Eight Ways for Boards to Combat INFLATION: Ram Charan notes that most senior managers have never seen or dealt with hyperinflation.

• Author: Hayes, Bill
• Position: A WORLD OF RISK

Ram Charan is worried about inflation's effect on business.

Therefore, boards should be worried about it, too.

According to Charan, a prominent business consultant for companies like Toyota, Bank of America and Fast Retailing, higher inflation can be expected to stick around for three or more years. And, worse, factors such as fear of future price increases, rising energy costs globally and the war in Ukraine may turn the situation toward hyperinflation, a state that Charan describes as "insidious."

For Charan, author of 33 books, including his latest, Rethinking Competitive Advantage: New Rules for the Digital Age, the forthcoming Leading Through Inflation and four bestsellers, boards can protect their companies from inflation by carefully monitoring the information and recommendations they get from management.

Boards must broaden their perspective and see the longer-term picture when considering whether the company is sufficiently protected from inflation. A three-year outlook for inflation's impact is almost mandatory because cumulative cost increases over this period could be 20% or more in some industries.

The fact that most, if not all, in management have never experienced a phenomenon like hyperinflation makes the situation even more dire.

With that in mind, Charan provides eight actions that boards should be undertaking immediately to lessen risks caused by high inflation. They must keep in mind that actions they take now will also help prepare for a recession, as well as the enormous opportunities that will come in the future.

Actively learn about inflation. The board should continually seek to update its knowledge base on inflation. Work to gain a 360-degree view. Search independent sources so you can anticipate new surges and watch for emerging practices to deal with the problems that arise. Expanding your knowledge about inflation will allow you to ask incisive questions of management and make quick, decisive judgments on leadership actions and performance. Timing and magnitude of price increases, for example, is critical.

Search for understanding on additional factors. Realize how inflation converges with other external and impactful factors, such as ESG, building of infrastructure, war-caused shortages, rising wages and the continuing battle with COVID. The board must continually study the actions of other industries for a diversity of thoughts, assumptions and biases. Some industries portend what is to come for others.

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