How to Prepare a Board for Geopolitical Uncertainty - Boardroom News

Preparing Your Board for Geopolitical Uncertainty

Like ripples in a pond, worldwide events have an impact on businesses across every national border. Corporate boards must have both the composition and competency to navigate geopolitical uncertainties. 

This is all the more true today as the world faces ongoing conflict in the Middle East, the Ukraine-Russo War, and escalating tensions between the U.S. and China. What core competencies should you expect from your board during such times of instability?

How Geopolitical Uncertainty Affects Business

In a global economy, American businesses can be profoundly impacted by conflicts, tensions, and challenges in other parts of the globe. Boards should be particularly aware of the following consequences of geopolitical uncertainty.

Volatility in Foreign Markets

Global tensions can fuel market volatility, which leads to declining consumer sentiment and stock prices. Overseas tensions can limit the availability of certain foreign commodities, much the way the Ukraine conflict has destabilized the energy sector.

Disruptions in the Global Supply Chain

Border disruptions also affect the flow of goods and services. This is true for the products that are sold across international lines as well as the flow of materials that impact the manufacturing process.

Operational Costs

When supply chains and trade relationships are disrupted, American businesses must look elsewhere to source supplies. Even changes in energy prices can prompt boards to reconsider their business strategy.

Reputation Risk

How your company navigates the geopolitical environment matters to your customers and stakeholders.

Errors in judgment can jeopardize your corporate reputation, an impact that goes beyond mere dollars and cents.

Geopolitical Uncertainty & the Board

The preceding concerns are just a few of the ways in which geopolitical tensions can destabilize business operations. That’s why it’s vital that your board has the leadership necessary to successfully navigate these concerns. Here are some actions to take with your leadership board.

Evaluate Board Composition

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Start by evaluating the actual composition of your current board. Most executive boards are chosen because of their business expertise or financial competencies.

These skill sets remain vital, but today’s boards will need additional knowledge of political dynamics in order to mitigate geopolitical risk.

Does your organization have extensive dealings with overseas finance and commerce?

If so, you might consider assembling a separate committee devoted entirely to navigating geopolitical risk. 

This committee could be composed of those whose diverse perspectives and experiences uniquely address the risks imposed by shifting international challenges and relationships. 

Assess Risk

What is your organization’s current risk profile? A comprehensive risk assessment can identify specific geopolitical risks that might adversely affect your core business processes. 

You might begin by creating a list of the various countries that you have direct dealings with, either through investments, supplier relations, or direct business transactions. Don’t forget to include reputational risk as well, which refers to the way risk impacts your company’s reputation among customers and stakeholders.

Next, you can prioritize these relationships based on the importance of each relationship to your company, or according to the relative risk related to the country in question. For best results, try to envision how today’s geopolitical situation might impact your company for the next two years. 

For instance, if you source products or materials from China, you might pay particular attention to how ongoing tensions could impact your business processes.

Promote Clear Research and Communication

This step can be performed in conjunction with your risk assessment. Gathering and analyzing data can help you better understand your company’s risk, or it can validate concerns and assumptions raised by your employees or board members. Some organizations might consider advisory councils composed of third parties who brief senior leaders on the most critical issues facing their company.

Regardless of how this information is sourced, it must be distributed to company stakeholders. Your board should focus on synthesizing the most vital information so company stakeholders understand the current risks and the ways your company plans to mitigate these risks.

Devise a Mitigation Strategy

When it comes to risk, it’s always better to be proactive than reactive. Given the current political landscape and your company’s risk profile, take steps to mitigate the risks you’ve identified in the preceding step. More importantly, try to envision future risk scenarios, such as what might happen if trade relations between the U.S. and China dissolve.

Your board can devise strategies to continue thriving even amid these uncertainties. For example, if the global supply chain should destabilize, your board might consider alternative sourcing models to ensure the continuity of your production and distribution processes. 

This type of scenario planning can increase your organization’s preparedness even if you face the “worst case” scenario.

Establish Clear Accountability

Creating a mitigation plan is important, but it only works if you delegate clear responsibility to board members or a sub-committee. For example, if a board member has particular experience in a business area (or a geographical area), you might assign that individual to create a mitigation plan.

As for the plan itself, it’s important for board members to understand the scope and specifics of the company’s mitigation strategy. Additionally, there should be clear authority given to employees to execute the mitigation plan, complete with robust reporting on the company’s current risks, current readiness, and adaptability to future scenarios.

Adopt a Holistic Approach

It’s easy for organizations to treat their risks as discrete elements, such as legal risk, financial risk, and reputational risk. But boards have a responsibility to consider how these concerns overlap and reinforce each other. For example, how might damage to your company’s reputation bleed over into financial risk (or vice versa)?

Understanding the relationship between varied risks can improve your company’s resilience in the face of current challenges. Scenario planning should therefore be a shared effort, exploring the way mitigation efforts intersect and impact the organization as a whole.

Planning for Resilience

You can’t predict the future. But you can at least plan for it. These strategies will help you and your governing board remain proactive in the face of current and future uncertainties, making your organization stronger and more resilient as a result.

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