Today’s world is multipolar and volatile, with waning trust, resurgent authoritarianism and rising public activism as well as non-state conflict. Companies are beset by multiple sources of interdependent risk categories which defy existing modelling strategies and management practices. Simultaneously, companies must balance diverse compliance requirements against their own ambitious growth targets. External pressure also comes from a growing set of stakeholders including climate activists, international watchdogs, US law enforcement agencies (anti-bribery), the European Union (tax evasion), human rights organizations, etc.
With all this pressure piling up, companies need to reconsider their existing risk management systems and, in many cases, replace them with more holistic systems which will enable them to navigate more efficiently in this vast ocean of pitfalls and threats. They need systems which not only consider political and geographic risks but integrate them into the decision-making process. By applying a geostrategic perspective, companies will not only mitigate risks but also identify new opportunities and reveal hidden growth potential across countries and continents.
However, many companies face numerous internal obstacles to efficiently manage risks such as siloed risk functions, biases in terms of age-old loyalties, vested interests, etc., reliance on incomplete third-party data, and finally the pressure to simultaneously meet both growth and compliance requirements. The traditional check-the-box mindset is a cultural obstacle, with static red-flag categorization in terms of political exposure, corruption and high-risk jurisdictions. This needs to be reevaluated and reinvented, as companies must increasingly enhance their understanding of the world and strive for more than just minimal regulatory adherence and short-term loss avoidance.
Counter-party risk is a key risk that needs to be managed in today’s globalized environment. Now more than ever, companies need to familiarize themselves with their counter-parties and the countries and regions where they perform their business operations. Corporate decision-makers must consider human rights records, environmental policies, cyber security vulnerabilities and the potential reputational fallout of working too close with a regime seen as repressive, while also having to deal with traditional issues of concern such as economic swings, currency exchange fluctuations and infrastructure quality issues.
All in all, there is a strong case to be made for geostrategic risk management as the world order is increasingly interconnected and multipolar. However, making risk management a strategic priority is not enough. The company’s capabilities must be embedded throughout the organization and age-old mindsets need to be replaced by contextual risk awareness to optimize performance across countries, functions and departments. In this regard, language skills, expat experience, familiarity with different political systems and other “brainware” capabilities will become increasingly important to harvest and interpret information in a global business environment.
New technologies should be embraced, but exclusively relying on automated data collection will not address existing risk management flaws and deficiencies. Rather than setting their hopes on artificial intelligence and machine learning to solve all risk-related issues in the future, companies must act now to achieve a higher level of risk resilience. In times of fake news and waning public trust, there is a greater need than ever for old-fashioned investigative techniques such as independently verifying facts in primary sources rather than relying on fragmented and incomplete data collection.