Wargaming Risk: What Military Leaders Bring to the Table
By April Hall

Planning for unexpected situations — any and all — gives boards an advantage in crisis.

 

When the going gets tough, it’s easy to fall back on language that refers to war. Often people are “on the front line,” or taking on a challenge is a “battle.” Over the years, the United States has waged war on drugs, poverty and, most recently, the coronavirus.

The military is known for discipline, strategic planning and impeccable attention to detail. It’s no wonder that some of the country’s top military leaders have been asked to bring their experiences into the boardroom.

Those close to military combat missions are familiar with the term “wargame,” a process in which the military runs a number of potential scenarios for contingency planning. The goal is to cover any possible outcome and to have a way to address it. Each decision is pressure tested and, if the solution is found wanting, the simulation is run again until the decision-making process is smooth — nearly automatic — in the face of crisis.

Michael Montelongo, a director of Herbalife Nutrition Ltd. and private companies Larry H. Miller Group of Companies and Exostar LLC, is a retired Army Airborne Ranger who, among other positions, served from 2001 to 2005 as Assistant Secretary of the Air Force for Financial Management and Comptroller.

As someone with experience in military wargaming techniques, Montelongo says his boards practice equivalent risk management processes and rigorous business continuity, business resiliency, and contingency planning exercises. 

“In a tabletop [exercise], it’s like a script. Each actor has his or her lines, in a manner of speaking,” he says. “A simulated situation is thrown at you and you basically input the decision-making process you go through and the decision you make.”

“I would absolutely endorse wargaming,” Montelongo says. “I think it’s an excellent way to bring to life plans in place to mitigate risk inherent in any organization.”

Issues are the same in the military as in business, he says, rattling off potential questions for a boardroom wargame: “‘Here’s a potential risk. What’s our plan to mitigate that threat? How confident are we about that plan and the assumptions embedded in it?’

“When you test business continuity and crisis management, [the processes] are the same. They’re basically scripts.”

Retired Admiral Michael Mullen, top military adviser to President George W. Bush and Chairman of the Joint Chiefs of Staff during former President Barack Obama’s first term, says wargaming is one of the most effective ways to work out problems and to build contingency plans.

His degree in operations research from the Naval Postgraduate School is what wargaming is all about, Mullen says. He used it constantly in his military career and still uses it today.

“It’s incredibly instructive on how to handle a really hard problem,” he says. “I’ve used it to run various scenarios — high-end, low-end possibilities — my whole life.”

Since retiring from the U.S. Navy in 2011, Mullen has served on the board of General Motors and now is a director for Sprint Corporation, the telecommunications company currently navigating a multibillion-dollar merger with T-Mobile.

He also serves private company and nonprofit boards and advises startup companies.

Tactical thinking in the boardroom

Mullen would have the type of experience and resumé that would make him sought-after for nearly any board of directors, even if he hadn’t served in the U.S. Cabinet.

Before his appointment as chairman, Mullen was Chief of Naval Operations and Commander, Joint Force Command Naples/Commander, U.S. Naval Forces Europe. His education includes the U.S. Naval Academy, a Master of Science degree in operations research from the Naval Postgraduate School, and the advanced management program at Harvard Business School.

His experience leading in the military for more than 40 years taught him how to bring out the best in people, he says. Not just identifying risk, but also knowing how to dissect complex problems to their most basic parts to find a solution is key.

“I have always been a communicator. I don’t think I’m uncommon in that regard to senior military leaders,” Mullen says.

Noting the focus he’s put on technology since moving back to the private sector, Mullen says he moved away from the defense industry after his retirement from the military because he wanted to grow. And he knew the skills he gained in his career would translate to any business.

“We grow up in the military with risk,” Mullen says of his preparedness to deal with companies’ complex challenges. “We have an embedded understanding of risk, and that rolls into how we view the world and how we ask questions.

Deborah Lee James, former Secretary of the Air Force, came from the private sector but was immersed in the military structure and culture, having also served as Assistant Secretary of Defense from 1993 to 1998.

“Boards need complex leadership, and military leadership happens in large organizations,” she says, noting that as leaders advance, they can have millions of soldiers at their command.

Other value-adds of a military leader in the boardroom include international connections and a global perspective of the world as it relates to American businesses, including potential volatility in the face of crisis that could affect the supply chain and/or product demand.

Preparing for possible volatility in the face of complex risk is what the military does best, she says.

“Risk management — the military tends to be excellent at this,” she says. “And boards need to know how to mobilize to show they are on top of governance.

“Wargaming is about crisis management,” James says. “A board has to be on top of [that].”

Running scenarios

One of the greatest examples of wargaming for Mullen was at General Motors, the first board on which he served. Just three weeks after Mullen joined the board in 2013, the company faced an ignition switch crisis. When all was said and done, GM paid compensation in connection with 124 deaths, recalled 800,000 vehicles and paid $900 million to the federal government in a deferred prosecution agreement.

“We formed a strategic risk committee and I got to be the chair,” Mullen says of the board’s immediate action. “Come to find out, there weren’t many companies that had [a strategic risk committee]. We built it from the ground up.”

When the committee started talking about contingency planning, it “surfaced” that an analyst at GM had already established a routine of wargaming.

“It became a very powerful structure,” he says.  As the years passed, the committee would wargame scenarios like an earthquake and tsunami in Japan similar to what occurred in 2011. The company wanted to be prepared for a supply chain disruption in such an event. Wargaming gave the team an opportunity to put in place redundancies that would help the company avoid supply interruption.

Nicole Monteforte leads Booz Allen Hamilton’s wargame and exercise division. The consultancy has offered the practice for nearly 20 years — since the terrorist attacks of 9/11 forced companies to think about scenarios they hadn’t even fathomed.

“You have to think outside the box [in these exercises], and it helps build muscle memory to know what to do if an event happens.”

The best result of wargaming is to build a business’ “resiliency practice,” she says.

Putting the wargame into practice

Mullen says the strategy risk committee and contingency planning were successful at GM because he had executive buy-in. Buy-in is critical, he says, as is having the right guidance to implement military-style tactics to build strategy.

“There’s absolutely no downside” to wargaming, Mullen says. “There are experts in this. Seek out someone who does this. I think that it would potentially add great value.”

Monteforte says she’s done more than 300 wargaming exercises in organizations including the Department of Defense and Fortune 100 companies. She says the practice went mainstream in corporate America five or six years ago.

It’s likely that management teams at most companies are already doing tabletop contingency planning, she says. It’s up to board members to let management know they’re interested in participating.

“It’s about asking, ‘Are you guys running stress tests?’” she says, and letting management know that board members will not talk publicly about these confidential sessions.

“It’s a very well-informed set of board members that are familiar with some of these techniques,” Monteforte says. “I’ve seen some companies run tabletops for their boards and the board feels more prepared.”

Reports have indicated that both in the private and public sectors, a global pandemic like COVID-19 wasn’t on the risk radar. Monteforte predicts her wargaming practice will expand past the topics she’s been working on over the last several years.

Risks that companies wargamed were“all cyber all the time,”she says.“But I think we’ll have a new topic.”


Issue: 
2020 Second Quarter

Other related articles

  • Director Data Q2 2020
    Published April 21, 2020
    By Directors and Boards
    Leadership Independence for SV 150 Majority Voting for SampP 100Since 2002 Fenwick amp West has surveyed the corporate governance practices of the companies included in the Standard amp Poors 100 Inde ...
  • Top of Mind: Dawn Zier, Director, Hain Celestial Group and Spirit Airlines
    Published April 21, 2020
    By Dawn Zier
    As we emerge from the pandemic we will find permanent changes and shifts in the way we do business which will force management teams and boards to navigate a new normal From dislocation and disruption ...
  • Wargaming Risk: What Military Leaders Bring to the Table
    Published April 21, 2020
    By April Hall
    When the going gets tough its easy to fall back on language that refers to war Often people are on the front line or taking on a challenge is a battle Over the years the United States has waged war on ...
  • The Key Challenges Boards Face Now
    Published April 21, 2020
    By Punita Kumar-Sinha
    The COVID19 pandemic is just beginning to take off in India in late March Nonetheless the Indian government has undertaken a preemptive 21day lockdown to flatten the curve As a result companies are al ...