Who could've known? Directors cannot predict the strange things that happen to every business. What they do is guide the reactions.

• Author: Sutton, Gary
• Position: SUTTON'S LAWS - Interview

'DOES THE BOARD adequately consider unknown threats to the business?"

There's a stupid question.

Our blue-chip law firm asks this in the questionnaire each director fills out annually as part of the board's self-evaluation.

My answer probably satisfied the requirement. But the words might not pass muster with the SEC geniuses and legislators who think directors must know-all and see-all.

"No, thank God," I said. "We've got enough challenges with known competitors, real markets, and technology shifts. Thinking about the 500 outside instances that could blindside this business is a distraction from the immediate dangers."

Okay, when testifying before Congress, could I defend that answer?

Sure. But not with a sound bite.

I'd need more time to explain the futility of trying to anticipate everything. I'd use other businesses where I'm a director as examples.

Take the recent spike in oil prices and its consequences.

First, I'd explain how our insurance processing service, based in a declining Texas town, just started losing experienced employees to the rebounding drillers. Suddenly we've got a talent drain. This is a labor-intense business, but the oilmen are now hiring again and paying better.

Who could've known? Insurance processing? Oil prices?

Then I'd talk about our temperature measuring startup, with wireless transmitters in trucks, that immediately tell food companies when the goods enroute somehow got dangerously warm. This service adds to the transportation cost; but the price of just one E. coli lawsuit makes it seem smart. Our main competitor is cheaper, with indicators on the packages revealing the current temperature.

It seems many truck drivers, faced with new prices at the gas pump, started to turn off their air conditioning in the back during the middle of each journey, saving gas, and flipped the cooling back on a hundred miles before delivery. Sure, bacteria may have spawned, but the temperatures passed muster on the receiving dock using our competitor's method. So our business prospers as this new problem is understood.

Who could've known? Temperature measuring? Oil prices?

Finally I'd mention our real estate owned near downtown. For a while, vacancies were around 6 percent. But as gas went from under $2 to over $3 in a two-year period, outlying apartments, cheaper per month, began costing more in commute expense. Our occupancies jumped back to 99 percent. Yeah, yeah, we also lose some of that because the city bumps every...