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Why Boards Should Care More About Geopolitics Than Ever Before

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Geopolitical risk seems higher than at any point in recent memory. Managing this risk effectively should be a core competency for all businesses — and the board should lead the way.

After decades of globalisation shaping the world order, businesses are now forced to accept a new reality. Geopolitical risk is an ever-growing threat with far-reaching potential consequences. This risk arises from a growing polarity in the interactions between and among countries. Shifting and expanding alliances, intensifying economic competition among nations, national security concerns, and political division and instability all contribute to geopolitical risk. The future gets even cloudier given concerns over the duration and possible expansion of regional conflicts, the existence of potentially volatile territorial disputes, and multinational attempts at climate initiatives.

As 2024 begins, geopolitical analysts are focused not only on the ongoing conflicts in Eastern Europe and the Middle East, but also on myriad other issues as diverse as China’s faltering economy, actions of emboldened terrorist groups, the opportunities and threats from the growth of artificial intelligence (AI), and what The Economist has called the “biggest election year in history” in which more than half the world’s population — more than four billion people — will vote in national elections. While many of these elections will have impacts that extend beyond the voting country’s borders, none is likely to affect the geopolitical landscape more than the U.S. election.

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Bottom line: The effects of geopolitical risk include profound human and societal consequences, as well as broad commercial impacts. While large multinational companies may be the most exposed, midsize and smaller companies across the globe may also experience a wide range of downstream consequences.

The latest issue of Board Perspectives addresses why the board should care about geopolitics and summarises suggested steps directors can take, including:

  • Stay informed
  • Include geopolitical risk in enterprise risk assessments
  • Adopt a value chain lens to manage geopolitical resilience
  • Prepare for a complex and nuanced geopolitical landscape
  • Be prepared for a more complex global regulatory environment
  • Consider the impact on the customer experience
  • Be mindful of escalating asset impairment, and legal, credit and reputation risks
  • Be prepared when risk management gives way to crisis management
  • Consider internal and external communications plans
  • Conduct a post-mortem when surprises occur
  • Play offense as well as defense

In summary, the reason geopolitical risk is so important is simple: Companies operate in a hyper-digital world and global markets are incredibly nuanced and complex. The steps outlined in our Board Perspectives issue enable critical thinking in the cool of the day regarding a company’s options — both before and during either an anticipated scenario or a simultaneous occurrence of multiple intertwined scenarios. The primary objective of evaluating geopolitical risk is to give decision-makers time advantage and options to allocate capital, sustain investment returns and protect company assets. The board has an important role to play in these deliberations.

For steps directors can take to position themselves to contribute value in boardroom discussions of geopolitical developments, read here.

(Board Perspectives — Issue 173)

Listen to our Board's Perspectives podcasts, which provide practical insights and guidance for new and experienced board members alike.

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