How To Deal With Risky Issues

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A single computer glitch on Friday literally stopped the world. A flawed update to CrowdStrike’s enterprise cybersecurity platform shut down computers across the globe that ran on Windows operating systems. Microsoft estimated the update took 8.5 million computers offline—not a huge number in terms of overall Windows devices, but the impacted computers were in key places, providing operational wherewithal for airlines, hospitals, television stations and banks. As computers stopped working on Friday, so did vital services worldwide.

CrowdStrike CEO George Kurtz quickly assured users that the outage was not caused by a cyberattack, and a fix was deployed on Friday morning. However, it’s taken some time for that fix to get to all affected devices, since it also requires individual restarts. Even today, Delta Airlines is far from back to normal, with thousands of passengers still trying to get to their destinations and 18% of all its flights canceled, according to FlightAware this morning. CrowdStrike’s stock fell as much as 15% on Friday, and fell more than an additional 12% this morning.

Even before this incident, some have been speaking up to warn businesses about the vulnerabilities inherent in putting everything important to a company—its data, its operational systems, its tech infrastructure—in one server, platform or region. Earlier this month, I talked to Spencer Kimball, CEO of database management company Cockroach Labs, about the need for IT resilience and diversification of how important company information is stored. “You want to have perfect fidelity in your business even when things go wrong,” he said. “That’s the way we frame it: It’s moving from disaster recovery to IT resilience. You’re reclassifying things that were disasters or will lead to disasters to things that can be tolerated, that you’re resilient to.” And once the dust settles from this CrowdStrike incident, it’s likely that more companies will be looking for ways to reclassify their future risk.

But a lack of IT resilience isn’t the only big risk companies face today. In a politically polarized world, companies need to think about their reputations among the public. People want companies to speak out and take positions on issues they care about, but a company can find itself in a situation in which its messaging and action is a lightning rod for controversy and protest. Gravity Research publishes a quarterly report on which issues are riskiest for companies to speak out about. I talked to president Luke Hartig about the Q2 Risk Index, as well as what companies should think about in general when it comes to difficult issues. An excerpt from our conversation appears later in this newsletter.

STOCK MARKET NEWS

For the most part, last week was lousy on Wall Street. The tech difficulties that roiled the connected world on Friday translated to more tech losses—led notably by CrowdStrike. Massive computer outages aside, Friday was the third consecutive day of a marketwide sell-off, led largely by tech stocks, Forbes senior reporter Derek Saul writes.

Presidential politics seem to have pumped the brakes on the Big Tech rally that has recently driven the stock market toward several new records. Last week, both President Joe Biden and Republican nominee Donald Trump reportedly supported increasing trade restrictions on China. Biden is rumored to be considering the Foreign Direct Product Rule to further restrict giving Chinese companies access to high-end chipmaking tools, Bloomberg reported. In an interview with Bloomberg Businessweek, Trump touted the “phenomenal” aspects of tariffs with China and said he would not defend Taiwan against China because it took most of the U.S. chip business—an issue he also mentioned in his address at the Republican National Convention on Thursday.

As a result, tech stocks took a dive. Dutch chipmaker ASML saw its stock plummet nearly 13% on Wednesday, even though it solidly beat expectations in quarterly earnings released the same day. It finished the week down more than 18%. The tech-heavy Nasdaq closed down more than 4% last week with the “Magnificent Seven” tech stocks—Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon and Tesla—all dropping and collectively losing $500 billion in value. In Asian markets, companies including Taiwan Semiconductor Manufacturing Company, South Korea’s SK Hynix and Tokyo Electron all have posted losses since Thursday.

Tariff talk and widespread outages aren’t the only things pulling down tech stocks. As inflation rates moderated more than expected in June and unemployment ticked up, the probability of a cut in interest rates increased. An interest rate cut could spur more consumer spending, which has led investors to shift their backing to more traditional stocks. And last week’s Republican National Convention built momentum for Trump’s candidacy, leading some investors to move their funds to companies likely to get the largest benefit if the former president is elected.

NOTABLE NEWS

Despite the naysayers putting down electric vehicles, sales in this sector are growing. Forbes senior contributor Jim Gorzelany writes that U.S. EV sales were up 11% in Q2 year-over-year, improving 23% over Q1, according to Kelley Blue Book data. Electric vehicles made up 8% of all new car sales in Q2—and that’s even with Tesla sales continually slipping, accounting for just under half.

So what’s driving these sales? It’s not necessarily people looking to improve their carbon footprint. (In fact, writes Forbes senior contributor Ken Silverstein, targeting those people might actually slow sales.) It has more to do with cost. Vehicles at competitive prices—plus federal credits and cash rebates—help bring new customers to the segment. As electric vehicles become more powerful and reliable, people will become more curious and buy in.

But not all manufacturers are seeing this boom. Ford, which is projecting to lose between $5 billion and $5.5 billion in its EV business this year, is investing about $3 billion to start making more F-Series trucks at a Canadian plant previously reserved for electric vehicle production. For its part, Ford said it remains committed to a “growing and profitable” EV business.

INDUSTRY NEWS

Streaming continues to be big business, with Netflix beating revenue and subscriber growth expectations in its earnings report last week. The platform’s global subscriber base hit 277.65 million in its most recent quarter, making $9.5 billion in revenue. Netflix projects softer subscriber growth in the next quarter, but the company plans to continue growing its revenue by expanding entertainment offerings and changing membership tiers. The top streaming network announced it will scrap its $11.99 monthly ad-free Basic plan for U.S. customers, either moving them up to ad-free Standard ($15.49/month) or Premium ($22.99/month) plans, or down to ad-supported $6.99 monthly Basic plans.

TOMORROW’S TRENDS

Gravity Research’s Luke Hartig On The Issues That Could Impact Your Company’s Reputation

It’s important to protect your corporate reputation, but in polarized times like right now, it can be extremely difficult to figure out when a company should speak up about issues and when to stay in the background. Gravity Research puts together a quarterly Risk Index, evaluating the issues that have been hot topics and could harm a company’s reputation. Their Q2 Index published last week, and I talked to Gravity Research President Luke Hartig about both the report and how companies should move forward in a time when every topic seems somewhat fraught.

This conversation has been edited for length, clarity and continuity. A fuller version of this conversation is available here.

The top high-risk areas were DEI and climate and sustainability. DEI has been in the news quite a bit lately, but why is climate and sustainability so risky?

We’re so focused on the presidential elections, and this has not been a central issue for either candidate at this point—or at least not the type of issue that’s drawing in companies. But there were a few big things that really drove conversation during this cycle, and really drove conversation in a way that directly implicated companies.

The first one was a growing focus we’re seeing on consumer packaged goods companies and their use of plastics. We’re seeing that as a growing area of advocacy that’s getting louder and certainly directly implicates companies. The second big one is state anti-ESG efforts, which are continuing to gain steam, and focus on things like not contracting with companies that have major ESG commitments, or divesting from banks and investment managers that invest heavily in the ESG space. The final one is the global effort to think about net zero and carbon offsets. There’s been a lot of scrutiny of that. Both internally, as I understand: some pushback within that initiative of how companies are thinking about those targets. But also a growing pushback to multinational collaborations around reducing net zero from corporations.

What do you anticipate changing, if anything, after the election?

There’s the run up to the election, and then there’s what happens after the election. I think that the election certainly complicates the risk, and in the near term we think it elevates a few key issues. Immigration: Huge, as I mentioned. Certainly the issue that former President Trump wants to run on, and one that’s incredibly volatile. Inflation, and specifically the shrinkflation accusations that we’re seeing coming from President Biden definitely adds a lot of risk to companies. And then abortion and reproductive rights is an issue that Democrats really want to play.

I think of that as the first category of risk: the candidates engage on these issues, and engage in a way that creates pressure on companies to weigh in. The second big category of risk is companies get directly attacked by the candidates; the candidates come after them rhetorically. Certainly the shrinkflation argument falls into that bucket. Republican allegations, to the extent that it’s specific companies, are a real challenge.

The final one is the broad category of civil unrest. That’s been an issue I know a lot of our clients have been slowly starting to prepare for, but the attempted assassination of President Trump brings that to the forefront as a risk area for clients. To a certain extent, responding to that tragedy was really straightforward from a corporate communications standpoint. We all deplore political violence and are grateful that former President Trump was not seriously injured. More than that, individuals were killed and seriously injured. It’s straightforward if you’re a company communicating on that.

But there’s any number of other things—additional protests and potential additional political violence—between now and Election Day. Certainly any big questions around electoral votes, and how we’re counting, and the results at the polls, et cetera, that could create challenges not unlike what we saw on the runup to January 6.

The report mentions there are many issues that companies may not want to engage on, like voting rights or equity, that they could get dragged into. What is your advice to companies that want to stay clear of the fray as much as possible, but recognize they might not be able to stay silent?

One of the things that’s important is to think through some various scenarios. Think through how those scenarios could play out. Consider how your company would be exposed and what vulnerabilities you’d have in that situation, what pressures you’d be under. Some of this is going to be particular to each given company. I think a lot of companies are trying to stay in “safe space”—and that is that they are going to make general statements about free and fair elections. They’re going to support the right of all their employees to vote and make it easier for them to vote, and they’re going to stay as nonpartisan everybody-should-exercise-their-civic-responsibility as possible.

The other thing we’re starting to see is just companies actually come together around if things do get particularly bad, how do we think about engaging on these issues? What kind of statement would we put out if a particular scenario were to play out with regard to this election?

FACTS + COMMENTS

Amazon’s Prime Day sale took place over two days last week, breaking its own records and inspiring other e-tailers to cash in on copycat events.

$14.2 billion: Amazon’s sales on July 16 and 17

136%: Increase in Prime Day sales compared to its 2024 baseline

‘People buying more, not just higher prices’: What Salesforce Vice President and General Manager of Retail and Consumer Goods Rob Garf told Forbes Amazon’s sales increase was based on

STRATEGIES + ADVICE

While DEI is being attacked by shareholders, customers and politicians alike, it’s still important to have at your business. Here are some ways to make it work.

In today’s world, there are many crisis-level issues that businesses can face. AI platforms can make it easier to get through them.

VIDEO

QUIZ

By Forbes estimates, which entertainer just became a billionaire?

A. Billy Joel

B. Denzel Washington

C. Tom Hanks

D. Bruce Springsteen

See if you got the answer right here.