First Rule for Trump CEO Club: Plan for the Worst

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By Yin Wilczek

Companies with chief executive officers who interact with the White House should have plans in place to deal with fallout if the relationship sours, corporate governance attorneys and board advisers told Bloomberg BNA.

The challenges for executives were on full display recently as President Donald Trump disbanded two business advisory councils. Several member CEOs—including those from Merck & Co., Under Armour Inc., and Intel Corp.—quit in response to his statements regarding white-supremacist demonstrations in Charlottesville, Va., and the death of a counter-protestor.

Trump said he saw “blame on both sides”—on the part of the white supremacists and those opposing them.

Following the resignations from his councils, Trump labeled the departing executives “grandstanders” in one tweet and criticized Merck CEO Kenneth Frazier for high drug prices in another.

How Trump treats CEOs who take positions he doesn’t like has been the talk of boardrooms in recent months, said corporate governance attorney John Olson, founding partner of Gibson Dunn & Crutcher LLP’s Washington office.

“The corporate directors and senior management I talk with regularly are deeply concerned with the lack of discipline and consistency in this White House,” Olson told Bloomberg BNA. “I’ve never seen anything like it in my 53-plus years of practice.”

Before the White House invites business executives to join a committee or activity, corporate boards should have a strategic plan for what happens if things don’t work out, attorneys and board consultants said. It’s a risk like any other potential public relations disaster, such as a cybersecurity breach, said Douglas Chia, executive director of The Conference Board’s Governance Center. The Conference Board is a nonprofit business and research organization.

Trying to craft a plan after the fact “is not really a winning strategy,” Chia told Bloomberg BNA. “Social media can move way faster than any internal PR department can possibly move.”

Weighing the Risks

Boards and executives have always walked a fine line when interacting with any administration, whether it be the White House or agency regulators, attorneys, and board advisers say. Although access can benefit companies, CEOs also risk alienating shareholders, customers, or employees by aligning too closely with political figures.

The potential risk is all the greater with a president as controversial as Trump, which makes it even more challenging for corporate boards weighing the risks of having their companies associated with this administration.

Shortly after the Charlottesville events, some executives issued mixed messages about Trump’s councils, while others were criticized for deciding to remain in the committees.

Johnson & Johnson CEO Alex Gorsky said Aug. 15 he would remain on Trump’s manufacturing council “as a way to present the values of our credo as crucial public policy is discussed and developed.”

The very next day, however, Gorsky Aug. 16 called Trump’s comments about the Charlottesville violence “unacceptable” and resigned. Although Trump had already disbanded the council by the time Gorsky issued the statement, Johnson & Johnson said Gorsky decided to resign before the breakup of the group.

In another example, General Electric Co.’s leadership, following Trump’s comments about the violence, decided the company wouldn’t be associated with the council any longer, despite Chairman Jeffrey Immelt saying a day earlier that he would remain.

Meanwhile, 3M Co.’s Inge Thulin and PepsiCo’s Indra Nooyi were criticized by outside groups for remaining on the councils, and pressured to resign.

Messaging

To ensure they aren’t caught flatfooted by fast-moving events, boards should recognize that there is an inherent conflict between executives who want to have a high profile with the administration yet want to stay clear of politics, said Keir Gumbs, a partner at Covington & Burling LLP’s Washington office who regularly advises boards on corporate governance matters. Boards should have a plan to deal with that, he said.

“We’ve talked with a lot of clients about how you’re going to respond when Trump tweets about you” or, conversely, “when you become the subject of criticism” for dealing or engaging with the administration, Gumbs said. Companies must have strategies in place for how they will address or respond to the criticism, whether from the Trump administration or other parties.

Boards also should have a very clear strategic objective for why their CEOs are interacting with the administration, Gumbs said. That includes a plan for explaining that objective to employees, investors, and customers.

“The one thing you don’t want to do is get into a social media fight with the president,” Gumbs said. “It’s better to just get yourself out of the headlines, because chances are there’ll be a new headline within a few days.”

Gumbs also is an author of the Bloomberg BNA Corporate Practice Portfolio, Shareholder Proposals, available on Bloomberg Law.

New Generation

Communication with employees is more important than ever, given the preference by many millennials to work at companies with a social conscience, Chia said. “This is a changing environment that boards need to be sensitive to,” he said. “This highlights the need for a diverse mix of board members, some of whom can be in touch with the issues of the new generation.”

Ultimately, what is communicated to employees, investors, customers, and the public will depend on the company, Michael Hermsen, a partner in Mayer Brown LLP’s Chicago office, told Bloomberg BNA.

In light of the recent events, many companies are wondering whether they should do or say something more, Hermsen said. If companies decide they want to take a next step, the question becomes: which audience do they want to target? Companies also must determine what the potential fallout may be from acting or saying something at this point.

“Those aren’t easy questions to answer and the considerations are different for each company,” he said.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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