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Rethinking geopolitical risk

Neal Croft is global client relationship director at Willis Towers Watson
Neal Croft is global client relationship director at Willis Towers Watson

The most successful businesses recognise that geopolitics is about more than just war and terrorism. Neal Croft from Willis Towers Watson argues that organisations should mobilise expertise from across the business if they are to tackle this challenging peril.

 Many think geopolitics is limited to events in political hotspots and scattered terrorist incidents in Western nations, but it encompasses much more than just war and terrorism.

Geopolitics is a term that is commonly repeated but seldom understood. There are three reasons why the subject of geopolitics extends beyond the boundaries within which most people understand the term:

  1. The definition is broader than you think. Most people think of geopolitics as limited to events in Syria or Iraq and scattered terrorist incidents in Western nations, but in reality, geopolitics is much more than just war and terrorism. Geopolitics encompasses events like Brexit or trade or how nations respond to global climate change. For example, supply chains could be disrupted by trade disputes, quickly enacted tariffs or a crop failure caused by a drought or a forest fire. Geopolitics is among the top global corporate risks creating the most significant threats and opportunities to business. It can even set the scene and condition for how and where we work.

    We recently conducted a study as part of a research project with Airmic, Risk Management: Vision 2020. The results proved interesting and were based on the responses of 157 Airmic members with 61 percent believing that geopolitical risks were becoming harder to manage. Specifically, many felt that climate and environmental risks were definitely becoming harder to assess (47 percent). In light of these concerns, it is essential to consider key elements when attempting to mitigate geopolitical risk.

  2. Asymmetry opens the target pool. Although geopolitical risk is much greater than the threat of terrorism, war or revolution, such events threaten the security of people, buildings and other assets. They therefore require thinking about the asymmetric relationship between security threats and incidents. One of the common threads running through these asymmetric incidents is that security measures can cost millions to implement but can be defeated by simple patient reconnaissance and improvised explosives made from materials that can be bought from hardware stores, as illustrated by the Boston Marathon Bombing in 2013. The incident, which occurred on a Monday, led to the deaths of three people, the injury to another 264 people, and a multi-day shutdown of 12 blocks in the city's core downtown shopping and business district. It culminated in a manhunt that led to the complete shutdown of the whole city of Boston and neighbouring cities for an entire Friday. And it only took two lone terrorists to bring a city of over 600,000 people to a standstill.
  3. Cyber incidents and reputational risk are linked. The impact of technological developments and digitalisation on the way we live, and work is dramatic. A hacker, whether motivated by personal financial gain, employed by organised crime or working on behalf of a hostile state bent on subversion or commercial sabotage, can find ways to access businesses once considered safe and virtually impenetrable. A data breach will be reported across the world in a matter of seconds and public perceptions of a brand or an organisation can be severely damaged. Worse yet, a breach of an electrical grid could shut down whole regions of a country, leading to widespread loss of revenue across industries.

Protecting your organisation

Consider these three enlargements of what geopolitics means and determine how each may impact your firm. A crop failure in Kenya can affect the supply chain all over the world. A terrorist trained in Somalia can strike a hotel chain's marquee property in London, or a lone wolf terrorist could rent a truck and drive through an open market in Paris or Berlin. A cyber criminal in the Ukraine can publicly bring down a US retailer, a transit system or even an electric grid.

Everyone has a unique pattern of exposures. How can we hope to address these exposures? Every organisation needs a plan that makes the most of available experiences and expertise within its own staff and bring in outside help where there are deficits.

Additionally, organisations need to make sure that they build the situational awareness, foresight and sense of judgment into their operations. If anyone loses concentration on this force majeure, the c-suite could be facing surprise, shock and paralysis in a heartbeat. The lesson of geopolitical events is that they penetrate every level of a company and have a level of interconnectedness that places a new emphasis on the relationship between boards, risk managers and the functional structures of your business.

There isn't one solution to geopolitical risk because every company's exposure is different, but the objective is to better prepare for the prevailing threats of today and tomorrow. Through considered organisation, communication and education, it is possible to realise the opportunity to access the required resources and generate a more sustainable and resilient position. The more geopolitically proactive and intelligence led, the greater the odds of leading your sector and meeting the needs of shareholders and of helping your business grow in the future.

Neal Croft is global client relationship director at Willis Towers Watson.

Read GEOPOLITICS understanding the external threats to an organisation, produced by Airmic in collaboration with Willis Towers Watson and informed by the 2019 Airmic member survey.