urprise geopolitical "tectonic shifts" suggest that democratic norms may be more resilient than some long-term prognosticators have been predicting. The recent poor showing of candidates embracing conspiracy theories during the U.S. midterm elections and Ukraine’s surprisingly strong resistance to Russian aggression each, in their own way, give some unexpected hope for democratic norms. Maybe.
Whether these geopolitical developments are longer-term shifts or shorter-term zigzags is yet to be determined. Yet one thing is certain—geopolitical developments have been coming at us faster and more furiously in recent times. In The ESGT Megatrends 2022-2023 Manual “Geopolitical Tectonic Shifts Catalyzing” was identified as the #1 Megatrend for 2022-2023 and, so far, the year has not disappointed in providing major political and geopolitical developments.
The number and complexity of these developments underscore for business the importance of understanding and integrating consideration of these developments into business strategy and risk governance. We suggest four tactics to accomplish that.
Geopolitical Shifts or Zigzags?
This year alone there have been some big geopolitical surprises. Consider the following:
Russia. Russia invades Ukraine and begins a disastrous war—the largest in Europe in decades. Shift or zigzag? Shift. The failure of Russia’s military to attain the expected quick victory means the internal political situation for Russia is deteriorating rapidly. Still, it remains unclear whether Russians will turn on Putin. Shift or zigzag? zigzag. For now—if Russians turn on Putin it will be a major shift.
Ukraine. The Ukraine war almost instantaneously strengthened NATO—which had been struggling in particular under the Trump administration. With Russia’s invasion of Ukraine, the alliance once more has a strategic reason for existence, greater cohesiveness, and two new prospective members in Finland and Sweden. Shift or zigzag? Big shift. President Zelenskii’s uncompromising pro-democratic leadership against the Russian invasion has galvanized the democratic world. Shift or zigzag? Definite shift.
China. China/US/EU relations continue to deteriorate, with Taiwan and global technological competition being major flashpoints. Shift or zigzag? Shift. President Xi has been elected to an unprecedented third term potentially becoming “leader for life,” essentially matching the power of Mao Zedong. The Chinese internal socioeconomic and political situation continues to change partly because of Xi’s increasing grip on the country, in part accelerated by COVID-19—with serious social, economic, and supply chain reverberations. Shift or zigzag? Shift.
The United States. President Biden and the Democratic Party managed a better-than-expected result from the U.S. midterm elections which usually favor the party not in executive power. Thanks to an increasingly radicalized Republican Party, the Democratic Party keeps the Senate while losing the House. Shift or zigzag? Zigzag. We won’t know until 2024 whether the U.S. is able to restore a semblance of democratic equilibrium or whether the overall polarization and/or internecine warfare within the Republican Party are signs of a greater, more existential malaise (or tectonic shift to greater chaos or even authoritarianism).
Democracy v. Autocracy. The U.S. and most of its allies claim there is what amounts to a “democracy versus autocracy” set of geopolitical tectonic plates globally. Whether this is true remains to be seen. Some experts believe we may be reaching a turning point, shifting away from the last decade and a half of democratic deterioration (see Freedom House chart below). There are some hopeful indicators, including election of Lula in Brazil and other recent Latin American elections. Yet democratic institutions in the U.S. and elsewhere are still struggling with various internal and external challenges. Shift or zigzag? Zigzag for now but with some green shoots of hope.
The SDG / COP27 Agenda. International institutions continue to struggle with serious global SDG issues—climate change/justice, food insecurity, poverty, COVID-19 and other health emergencies, multiple migration/humanitarian crises, and cyber preparedness. COP27 concludes with one substantial win (damage fund for poor countries) but many open questions on how the world will manage the worsening global climate emergency remain and recent scientific reports are alarming to say the least. Shift or zigzag? Zigzag.
Global Tech Elites v. Everyone Else. Another cross-border geopolitical shift/zigzag we are seeing unfold through the Elon Musk Twitter saga and the Sam Bankman-Fried FTX crypto implosion is the manifestation of the good, bad, and ugly that can emerge from tech titans having too much power and too little regard for governance. This is a global and often borderless challenge between the tech elites who often disregard global or national guardrails and the multitude of tech stakeholders. Shift or zigzag? Both.
Translating Geopolitical Tectonics into Strategy and Risk Governance
While there cannot be a “one size fits all” approach to translating larger geopolitical shifts and zigzags into corporate risk governance as every business is different in so many ways, there are some urgent principles that every business should adopt in view of these global shifts going forward.
I would distinguish the following four as the most important:
- Know Your Company’s Geopolitical Footprint. This means knowing exactly where all your assets, facilities, employees, contractors, supply chain providers, and natural resources are located geographically and politically. The geography piece may be straightforward (assuming you are aware of the extent of your supply chain nodes), but the political piece becomes more complicated. That’s where #2 and #3 below come in.
- Access the Right Geopolitical Experts & Competencies at management, c-suite, and board levels. If you do not have the requisite people tracking and understanding the domestic and international political developments that affect your business’s footprint, you are putting your employees’ lives and your assets’ soundness at risk. Experts and competencies can be internal (chief risk officer, strategy personnel, communications, investor relations) and external (risk consultancies, geopolitical experts).
- Engage in Continuous Geopolitical Information Gathering and Analysis. Do more than just read the newspapers. There needs to be an internal team that pays attention to early intelligence gathering, analysis, and application of those learnings customized to the footprint of the company. This is critical for purposes of risk management and mitigation, crisis management, business continuity, opportunity identification, and value protection and creation as the sample process depicted in the figure below shows.
- Integrate Geopolitical Learnings into Strategy, Governance & Reporting. Organizational leaders must apply such learning properly to strategy formulation, tactical implementation, crisis and business continuity considerations, and the reporting of such matters into enterprise risk management, strategy, governance, and regulatory and other external financial and ESG/sustainability reporting.
Flying geopolitically blind in these turbulent times—wherever you are located and whatever your business footprint is—inevitably courts financial and reputational damage and is a recipe for potential disaster. Heightening relevant corporate geopolitical awareness will do the opposite: mitigating risk and opening even greater opportunity for value preservation and creation.
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Geopolitical Tectonic Shifts Complicate Business Strategies
Photo by Bit Cloud via Unsplash.
November 23, 2022
Geopolitical developments have been coming at us faster and more furiously. It is important to understand and integrate consideration of these developments into business strategy and risk governance, and GEC Risk Advisory founder Andrea Bonime-Blanc suggests four tactics to accomplish that.
S
urprise geopolitical "tectonic shifts" suggest that democratic norms may be more resilient than some long-term prognosticators have been predicting. The recent poor showing of candidates embracing conspiracy theories during the U.S. midterm elections and Ukraine’s surprisingly strong resistance to Russian aggression each, in their own way, give some unexpected hope for democratic norms. Maybe.
Whether these geopolitical developments are longer-term shifts or shorter-term zigzags is yet to be determined. Yet one thing is certain—geopolitical developments have been coming at us faster and more furiously in recent times. In The ESGT Megatrends 2022-2023 Manual “Geopolitical Tectonic Shifts Catalyzing” was identified as the #1 Megatrend for 2022-2023 and, so far, the year has not disappointed in providing major political and geopolitical developments.
The number and complexity of these developments underscore for business the importance of understanding and integrating consideration of these developments into business strategy and risk governance. We suggest four tactics to accomplish that.
Geopolitical Shifts or Zigzags?
This year alone there have been some big geopolitical surprises. Consider the following:
Russia. Russia invades Ukraine and begins a disastrous war—the largest in Europe in decades. Shift or zigzag? Shift. The failure of Russia’s military to attain the expected quick victory means the internal political situation for Russia is deteriorating rapidly. Still, it remains unclear whether Russians will turn on Putin. Shift or zigzag? zigzag. For now—if Russians turn on Putin it will be a major shift.
Ukraine. The Ukraine war almost instantaneously strengthened NATO—which had been struggling in particular under the Trump administration. With Russia’s invasion of Ukraine, the alliance once more has a strategic reason for existence, greater cohesiveness, and two new prospective members in Finland and Sweden. Shift or zigzag? Big shift. President Zelenskii’s uncompromising pro-democratic leadership against the Russian invasion has galvanized the democratic world. Shift or zigzag? Definite shift.
China. China/US/EU relations continue to deteriorate, with Taiwan and global technological competition being major flashpoints. Shift or zigzag? Shift. President Xi has been elected to an unprecedented third term potentially becoming “leader for life,” essentially matching the power of Mao Zedong. The Chinese internal socioeconomic and political situation continues to change partly because of Xi’s increasing grip on the country, in part accelerated by COVID-19—with serious social, economic, and supply chain reverberations. Shift or zigzag? Shift.
The United States. President Biden and the Democratic Party managed a better-than-expected result from the U.S. midterm elections which usually favor the party not in executive power. Thanks to an increasingly radicalized Republican Party, the Democratic Party keeps the Senate while losing the House. Shift or zigzag? Zigzag. We won’t know until 2024 whether the U.S. is able to restore a semblance of democratic equilibrium or whether the overall polarization and/or internecine warfare within the Republican Party are signs of a greater, more existential malaise (or tectonic shift to greater chaos or even authoritarianism).
Democracy v. Autocracy. The U.S. and most of its allies claim there is what amounts to a “democracy versus autocracy” set of geopolitical tectonic plates globally. Whether this is true remains to be seen. Some experts believe we may be reaching a turning point, shifting away from the last decade and a half of democratic deterioration (see Freedom House chart below). There are some hopeful indicators, including election of Lula in Brazil and other recent Latin American elections. Yet democratic institutions in the U.S. and elsewhere are still struggling with various internal and external challenges. Shift or zigzag? Zigzag for now but with some green shoots of hope.
The SDG / COP27 Agenda. International institutions continue to struggle with serious global SDG issues—climate change/justice, food insecurity, poverty, COVID-19 and other health emergencies, multiple migration/humanitarian crises, and cyber preparedness. COP27 concludes with one substantial win (damage fund for poor countries) but many open questions on how the world will manage the worsening global climate emergency remain and recent scientific reports are alarming to say the least. Shift or zigzag? Zigzag.
Global Tech Elites v. Everyone Else. Another cross-border geopolitical shift/zigzag we are seeing unfold through the Elon Musk Twitter saga and the Sam Bankman-Fried FTX crypto implosion is the manifestation of the good, bad, and ugly that can emerge from tech titans having too much power and too little regard for governance. This is a global and often borderless challenge between the tech elites who often disregard global or national guardrails and the multitude of tech stakeholders. Shift or zigzag? Both.
Translating Geopolitical Tectonics into Strategy and Risk Governance
While there cannot be a “one size fits all” approach to translating larger geopolitical shifts and zigzags into corporate risk governance as every business is different in so many ways, there are some urgent principles that every business should adopt in view of these global shifts going forward.
I would distinguish the following four as the most important:
- Know Your Company’s Geopolitical Footprint. This means knowing exactly where all your assets, facilities, employees, contractors, supply chain providers, and natural resources are located geographically and politically. The geography piece may be straightforward (assuming you are aware of the extent of your supply chain nodes), but the political piece becomes more complicated. That’s where #2 and #3 below come in.
- Access the Right Geopolitical Experts & Competencies at management, c-suite, and board levels. If you do not have the requisite people tracking and understanding the domestic and international political developments that affect your business’s footprint, you are putting your employees’ lives and your assets’ soundness at risk. Experts and competencies can be internal (chief risk officer, strategy personnel, communications, investor relations) and external (risk consultancies, geopolitical experts).
- Engage in Continuous Geopolitical Information Gathering and Analysis. Do more than just read the newspapers. There needs to be an internal team that pays attention to early intelligence gathering, analysis, and application of those learnings customized to the footprint of the company. This is critical for purposes of risk management and mitigation, crisis management, business continuity, opportunity identification, and value protection and creation as the sample process depicted in the figure below shows.
- Integrate Geopolitical Learnings into Strategy, Governance & Reporting. Organizational leaders must apply such learning properly to strategy formulation, tactical implementation, crisis and business continuity considerations, and the reporting of such matters into enterprise risk management, strategy, governance, and regulatory and other external financial and ESG/sustainability reporting.
Flying geopolitically blind in these turbulent times—wherever you are located and whatever your business footprint is—inevitably courts financial and reputational damage and is a recipe for potential disaster. Heightening relevant corporate geopolitical awareness will do the opposite: mitigating risk and opening even greater opportunity for value preservation and creation.
