Navigating a Shifting World: Geopolitical Risks and Your Board's Role

The global landscape is changing. Gone are the days of unfettered trade and a unified international order. A recent dinner hosted by NACD’s Northern California Chapter and Foley & Lardner LLP brought together board directors to discuss these critical shifts and their impact on businesses. Foley business law partners Louis Lehot and Brian Wheeler (based in northern California) brought special guest Dr. Christopher Swift from Foley’s Government Enforcement Defense & Investigations Practice (based in Washington, D.C.) to give a a briefing and lead a discussion on the state of international trade and the impacts for board members.

The Paradigm Shift:

Dr. Swift kicked off the discussion by outlining three paradigm shifts that are reshaping the order of business:

• Economic: A move from globalization to regionalization, with countries focusing on trade within their own spheres of influence.
• Political: A shift from integration to fragmentation, with a rise in nationalism and competition between major powers.
• Sociological: A decline in fact-based decision-making and a rise in emotional responses driven by fear and apprehension.

The Consequences for Business:

The lenses through which the world is viewed, and specifically these paradigm shifts, translate into real-world implications for companies:

• Increased restrictions: Trade and investment are facing growing hurdles as countries prioritize what is perceived to be in the “national interest” or a matter of “national security” over the economies of scale that are gained from free market access.
• Subjectivity over Objectivity: Decisions are increasingly based on perceptions and political posturing rather than facts, making business planning more challenging.
• Securitization: Ordinary commercial issues are being framed as national security threats, further complicating international trade.

The Board’s Responsibility:

In this volatile environment, boards have a critical role to play:

• Prompting Risk Assessment: Boards need to push management to actively identify and assess potential risks arising from geopolitical threats and regulatory changes. This includes evaluating vulnerabilities, considering different scenarios, and developing mitigation strategies.
• Asking the Right Questions: Here are some key questions boards should be asking management:
  • How do we gather and analyze intelligence on geopolitical developments?
  • What crisis plans are in place for different scenarios? How often are they reviewed?
  • How is management staying informed about regulatory changes and compliance requirements related to geopolitical risks?
  • How are we ensuring compliance in volatile markets?
  • Is our supply chain resilient to geopolitical disruptions? Do we have back-up plans?
  • How can the board support management in addressing these challenges?
  • How might geopolitical issues impact our company culture and employees worldwide?
  • Has management done a tabletop exercise to strategize on the impact of potential geopolitical developments?
  • Can the board do a tabletop exercise to practice its own role?
  • Is there a plan or playbook ready to respond to such a crisis?

Conclusion:

By actively engaging with these questions, boards can help their companies navigate the complexities of a shifting geopolitical landscape. Building resilience and adapting to new realities will be crucial for success in the years ahead.