In a complex world, CEOs must tap geopolitical expertise

Hind­sight is a won­der­ful thing, but if com­pa­nies could have fore­seen the UK’s exit from the EU before the ref­er­en­dum in June 2016, things might look very dif­fer­ent for British busi­ness­es. As it stands, the extra bureau­cra­cy involved in trad­ing with Europe has upend­ed many SMEs’ busi­ness mod­els. 

If only there had been a glob­al geopo­lit­i­cal expert on hand to warn of Brexit’s impli­ca­tions and to counter the mar­ket view that it wouldn’t hap­pen. Such exper­tise might have helped com­pa­nies get ahead of the issues, says Mark Free­bairn, part­ner and head of the board prac­tice at glob­al head­hunter Odgers Berndt­son. 

Unfor­tu­nate­ly, that lack of fore­sight has had a resound­ing impact on eco­nom­ic con­fi­dence, even in the seem­ing­ly placid world of recruit­ment. “Eco­nom­ic con­fi­dence defines whether or not you’re pre­pared to pay our fees when it comes to hir­ing some­one,” says Free­bairn.

And it’s not just Brex­it. The impact of geopol­i­tics on glob­al com­pa­nies has increas­ing­ly made the head­lines in recent years. For exam­ple, Covid-19 affect­ed 16% of UK busi­ness­es’ sup­ply chains, while sig­nif­i­cant dis­rup­tion hit as many as 30% of firms in man­u­fac­tur­ing, whole­sale and retail. Mean­while, the war in Ukraine and its impact on ener­gy bills in Europe mean that many small busi­ness own­ers will strug­gle to keep the lights on in the months to come.

“The reper­cus­sions of con­flict and infla­tion are peo­ple tight­en­ing their belts, which is ulti­mate­ly going to reduce the demand for ser­vices,” says Jeff Mag­gion­cal­da, CEO of online train­ing provider Cours­era. 

Oth­er issues, such as the trade ten­sions between Chi­na and the US, are also of major con­cern. The two nations account for 76 of the world’s 100 most valu­able com­pa­nies, and tech­nol­o­gy has become a geopo­lit­i­cal bat­tle­ground, par­tic­u­lar­ly when it comes to reg­u­lat­ing 5G and arti­fi­cial intel­li­gence.

Global impact

Of course, the extent to which busi­ness­es are impact­ed by con­flict, bilat­er­al ten­sions, ter­ror­ist attacks, trade wars, tar­iffs, sanc­tions and the rest depends on the exact nature of the com­pa­ny and where it oper­ates. But as the econ­o­my has become more glob­al and inter­con­nect­ed, geopol­i­tics is undoubt­ed­ly hav­ing a greater impact on small, medi­um and large com­pa­nies across the board. 

It’s more impor­tant than ever for com­pa­nies and their CEOs to be able to tap into gen­uine geopo­lit­i­cal exper­tise. But where can they get this, and how should it feed into their work? 

Chon Tang is found­ing part­ner of Berke­ley Sky­Deck Fund, a high-tech entre­pre­neur­ship start­up accel­er­a­tor based in Sil­i­con Val­ley. He says com­pa­nies in the space rely on word of mouth to nav­i­gate new geopo­lit­i­cal chal­lenges. “We’re all just in the ear­ly stages of under­stand­ing how gov­ern­ment inter­ac­tion is affect­ing sup­ply chains, investors and future M&A deals. A lot of CEOs are con­cerned, but very few have sol­id answers.”

For Iain Pickard, COO of risk ser­vices firm Sigma7, it’s worth tak­ing seri­ous­ly. “The days when geopo­lit­i­cal risk was not some­thing most com­pa­nies need­ed to wor­ry a lot about are long gone; it’s now a board-lev­el issue.” He advis­es CEOs to “look at your glob­al oper­a­tions to fig­ure out where you’re exposed and then seek help from the experts”.

Beyond what CEOs are shar­ing by word of mouth, such exper­tise isn’t read­i­ly avail­able among ordi­nary top-tier man­age­ment struc­tures. Free­bairn says those with the rel­e­vant knowl­edge – typ­i­cal­ly at a gov­ern­men­tal lev­el – aren’t nec­es­sar­i­ly moti­vat­ed to use it to enhance com­pa­nies’ com­pet­i­tive advan­tage. As a result, it’s often brought in tem­porar­i­ly at an exec­u­tive lev­el, through a non-exec on the board or via con­sul­tan­cies. 

Looking within

The need for geopo­lit­i­cal knowl­edge varies accord­ing to the busi­ness. Of course, there’s a vast dif­fer­ence between the needs of a defence com­pa­ny and a super­mar­ket. Geopo­lit­i­cal exper­tise is fun­da­men­tal to oper­a­tions at Sigma7, so it makes sense that its exec­u­tive deputy chair­man is a for­mer deputy com­man­der of NATO and can access net­works that pro­vide deep insights on a coun­try-by-coun­try basis. For exam­ple, some­one in Peru, where a Marx­ist gov­ern­ment has recent­ly been elect­ed, can trans­late what that means for the min­ing indus­try. Some­one con­ver­sant on Egypt knows that the price of bread is a sig­nif­i­cant polit­i­cal issue and that ris­ing grain prices may cause social unrest. 

But the answer to the prob­lem of sourc­ing geopo­lit­i­cal exper­tise may already be with­in reach. Even if there’s a dis­tinct lack of exper­tise in the upper ech­e­lons, many com­pa­nies are actu­al­ly miss­ing out on pre-exist­ing insights among their employ­ee base. “We don’t seek out geopo­lit­i­cal experts,” says Mag­gion­cal­da. Instead, Cours­era has coun­try spe­cial­ists who under­stand con­sumer and busi­ness trends and what’s hap­pen­ing with indi­vid­ual gov­ern­ments. “Our geopo­lit­i­cal insights come from the busi­ness mod­el.”

Pro­fes­sors Andrew and Nada Kak­abadse from the Uni­ver­si­ty of Reading’s Hen­ley Busi­ness School have not­ed that many senior man­agers already under­stand the impact of local pol­i­tics and geopol­i­tics on their glob­al com­pa­ny. These coun­try heads, divi­sion­al heads or sub­sidiary man­ag­ing direc­tors face the mar­ket and com­mu­ni­ties and are held account­able for sales and local per­for­mance. How­ev­er, these gen­er­al man­agers are con­tin­u­al­ly ignored by top-lev­el man­age­ment, accord­ing to the pro­fes­sors, and exclud­ed from ini­tial dis­cus­sions on strat­e­gy cre­ation where geopo­lit­i­cal risks may be picked up.

Buy­ing in exper­tise via non-exec­u­tive direc­tors or con­sul­tan­cies can only get you so far. Com­pa­nies may be bet­ter served in the long term by build­ing a broad­er knowl­edge base through the diver­si­fi­ca­tion of their work­force and dig­i­tal trans­for­ma­tion. 

The solu­tion, then, might be to con­sol­i­date the geopo­lit­i­cal knowl­edge that’s already avail­able to a company’s deci­sion-mak­ers, expand that pool, and sup­port it with exter­nal exper­tise where nec­es­sary. Then it’s just the small mat­ter of learn­ing from that insight and pre­empt­ing the unknown.