Political risk is changing. It is becoming more immediate, more pronounced, more fluid and more decentralized. These changes are in various ways changing the nature of global business. For one, not that long ago the primary concern with political risk was mitigating it. Corporations were instructed to stay out of politics, and sophisticated strategies were developed to help them do so. Now, businesses are increasingly expected to assume positions on the affairs of the day. Past notions of business in society are being upended as a new playbook is introduced.
Putting politics back in
President Trump’s recent executive order on immigration—and the reaction of many American corporates and consumers to it—has brought this trend to light. As the ride-sharing app, Uber, found itself embroiled in a consumer boycott for sending drivers to New York’s John F. Kennedy Airport during a taxi-driver strike against the order, its main competitor, Lyft, surged on its announcement of $1 million in donations to the American Civil Liberties Union. Starbucks’ plans to hire 10,000 refugee workers was met with the #BoycottStarbucks campaign. CEOs from Silicon Valley, Ford, Coca-Cola and even Goldman Sachs have also weighed in.
More and more, consumers want businesses to engage in political speech (indeed, to endorse their viewpoint), and have little problem punishing them when they don’t — or don’t do so to their liking. More and more, too, CEOs are scrutinized for their decisions to engage with or criticize the government. And the bigger the brand, the greater the expectation to take sides.
This growing tendency to view corporations as de facto political actors extends beyond corporate social responsibility (though is not entirely divorced from it). It also extends beyond notions of ‘doing well by doing good’ and social enterprise. Neither philosophies fully capture the way in which politics now disrupts everything. Neither, too, equips companies to capture opportunities or protect operations in the face of government actions or radical shifts in consumer sentiment.
Your company needs a domestic and foreign policy
Corporate approaches to political risk generally involve short-term regulatory, legal, operational and financial analyses, with often cursory glances at national or regional risk reports. Responses to Trump’s executive order show that such strategies no longer suffice in an environment that is complex, splintered and unpredictable—outside the U.S. as much as in.
Political risk strategies have to evolve to keep pace. Critically, companies must learn how to not only sidestep politics, but how to effectively engage with it: to in a way be political.
At minimum, four elements underpin a meaningful political risk strategy:
The best offense
Before, the best political risk offense was a good defense. Today, the best offense is the best offense. Political risk is not new, but it’s now more messy, faster and more intrinsic to business operations than ever before. Consumers today additionally expect companies to generate positive social and political returns (however defined), breaking with traditionally held notions of firms as purely profit-maximizing entities.
Success in this changing environment requires holistic, integrated and pre-emptive strategies. It requires companies to endogenize politics rather than treating it as external. Former Chicago Bears coach Mike Ditka is famed for saying, “If you’re not in the parade, you watch the parade.” If companies are not smartly playing politics, politics will play them.
Aleksandra works at the intersection of geopolitics, global business, and international affairs. She is Author of ‘Africa and China: How Africans and Their Governments are Shaping Relations with China,’ External Advisor to Oxford Analytica, and is soon launching a boutique consultancy offering high-level advisory and digital solutions to help organizations take advantage of change. She has worked with over twenty countries managing over $1 billion in assets. Aleksandra’s work has appeared in The National Interest, various academic journals, and has been cited in congressional testimony. She holds a PhD in Politics from the University of Oxford.