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How to survive and thrive in a geopolitical storm

Published 26 July 2022 in Governance • 10 min read

The business world has been upended by the COVID-19 pandemic and the war in Ukraine. But chaos can bring opportunity if your board of directors is prepared for action, write Didier Cossin and Abraham Lu.

Witihin a span of mere weeks, the Russian invasion of Ukraine did more to remake global corporate and industrial activity than most of us can recall. Hundreds of companies, thousands of employees, and billions in corporate spending have been disrupted, with no clear view of what might become the new baseline. And, this upheaval began just as the chaos caused by the COVID-19 pandemic entered a more manageable stage after nearly two years. 

Jeffrey Sonnenfeld, a Yale School of Management professor, compiled a list of companies and responses to the war in Ukraine, initially noting different stages, from inaction to a complete divestment or sale of Russian assets and abandonment of the market. By May 2022, more than 1,000 corporations had taken steps to redefine their Russian operations, depending on industry sanctions and other variables as companies, and reactions, change with time.  

Other major corporate risks this year include economic crisis in Sri Lanka, the closure of Chinese ports in response to COVID-19, and turbulent presidential elections in Kenya, India and Brazil.   

The need has never been more critical for boards of directors to evaluate and respond to geopolitical risk. Each board must understand its own oversight competency, quantifying unknown risks while also responding tactically and empathetically when risks offer growth windows. Some risk scenarios could open up new  markets and business services while others might lead to fundamental corporate reinvention. The World Economic Forum identified nearly two dozen geopolitical risks that faced companies in a 2019 report. Possible impacts ranged from raw material shortages to capital flight. Knowing which risks are the board’s highest priority, or greatest fear, helps set an agenda for managing them, either by avoidance or by using other tools, such as insurance or partnerships. 

Similarly, each organization has its own internal custom and culture. Is the board in place to advise or to set agendas? Does it have fiduciary duty to shareholders, family members, stakeholders that may be more diverse, such as environmental no-harm policies, anti-bribery and good governance laws and other national limits? Who decides if the  board, either collectively or individually, is performing its duties well?  Global companies such as Wirecard AG in Germany, and Theranos in the US had directors, many of them globally recognized experts and trusted  leaders, who were misled by operating executives.   

Three stages for managing geopolitical risk

  • Mental shift 
  • Board geopolitical competency review
  • Recruiting a specialist director
  • Continuing education for directors 
  • Governance readiness – Structure
  • Process and group dynamics 
  • Identification 
  • Assessment 
  • Appetite
  • Management 
  • Prevention 
  • Exercising influence • Diversification 
  • Insurance / Hedging 
  • Seizing opportunities 

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