're talking about Europe and esg, or how you treat the environment, or how you treat human rights, the European Union just passed a year ago a couple of very strong ESG legislation acts that demands that large companies, regardless if they're European or not, even if they're Americans and they're operated, generate significant revenues in Europe, they still need to comply with these regulations, meaning they need to monitor and prevent and remediate a host of numerous ESG issues, going from marine pollution to biodiversity to collective bargaining to child labor. And they need to monitor and prevent and remediate all those issues, not just in their own operations, but also in the operations of their supply chain partners. So to the extent, and there's a huge debate over whether this should apply on both sides of the Atlantic right now, but to the extent that it applies, it makes everything that we discussed up until this point puts it on steroid. Because now you as a board, do you bring in expertise? How do you fit this into the agenda? You have to make sure that the entire supply chain, they almost like enlist large public companies as regulators of the entire world.
- [17:28]
C
I want to go back to something that Roy said a few minutes ago in answer to your question. You can't respond to all of these things individually. It's impossible. I think what companies have to do and the board is responsible for is keeping the management team on track as to who are we, what is our vision, what is our strategy as an organization, what is our ethos, what are our morals and values? And if you stick to that, you can defend, if that's the right word, a lot of the things that you choose to do. One of my clients had a hundred issue dashboard that they maintained around issues that they thought could come into them. And they had positions on everyone, not public ones, but they knew that if something had to be said about something, they were ready. And of course, they were always refreshing these positions. They were ready to say something based on who they were, what their role was in that part of the world. Let's say they may have a major role versus A minor role and just be ready. Another one of my clients created a framework that said, let's take all these issues and then let's look at who we are. And if it fulfills these factors, then we're going to be ready to say something. But if it doesn't fulfill all these factors, we're not. We're going to stay silent. And I know for that organization that was somewhat controversial because there were people who wanted them to say things on very significant issues. Right. Whether it be on gender diversity or what have you. But this company was saying, no, no, no. We only have a limited number of topics that we can have a position on effectively. And so we have to have a framework in order to decide what those are and take the bias out of the conversation to some degree.
- [19:03]
A
Yeah, that's really interesting, Roy. Let's assume a board does speak out on something that they're pressured to issue a statement on. What are the legal and regulatory tripwires? There's.
- [19:14]
D
It's mostly not legal. It's mostly not legal tripwires. They enjoy a wide discretion to go and rationalize it and say that we thought that it's best for the long term value of the company, for our reputation, for what our workers care about, for what our consumers care about, for what some investors care about. So it's not like they will be held personally liable for something like that. It's mostly the reputational aspect. You can draw attention. You could be seen as doing something just like Kevin's colleague did, not incongruence with what your company stands for. Here you are giving us those noble statements about climate change and then we're seeing you donating or funding those climate denial think tanks. So it will be mostly about reputational risk.
- [20:00]
A
Kurt, I think, Ruth, what's the bigger risk from a strategic mindset? Speaking out or saying nothing at all?
- [20:10]
B
Yeah, I mean, I think no. So, you know, from my point of view, the main responsibility of the board is to assess the risk and also decide what is the risk tolerance of the board. Like how much risk are we gonna take? How much insurance do we have towards taking those risks? Like are you gonna violate human rights? Okay, what is the risk that goes with that? And then see the opportunities as well relative to the risk. So really, to get your question, really speaking up or not, depends on is this issue relevant to what this company is trying to accomplish? Is this issue relevant to the strategy? And then that's how I would approach it.
- [20:57]
A
Are those risk assessment systems in place strong enough to figure out here's? The South Africa was an example. Right. So if you're going to divest from a market, it's a little easier to quantify what that's going to do to your business. The reputational brand equity stuff is that.
- [21:14]
B
You need to be consistent. Like what Roy was saying, you need to be consistent in your message. It's not only like you need to have a strategy for communications. That's why most companies now they have a chief communications officer and there is so many resources devoted to communication because it's social media, it is so many other things, digital platforms. So that's another area of geopolitical risk. Right. Like the misinformation, disinformation. So I think having somebody that manages what is the message, once you speak up, that packages that message, you know, the board needs to approve that as well. You know, in many cases. Yeah.
- [21:56]
D
So to piggyback on what Ruth just said, I think the reputational risk is much trickier than all the other risks. First of all, it's not insurable. It's not like directors and officers insurance for legal risk or classic insurance types for physical risk. The reputational fallout is not insurable. And when we speak about geopolitics, it's also not predictable. It's based on emotion and it's fast moving. And it happens elsewhere in the world where you don't really understand the expectations of other consumers or investors or regulators. That's really an uncharted territory. And this is why, again, echoing Kevin and Ruth, you can't think that you really would know how to manage the reputational fallout in your own country, let alone in other countries around the world. So the best way for you to manage it is just to stay grounded to who you are as a company, how you present yourself as a company to the facts. Don't try to take stands that are beyond that. That's your best bet.
- [23:01]
A
Yeah, I'd love to get just from each of you, like a quick case study of maybe a company that you worked with, something that you've paid attention to, but just whether it's a successful pivot or a major failure, can you just tell the story of something that you think is emblematic? Here has some lessons to draw from.
- [23:24]
C
One of my clients was a large global finance institution and they had an office in Wuhan, China. And they actually started to see the impact of the pandemic as it affected people and operations much earlier than perhaps others did. But it also became a political issue around, well, how much do we talk about this operation and how Much do we let other people know about it and what have you. Their corporate values were around. We're all one company. We're a global organization. We have people all over the world, we have offices all over the world. So we're going to treat what's happening with those set of people just as carefully and as intently and as caringly as we are any of our American employees, any of our European employees. And I think it was a good lesson in how to really follow your corporate values. As Ruth said, we're a global organization. We value being a global organization and treating all the employees the same, same set of care, same set of medical care. But I think it was a little bit of a check for that organization to actually be as clear and as outspoken as they were about how they wanted to handle that situation.
- [24:40]
A
Yeah, I like that, having the values, knowing your values ahead of time.
- [24:44]
D
I'm going to use the example that Roof brought up earlier. The Russia, Ukraine war. And companies faced a dilemma. Right. Some companies made a decisive exit, others didn't. Right. And those that didn't had good reasons not to. Because you were facing, in a market like Russia, you're facing major asset write offs, you're going to do forced sales of your assets, you're going to suffer exit taxes. But then now studies are coming out showing the difference between the short term hit of the asset write offs and maybe the long term gains for your public reputation if you're doing a decisive exit. And of course it depends on the timing of the exit and the industry, semiconductor energies and things like that that you mentioned. But I think it's a perfect illustration because the studies show that on average the gains, long term gains to your public reputation and the stock market reactions outweigh the short term hit, the immediate hit that you suffer due to those asset write offs. So that's again another real world illustration of the Dynamics where in 2025, you're on the board, you're the CEO, you're in the C suite, you sometimes need to make decisions of the connections between geopolitical tensions and reputational risks. If you're reading the Room, sometimes you need to take a hit in the short term in order to preserve value in the long run.
- [26:03]
B
Yeah, there are so many examples. I'm just thinking about new ones. One mini example, you don't need to leave your country to have a geopolitical. You could be in the same country. For instance, I'm from Barcelona, Spain, and in 2017 we had a huge referendum about the independence of Catalonia and many Companies left Catalonia and moved to Valencia and Madrid. So there are studies looking at there was a political shift like we have had in the United States every four years, this political shift. So sometimes companies should not just rush to decisions because there are political shifts, right? Like geopolitical, very harsh shifts, like leaving a region within a country. So another example that is legal, and Roy can correct me, is so there is this thing called del Exit, Delaware, Delaware exit. So that's, I also think that's like a geopolitical thing in the United States. So there are many companies. There are some companies, not many, but well known. One is Tesla, who has incorporated now in Texas, but they either go to Texas or Las Vegas. And the reason why they go to these states to incorporate is because they want less insight from the minority shareholders and the shareholders in general, and more say, not even from the managers, but from the majority owners. So I would say that that's also geopolitics. In trying to do arbitrage, in what jurisprudence, in what economic environment, you situate yourself to take advantage of some of the circumstances in there. And so I think this movement is an interesting one. And my last three little example now global is, I think some of these, and to end in a happy note, some of the, like us, China, current tension has also allowed for other countries that were more in the peripher to really blossom, like Indonesia, Vietnam, because now all the companies in the US are doing China plus one. So they cannot only rely on the global value chain from China. So they pick other countries or even more proximate countries. So I think that diversifies their global value chain, makes it more resilient and it might help other emerging markets to get on the global value chain.
- [28:32]
A
You mentioned China. I'm just curious, what influence does China have on corporate governance? Just because I think we have a good sense of how tariffs have affected it and the US politics, European politics, we've mentioned, but China is a major economic factor for multinationals. What influences does it have on these conversations?
- [28:56]
B
I mean, I think it has a huge influence because China imports so much here, there is so much trade, so we source so much from China. The role of semiconductors, especially like if we include Taiwan, and how the US now has tried to sideline China by building a huge supercomputer in Arizona. So we cannot depend on China in Phoenix. So I think China should be in every board agenda. Every board agenda is like, okay, how is China affecting us in this quarter?
- [29:31]
D
So it connects to everything that we discussed about regulation and corporate governance. So just to Give you an example of the EU ESG legislation that we talked about. Now they face backlash from the us. US are saying, we're not going to do business with you. We'll use trade tools if you enforce those crazy, ambitious climate, human rights, supply chain liability requirements on U.S. companies. So now all of a sudden, what China is doing, and if China is much easier because a lot of the companies have some state influence. So now what China is doing, so they're saying, we're going to adapt voluntarily. We're going to be the green companies, we're going to be the human rights companies. Why? Because now we will take the US place with working with the EU companies so we can completely change our corporate governance, our values, the way that we do business, just to grab a better seat at the table in the trade wars. And now we're going to be the one partnering with Europe instead of you.
- [30:31]
B
But, you know, and China has great innovations, great innovations in a shoestring. There are incredible entrepreneurs. You know, TikTok hire so many companies that they do reverse innovation. The innovations come from there and come to the developed world.
- [30:47]
C
You hear some people say, because you mentioned TikTok, Ruth, that for the US, TikTok was a big deal to get Chinese ownership, or at least majority ownership, out of the equation. For TikTok and for the Chinese, that was a giveaway. What they really wanted was they wanted the reopening of the markets into the us they wanted the reduction in tariffs, they wanted other things. So what we thought was a really big issue, at least many Americans would say, we got to keep TikTok running. I do not have a TikTok account. I don't actually care if TikTok keeps running just for that. But many would say this is a very important aspect of our society, et cetera. For another country, that was seemingly not nearly as important. And so you got to understand who cares about what. And in negotiations, what are you giving away versus what are you possibly getting? And to Roy's point about China becoming maybe the leader in climate and climate tech around the world, who would have thought that 12 months ago?
- [31:44]
A
This has been fantastic and we have a whole bunch of awesome questions from the audience pouring in. So I'm going to get to those. Before we do, at this point in the conversation, is there any big misconception about corporate governance that we haven't talked about yet that you feel like we need to clear up?
- [32:00]
B
I think there are big swings. Five years ago it was sustainability. Now sustainability is incorporated in the daily. It doesn't show up as what should your board be? Why should your board be worried about? Sustainability is obviously one of them. It's incorporated. Maybe it doesn't have that word, but it's definitely incorporated. And now we are into the AI geopolitics misinformation. So I think there are these swings. That's why I agree with Roy that we do not need especially directors. What we need is directors who have a lot of good judgment to make good decisions with limited information, very complex decisions with limited information in a very uncertain environment.
- [32:48]
A
It's amazing we got this far without mentioning AI. For all the things that we're talking about, what board directors have to worry about. This is a perfect segue into our first audience question too, because they ask, can you speak to AI governance structures and how they might be lacking in proportion to to the degree companies are using them? In other words, given that the best boards have perfect information and structures, it sounds like AI governing a corporation might be the optimal solution. How does AI dovetail with a board or even take it over?
- [33:22]
C
Well, first of all, I smiled when the questioner said boards have perfect information. I will tell you, boards do not feel like they have perfect information, save the best boards. They feel like they're always catching up because management probably has better and more current information than any board member does on any given moment, except that they've just finished a board meeting or they're in a board meeting. The governance around AI is still evolving, but I would say that what's starting to settle in is a governance structure that looks something like this, that there is a board level committee or a management executive committee that provides the overall governance policies for AI. Under that you have a working group within the organization that is seated by a number of executives, both on the tech side of the company, but also the business side of the company compliance that day to day governs the activities of AI within that organization. And then you have the development of the actual policies and procedures. When will we use AI? When will we not use AI? So for example, right now one of the biggest conversations that I hear is will we use AI for things like year end performance processes, Will we hand that over to the AI to give all. Here's the whole cadre of people that I need to evaluate and can you rank them for me? Because in most situations you got to go, here's the best people so they get the bigger money. Some companies have adopted that, but there's a lot who haven't yet because they're still waiting to see does this actually work. And they do not want to take the human element out of the HR performance process. That happens once a year. And it's pretty important to most companies. So different organizations, I say, are in very different places on this. But that structure that I described is I see starting to emerge as what is best in class.
- [35:08]
B
So I've been talking to a few companies because I work a lot with boards. I've been talking to a few companies that now in their boards they have Aidan, who is Aiden A E then so an AI director. So one of the companies, a very large listed company, S&P 500 company, very, very large company. One of those companies. They decided that this Aden would be a combination of three brains. Mark Zuckerman, Mark Zuckerberg, Mark Zuckerman, Warren Buffett. You said Warren Buffett. And an institutional investor like from BlackRock or. Okay. So then they have a board meeting and they ask Aidan, what do you think about this decision? What do you think should be our risk tolerance? What do you think we divesting from X? Or what do you think about this new initiative? And Aidan gives an opinion. And at the moment Aidan is not voting yet. And we should discuss what are the fiduciary duties, the legal responsibilities, the duty of care that you've studied, the duty of loyalty. But there are many companies that they're already really actively playing with having that AI director as one of the people in the room and making sure that that person is not biased, that it doesn't do group thinking, that the fingers are out, nose in, you know, all these things.
- [36:38]
C
Yeah, I want to know whose LLM he's Aidan's working on from.
- [36:43]
A
That's fascinating. I'm very skeptical. Just if you ask AI to combine Shakespeare and Dostoevsky and write a novel, I'd be kind of afraid to read that. So I'm not sure what Aidan's doing there, but it's fascinating. We're going to go from AI to Elon Musk. So did his pay package kill corporate governance? And this is just some milestones attached to that trillion dollar payday are impossible. Like Tesla Cyber taxis would have to replace 2/3 of all taxis. That seems unrealistic. Is this, I don't know. Any thoughts on Elon Musk's pay package in general?
- [37:21]
D
With executive pay package, the most important aspect from a corporate governance perspective is not the level of pay, but the structure of pay. The level of pay is more salient, is more sexy to talk about in the news media. But what matters is what they get their money for. The structure of pay is what determines the incentives of those who make the decisions in the company and whether they are going to prioritize sustained long term growth or to prioritize and maybe manipulate short term points in the road. We Elon Musk just like we feel on Musk. Everything is going up to the extreme. So you can imagine that you need a trillion dollar to incentivize someone to put in the efforts. But that's a kind of an issue that is not generalizable to others, I guess.
- [38:08]
A
Got you a little bit of a special situation. So just staying on executive comp here, one question is what is the best executive compensation structure? It's obviously something boards have to do, but national political climates or state climates even can affect this. So it kind of ties into geopolitics here. Anybody want to take that on?
- [38:30]
B
I mean, I do think that companies, so companies use and boards use compensation packages and the structure of them to align the strategy of the firm with the decisions that the CEO will take. However, one important note is that the politics matter a lot in the sense that if you are in Europe, usually these compensation packages are a lot more moderate. There is less inequality between that CEO and the average employees, whereas here in the United States it can be a lot more exuberant and a lot more. I don't know the right word, but there's a lot more inequality. And then we come up with this 3 trillion.
- [39:16]
A
Yeah, we did a great. Just a quick plug for the podcast. We did a really interesting series on executive compensation for anybody who wants to go back and listen to those. Just mindful of this audience here, one question we got is how do we upskill and train business school students to effectively manage geopolitical risks? You have these students. It's been a real privilege to hear smart people think through these questions. What would you recommend to this audience that they should be asking themselves? And what should business schools be doing to prepare students for these questions?
- [39:52]
D
I'm probably less equipped in both Kevin and Ruth to comment on this coming from a law school perspective, but I would just say this goes back to our conversation of boardrooms. Say that the board realizes that they do need to discuss geopolitics and you're a director and you're coming through marketing. It's not necessarily clear that you would know how to do it properly. It's not necessarily clear that you would know how to anticipate questions that are not there on the PowerPoint deck and process answers and think about future problems. So in a world like today, 2025, where geopolitical tensions are becoming a critical corporate governance component. So just like with AI proficiency, what used to be financial literacy, knowing how to read financial reports, I can't imagine that there will be in a world like today, a senior corporate decision maker who has zero proficiencies in these issues. So I guess the advice is just take those courses.
- [40:50]
B
I mean, I would just say really keep up. Constantly keep up with the news outside of the United States and in the United States. So make sure you read the news and you know what's going on in the world. Because when you go to an interview, you need to be completely prepared. When you make a business decision, you need to be completely prepared and always look at the corporate governance of the companies that you are working for or that you are engaging with.
- [41:19]
A
That's really interesting, Kevin.
- [41:21]
C
I would just say first of all, being in this room today, you're doing part of what you need to do. The NACD organization, the national organization, has a summit every October in Washington D.C. there's about 1,500 public and private company directors that go to that every year. As students, you may think you have a lot to learn. Sitting public company directors of some of the biggest companies in the world were in those rooms doing the same thing. Staying current, understanding what the current issues are. How do we have to think about this? Learning from others, asking good questions. This is really all of what you're going to be doing, hopefully for the rest of your lives.
- [41:57]
A
I love that message. We have a minute left, so I just want kind of a 20 second answer from each of you. Next five, 10 years. Corporate governance and geopolitics. What do you think we're going to.
- [42:08]
C
See more and faster?
- [42:10]
D
Okay, I guess resilience, the word that we mentioned here, boards will be more about resilience, governance. Making sure maybe you diversify decision making center, maybe you pressure test your supply chain. So the focus will be about resilience.
- [42:25]
A
I love that.
- [42:26]
B
I think complexity, everything is going to be more intertwined. All the different pillars are going to affect each other, especially in the digital world.
- [42:36]
A
This has been incredibly insightful. Let's please give this excellent panel a big hand. That's Ruth Aguilera, Roy Shapira and Kevin McGovern. We'll have more episodes after the holidays. In the meantime, we would love it if you would please rate and follow Is Business Broken? Wherever you get your podcasts and that's where you can check out any episodes you may have missed. Thanks for listening to Is Business Broken? I'm Kurt Nickich.
- [43:16]
D
Sam.