Directors Talk: Canada's Economic Security Imperative

Authors: Jodi Butts, Manijeh Colabella (Watson Board Advisors), John Boscariol, Martha Harrison and Robert J. Richardson (McCarthy Tétrault)

Over the past nine months, McCarthy Tétrault and Watson Board Advisors have co-hosted a series of small group dinners in several major cities across Canada to meet with directors from a wide range of industries, including public companies, Crown corporations, private companies and industry and trade associations. The purpose of these discussions was to understand directors' views on Canada's new economic security imperative and what it means for Canadian business leaders. With gratitude to all the directors who participated in these discussions, we are sharing some of the insights we learned from them.

Few periods in the post- World War Two era have witnessed geopolitical tensions at the level we see today. The global order that once prioritized cooperation, multilateralism and economic integration is now under strain, and governments are responding with a surge of aggressive trade and investment measures. Tariffs and non-tariff barriers, economic sanctions, export and technology transfer controls, and foreign investment restrictions are among the economic weapons that have become common tools for safeguarding and advancing national economic security.

This rise of economic conflict marks a sharp departure from decades of economic liberalization, where declining trade barriers, expanding cross-border investment, and the strengthening of the rule of law in international economic relations were seen by many as accepted orthodoxy and irreversible trends. That era now appears to have ended, and abruptly. Measures that were once reserved for exceptional circumstances - invoked only to protect a country's national security or "essential security interests" - are now widespread and being cited by political leaders to justify their advancing and defending their polity's economic security.

The implications of this shift are profound. Businesses operating internationally face an environment where compliance risks are multiplying, markets and supply chains are being reconfigured, and strategic decisions are increasingly being made based on geopolitical considerations. For business leaders, understanding this shift can no longer be optional - it is essential for steering almost any company in today's global economy.

How directors are navigating geopolitical, trade and other disruptions

To navigate geopolitical, trade and other disruptions, many Canadian companies are developing strategies to protect and strengthen market positions, while reinforcing both domestic and international supply chains. While in many respects, the context in which companies are seeking to succeed and grow is unprecedented, Boards are meeting this moment by doubling down with cautious optimism on tried-and-true approaches with a focus on the longer term, their own performance, and supporting their CEO.

In our dinner discussions with nearly a hundred directors, we heard many perspectives, themes and wise insights. The following are some of our favourites, which we think translate well to almost any company context:

• Defiant Optimism: Although risks and challenges abound, applying an opportunity lens to those risks can serve as one of the most enduring and important contributions that a director can make to an organization's success. With so many challenges today, directors can share insights related to diversification strategies, as well as with strategy development and budgeting. While the CEO and management team navigate daily challenges, directors can help place today's concerns within their broader context, using their strategic perch to spot opportunities, reinforce progress, and sustain confidence in the path ahead.
• Lead with Purpose: With so many items vying for directors' attention, there has never been a more important time to reaffirm your company's purpose to ensure it remains relevant as a consistent guide to decision-making. Most companies define their purpose during periods of relative calm and they should serve as lodestars during times of upheaval and crisis. Consider adding your company's purpose to your Agenda template, at least quarterly, and allocating in camera time at the end of your meetings to reflect on how the company's purpose has guided your decisions.
• Insights and Oversight: While a director's fiduciary responsibility to provide oversight remains important, a director's value often lies as much in offering insight as it does in offering oversight. Directors can draw upon their own lived experiences gained from working in other industries and sectors and share how they navigated past challenging cycles, to assist today's management to see issues from new perspectives and in their proper context. Directors might ask where their Board can best support the CEO and leadership team with insights from the directors' own lived experiences and make that a part of their personal meeting preparation to surface lessons learned from their steering businesses during previous periods of significant change and challenge.
• Support the CEO: Directors have a responsibility for ensuring their CEO is supported in an increasingly complex and uncertain environment. Pressure at the top can be very high, and the personal toll can be significant. Directors should reflect on how they can best help their CEO stay grounded and remain effective – balancing constructive challenge with empathy, encouraging open dialogue, and acknowledging the importance of mental health and resilience. A Board that supports its CEO to lead with focus and composure will strengthen the organization's ability to navigate disruption.
• "No matter what" priorities: Whatever tomorrow brings, directors know that there are opportunities and issues that will have lasting strategic importance to their company's business, regardless of current or anticipated geopolitical concerns and other disruptions. Helping management perceive and pursue those opportunities, including by preventing the "here and now" from displacing the vital and long-term, can be among a director's greatest contributions.
• Challenge Strategic Assumptions: Directors are adopting the practice of more regularly challenging the assumptions upon which their company's strategy and business model have been built. Today's economic conflicts, like the pandemic before it, are clarion calls to identify and challenge the reliability of each of the items that must hold true for your company to succeed – even those that otherwise appear durable and safe. Using tabletop exercises and dedicated time on the board's agenda, directors can more deeply understand their company's risks by assuming zero "safe" assumptions and by actively considering taking on more short-term risk in order to mitigate supply chain, market and other dependencies.
• Geopolitics as a Distinct Risk: Geopolitical risk has become sufficiently important that a growing number of directors have concluded that it should be viewed by Boards and management as a distinct risk category, and not as a peripheral concern or as an input into conventional risk categories. Although some organizations already treat geopolitical risk as a standalone risk, many others have not specifically allocated board or management accountability or developed a structured process for identifying emerging geopolitical risks and assessing their effect on their organizations. The time is now.

About McCarthy Tétrault

McCarthy Tétrault LLP provides a broad range of legal services, providing strategic and industry-focused advice and solutions for Canadian and international interests. The Firm has a substantial presence in Canada's major commercial centres as well as in New York City and London.

Built on an integrated approach to the practice of law and delivery of innovative client services, the Firm brings its legal talent, industry insight and practice experience to help clients achieve the results that are important to them.

About Watson

Watson Board Advisors helps Boards be more effective so they can positively shape the future of their organizations. As the most experienced Board advisory firm in Canada, we have supported more than 500 Boards across the full spectrum of sectors, ownership structures, and stages of evolution. In partnership with our clients, we are tailored and practical in helping recruit and select the right Directors and CEO, strengthen governance and board effectiveness, and navigate strategy and risk in a rapidly changing world. Founded in 2005, Watson is a fully independent Benefit Company with offices in Toronto and Vancouver.

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