Risk Insights
December 14, 2020

The Importance of Geopolitics in Board Governance

In 2021, companies hoping to move from surviving to thriving will need two new capabilities–because there’s no escaping geopolitics. That was a key takeaway from a recent blockbuster summit RANE co-hosted with Nasdaq for businesses and boards. Designed to help evaluate the business impact of global developments and the importance of accurate intelligence for making more informed decisions, our summit, entitled, “Board Governance Through the Lens of Geopolitical Risk,” attracted more than two hundred attendees.

The summit began with a keynote conversation hosted by RANE Founder, David Lawrence with guest, Richard N. Haass, President, Council on Foreign Relations. Some of the highlights of that conversation included bon mots of wisdom from Mr. Haass, on topics ranging from the coronavirus pandemic to the future “real-geopolitique” for global businesses.

As Lawrence pointed out, the global business environment has become nearly as complicated as the political one over the past decade. Haass suggested that companies should think of themselves as foreign policy actors as well as traditional companies. Keeping track of geopolitical changes – and accompanying risks – is now and will continue to be a critical element of success.

“Companies going forward [must] have two capabilities,” Haass said. “One is what you might call the equivalent of an intelligence capability, to be really smart about all the stuff out there that could have implications for them. And the other is they have to have their own foreign policies. So they need their equivalent of an intelligence agency capability and a diplomatic capability about where they think of themselves as actors. They are actors on the world stage, maybe not the same way as states. But in some cases, look, if we were having a serious conversation about what to do about COVID-19, companies and the Gates Foundation are probably more influential and more important than 95% of the world’s governments.

I’d say also, they want to think about how they train their younger employees in particular over time, whether they want to expose them to where part of someone’s career development would be to get more exposed to this. So when he or she is in a more senior position, this is part of their toolkits, part of their way of thinking about and understanding the context in which they are operating. I would think that kind of developmental rite of passage ought to become the rule rather than the exception for many companies.”

But keeping track of geopolitical changes – and accompanying risks – does not necessarily include looking abroad. Geopolitics has varied elements and constituencies.

“One is what could happen to challenge a company’s business. It could be conflict or instability. It could be a corrupt environment, what you might call local realities. It could be a policy that would affect relations between a host government and the government of the country in question. That’s what we normally think of as the geopolitical dimension. That’s enormous. But it seems to me, … we now have the introduction of geopolitical considerations, which is different. And [those could come] from any group. It could be from workers from the workforce. You see it out in Silicon Valley, where people don’t want certain types of cooperative relations, say with arms of the U.S. government. They don’t like the purposes for which certain products or services are being put, whether it’s in law enforcement, immigration areas, targeting overseas or what have you.

So we’re not simply talking about developments on the ground or developments by policymakers that affect the context in which companies operate, if you will, things that are external to the company. Now we’re finding investors, workers, board members, whatever, are basically saying, “We have to take this into account ourselves.” And that’s different and a sign of things to come. I think there’s going to be more rather than less of that going forward, particularly in the environmental area, potentially in human rights areas. If you’re in the business world, you’ve got to deal with all these politicized independent constituencies.”

Those constituencies are also the blurring lines between the roles of government and companies. In 2020, that was most on display in the different ways that different countries approached the COVID-19 pandemic, which ones successfully contained the pandemic, which failed, and how the pandemic different approaches yielded different outcomes. The resulting patchwork will have lasting effects.

“Let’s be honest here. Countries that can’t bounce back from COVID-19 are much more likely to become weak and failed states. And weak and failed states, we’ve learned historically, become places where instability happens, where governments can’t look out for their own populations, and then often have refugee movements. All of this is highly disruptive.

We’re certainly never going to get to an environment that’s post infectious disease, or post the danger of COVID 24, or some other infectious disease. But we can get to the point where we can manage it, like we manage other collective problems. Companies should look at all this not just as a general thing but obviously, if they’ve got a big chunk of their market in countries that have been COVID ravaged,” they will have to adapt and address those changes.

If you’d like to see the keynote conversation, visit this page. ranenetwork.com. Or reach out to our PR Director, Emily Donahue, at pr@ranenetwork.com for more information about RANE and how our team of specialists can help your organization – and your board – better navigate an increasingly complex international environment.

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