07 August 2023
What makes a company capable of surviving a crisis and what can those in charge of governance do to prepare for the unexpected?
Mellody Hobson has witnessed soaring highs and deep lows while serving as Co-CEO and President of Ariel Investments and on the boards of preeminent brands such as DreamWorks Animation, Starbucks and JP Morgan. So, when she took to the stage at this year’s Mercer Global Investment Forum in Atlanta, she was able to share a fascinating perspective on what it takes to succeed when facing a crisis.
Speaking with Jay Love, Mercer’s US Chief Investment Strategist, Mellody talked about the challenges of crisis management, the importance of preparedness, and the sobering reality that in the moment it’s often too late – and too hard – to think and act clearly.
Know your objective
Crises can take many forms. Some are broad and external, such as an economic crash. Others are particular to one company, whether from the repercussions of a bad deal or the sickness or death of key people. For Mellody, a vital factor when approaching any crisis planning is having a defined intent – knowing as clearly as possible what you want to achieve during a moment of upheaval.
As a director at JP Morgan, Hobson was involved in emergency board meetings as the Silicon Valley Bank (SVB) crisis unfolded. She cited CEO Jamie Dimon’s clear focus on stabilizing the banking system as an example of excellent crisis management. After the failure of SVB, the market’s focus moved to other vulnerable banks. Dimon helped engineer an injection of capital from other leading banks into the ailing First Republic. For JP Morgan, that meant signing off on a $5 billion investment.
Amid the speculation that comes when exploring impact scenarios, Mellody was struck by Dimon’s grounded rationalism and realism. “He [Dimon] never spoke with certainty. He would say: ‘I don't know if this will work, but I think this is our best option.’ That was very, very smart in terms of setting reasonable expectations with the board and with the market.” Crisis is the moment when leaders come into their own, Mellody said. “The crunch time is when boards really matter. That is where you see great leadership, how a board gets marshalled and how the executives respond to that kind of pressure.”
Imagining and planning for the worst
While major systemic or even global crises are the ones everyone remembers, crises can be very company-specific events. Some are unpredictable, others can, at least in part, be anticipated. The death or serious illness of a senior executive in one such possibility.
Mellody referred to John Rogers, her co-CEO at Ariel and the company's founder. Rogers was a board member at McDonald’s for several years and during his tenure there two company CEOs died in rapid succession, one of them – James Cantalupo – extremely suddenly. While deeply saddened by the loss, Rogers was struck by the fact that McDonald’s had press statements pre-prepared for exactly such an unlikely event, and he requested Mellody do the same for Ariel.
“One weekend I sat and wrote a press release saying John Rogers had died. I sat at my desk and cried as I wrote it. It was a horrible experience,” said Mellody, “but he said, that was why you do it now, because if it really had happened, you would not be able to think clearly.”
The lessons have been carried over into Ariel’s investments and Mellody said questions about crisis planning are part of the standard approach Ariel presents to its portfolio companies as best practice.
Navigating unexpected storms
It might be possible to anticipate some crises from the experiences of others, but occasionally events are unprecedented. In these cases, Mellody said, what matters is how the company responds and crucially that it is a ‘response’ and not ‘a reaction.’
“Reacting is a kneejerk thing. Responding is doing what we know we should we do in this context,” she said. “It's a much more thoughtful strategic decision as opposed to some kind of tactic.”
The Global Financial Crisis (GFC) of 2008-9 remains the most scarring of recent years for many investment professionals and Mellody admits it was the most difficult period of her career at Ariel Investments. The company’s assets slumped in value from $20 billion to $3 billion and the group had to lay off employees.
For Mellody, it is crucial in such unfamiliar situations to be willing to seek advice. During the GFC, she reached out to experienced contacts in the investment world. Two key pieces of wisdom were highly valuable as the business looked to survive month-by-month, quarter-by-quarter. The first was to shield Rogers from the stress of the situation because he was the company’s stock picker – a critical role that needed to be carried out with complete focus.
The second was to ‘throw money’ at those employees who were being let go. The importance of this was both to ensure that those leaving still felt warmth and respect for the company as they went out into other parts of the industry, and to prove to remaining staff that whatever happened, the company would try to do its best for them too.
A third but critical reflection for the Chicago native was around the best way to navigate in a blizzard – methodically and with small steps. “‘Never look up at the storm, because if you do, you will fall. Watch your feet. You can't control the weather. You can’t control the stock market. The only thing you can do is look where you are putting your feet.’”