GEOPOLITICAL RISKS: 35 QUESTIONS TO ANSWER

The days when geopolitical risk was not something most companies needed to worry a lot about are long gone; it’s now a board-level issue. It’s more important than ever for companies and their CEOs to be able to tap into genuine geopolitical expertise. But where can they get this, and how should it feed into their work? 

The need for geopolitical knowledge varies according to the business. But the answer to the problem of sourcing geopolitical expertise may already be within reach. Even if there’s a distinct lack of expertise in the upper echelons, many companies are actually missing out on pre-existing insights among their employee base. Many senior managers already understand the impact of local politics and geopolitics on their global company. These country heads, divisional heads or subsidiary managing directors face the market and communities and are held accountable for sales and local performance. However, these general managers are continually ignored by top-level management, and excluded from initial discussions on strategy creation where geopolitical risks may be picked up.

Buying in expertise via non-executive directors or consultancies can only get you so far. Companies may be better served in the long term by building a broader knowledge base through the diversification of their workforce and digital transformation. 

The solution, then, might be to consolidate the geopolitical knowledge that’s already available to a company’s decision-makers, expand that pool, and support it with external expertise where necessary. Then it’s just the small matter of learning from that insight and preempting the unknown.

Organizations need to face the challenges of ongoing geopolitical disruption by prioritizing action. Business leaders need to look further over the horizon, but not be frozen into inaction by what they find, and they need to take time to assess the velocity and the nature and impact of change heading their way. While understanding these dynamics will not solve anything, achieving greater clarity about risks and their potential effects will make it easier to create appropriate interventions and to build a more resilient business. However, outside of highly regulated industries such as the financial services, expertise in geopolitics tend to be less developed and there is a sense in some quarters that senior management tends to be led by instinct, which could often be wrong. It takes a certain maturity for the organization to think about things that could go wrong and spend time discussing it.

1. Is your business likely to be exposed to an unexpected geopolitical event?
2. How can geopolitical factors affect your objectives?
3. Have geopolitical risks been factored into the risk management framework in your company?
4. What role will the board play vs. management in terms of geopolitical risks?
5. How should a board set the tone for active geopolitical risk management?
6. Is your board comfortable with what management is doing about geopolitical risks? Why?
7. Does your board have the capability to form its own perspectives on geopolitics?
8. Does your board include members with geopolitical expertise?
9. Does the board have the right people, structure, processes and group dynamics to oversee key geopolitical risks and to challenge management?
10. How often is the board briefed on geopolitical developments and their potential implications?
11. Will your corporate structure need to change to manage geopolitical risk?
12. Are your board’s information systems responsive to geopolitical information and data?
13. Does the board understand how geopolitical risks map to the company’s enterprise risk management policies and procedures?
14. Who or which committee is responsible for monitoring, analyzing and interpreting geopolitical risks? % value to their executive teams. Why?
15. What corporate strategy assumptions could be derailed by geopolitics?
16. If geopolitical risks challenge management’s critical risk assumptions, is the board ready to push for a strategic shift?
17. How can “unknowable” geopolitics can be planned for and understood?
18. Which framework does the management team utilize to identify and assess geopolitical factors? Is the geopolitical framework robust? What are the critical factors identified?
19. What suggestions does the board have for management to improve monitoring to identify shocks early or to have adequate visibility over the supply chain to identify threats?
20. Does the board understand the process for managing geopolitical risk through scenario analysis and stress testing?
21. Considering possible geopolitical trajectories and new economic scenarios, how might geopolitical uncertainties affect the company’s valuation and financial statements?
22. Is management addressing geopolitical risk in a comprehensive fashion (e.g., cultural, technological innovations, social, legislative)?
23. Do the board and management translate perspectives and preparedness on geopolitical risk into actions?
24. Does your board work with management to prevent geopolitical risk in the first place?
25. How can your company’s voice be heard without risking adverse reactions from government or the public? Will influencing strategy such as lobbying work in your industry?
26. Does your board have robust processes and controls to protect against bribery and corruption while exercising political and legal influence?
27. What is the nature and extent of corporate superpowers’ intervention and influence on the governments of small countries?
28. How quickly can your company reduce supply chain dependency on a market affected by geopolitical tensions?
29. How does diversification offer resilience and stability in the company’s growth and performance? Could diversification increase other risks?
30. What inputs can the board give on geopolitical risk insurance?
31. How does the board tell the difference between management’s hedging practice and speculation?
32. Is the company capable of using derivatives to hedge against risks?
33. Are there opportunities for enhancing growth when geopolitical risks are minimized?
34. Is the company willing to accept a certain level of geopolitical risk to harness opportunities?
35. Are geopolitical opportunities and risks considered simultaneously as part of the strategy setting process?

Recommendations

• Boards, internal audit, and risk management mist recognize geopolitical risk as a strategic risk to the business: geopolitical risk does not sit in a silo, but exacerbates and intensifies myriad other business-critical risks, such as supply chains, legal and compliance, reputation, financial liquidity and cyber security.
• Scenario planning and horizon planning are key to preparing for geopolitical risk: organizations mist resist the temptation to be events-led and retain agility for when crises strike. But agility is not a license for them to improve their response on the fly. They need to constantly challenge, stress test and update all baseline assumptions about the likelihood and impact of the risks they could face.
• Boards, internal audit, and risk management must be agile in responding to ‘once-in-a-generation events’ occurring with regular frequency: the new era if geopolitical uncertainty calls for organizations to be agile in responding to crises and be in a permanent state of readiness.  
• Boards, internal audit and risk management must work closely together as partners in geopolitical risk governance: key to this is sharing intelligence and rendering it relevant to the organization.
• Internal audit and risk professionals must speak up and say the unthinkable on geopolitical risk and potential scenarios: they should do this even if this risks them being unpopular with the board. The bigger risk is of senior management or the board turning around and saying: “Why didn’t anyone see this coming.

Despite sitting high up on risk registers, the effort and time spent in managing and assessing geopolitical risks remains very low. The best way to tackle geopolitical risk is to have conversations and to get different views, voices and opinions. Those lacking expertise or knowledge in geopolitics may feel inadequate for the task of prioritizing and preparing their organizations for them.