Political Risk – Condoleeza Rice & Amy B. Zegart

4-6-18

Dear Partners in thought,

I wanted to tell you about political risk, an old interest of mine, and what is probably one of the most key issues in business today. Political risk is no longer just about managing the risk of the old coup or sudden nationalisation of your assets in some far out land. It can be something that was unplanned and dealing with a market or actor once deemed secure and reliable. Ask Daimler Benz, VW Group or Peugeot in relation to a key U.S. market for them following the tariffs considered by the Trump Administration. With this in mind, I would recommend “Political Risk – How businesses and organisations can anticipate global insecurity” from Stanford’s Condoleezza Rice and Amy B. Zegart. Condie is now the Denning Professor of Global Business and the Economy at Stanford Business School, professor of political sciences and a Senior Fellow at the Hoover Institution, having served as National Security Adviser from 2001 to 2005 and being the 69th U.S. Secretary of State from 2005 to 2009. Amy, a McKinsey strategy consultant alumnus (always a good thing) is co-director of the Center for International Security and Cooperation and a Senior Fellow at both the Hoover Institution and the Freeman Spogli Institute for International Relations at Stanford. Clearly a very impressive team where joint business and world affairs acumen is strongly on display.

Condie and Amy (C&A*) cover a risk that is changing fast and is as always about the probability that a political risk could significantly affect a company’s business. In doing so they cover the evolution of the risk, going from a generation ago and the traditional threats posed to specific industries by acts of governments where they operated (think oil). Today political risk also involves non-state actors and new means including Facebook or Twitter users (beyond “him”), local officials, activists, terrorists and hackers while institutions and laws are often not equipped to deal with them given the fast pace of evolution. “Political Risk” is a description of what the new landscape for that specific risk looks like in 2018 and offers a framework for dealing with new threats. The book is peppered with recent examples of new political risk type of threats and ways they were managed, well or not. It also offers preemptive responses ensuring higher readiness.

C&A describe ten types of PR today: geopolitics, internal conflict, policy change, breaches of contract, corruption, extraterritorial reach, natural resources manipulation, social activism, terrorism and cyberthreats. Risk generators operate at five intersecting levels of action: individuals, local organisations and governments, national governments, transnational organisations and supranational and International institutions. Businesses face in a Tale of Two Cities kind of way, the best and the worst of times (Aesop, here we come again) with more global opportunities and indeed far more political risks. Supply chains are longer and leaner with margin-driven production sites set up in higher risk locations. The spread of technology via internet and mainly cell phones and social media empowers small groups with asymmetrical impact, lowering the cost of collective action and an ever expanding activist potentiality. C&A explain why PR is understood as essential by executives but also felt elusive due to the Five Hards: Hard to reward, understand, measure, update and communicate while nobody gets credit for fixing problems laying in the future. They stress the need for corporate leaderships to understand and know their risk appetite and for it to be shared with the corporate structure, reducing blind spots through creativity, understanding stakeholders perspectives and truth telling.

C&A offer a valuable framework that is a simple structure to deal with PR around key items like Understand, Analyse, Mitigate and Respond. They focus on PR management as being a job akin to that of a physicist: collect information from all stakeholders and answer the right questions; develop scenario-planning to combat mental mindsets and beat groupthink and integrate PR into business decisions. Prepare for the unexpected. Assess what is valuable and vulnerable. Reduce exposure by diversification. Develop tripwires ad protocols. Build teams that withstand damages. Develop contingency planning.

Examples provided include SeaWorld Entertainment and their stock market plunge following a low-cost documentary on the treatment of orcas that was relayed through social media via some celebrities and animal activists and causing many corporate sponsorship cancellations in spite of very old ties. Whatever the grounds for activist expression, “connectivity” and the spread of news, in this case bad for a company, exacerbated the harmful impact to its share price and corporate viability. Other examples include General Electric and their dealings with the EU or the lack of understanding early on of the great pitfalls that Brexit was bringing to the UK corporate world, and thus Britain itself, something that two years later became more vivid. C&A go through how Royal Caribbean dealt with PR in a far more effective way than SeaWorld did by moving beyond intuition and thus recovering far more quickly. There are many, many other examples all covering very relevant cases of PR and its ten new expressions – I will give you the pleasure of reading them afresh without my spoiling anything in the least (it does read like a novel at times) and ensuring writing efficiency.

Le mot de la fin for C&A in dealing with crises is not to have them (very business school speak), urging companies to capitalise on near misses by planning again for failure, looking for weak signals and rewarding courage within organisations. Their five golden rules being: 1) Assess the situation; 2) Activate the team; 3) Lead with values (don’t we like that?!); Tell your story and 5) Don’t fan the flames.

This book is great as it is a refresher of what PR always was (when at Thunderbird for my MBA, I was also teaching assistant in risk management and seeing their account of PR via Hugo Chavez brought “fond” memories) but also – and mainly – brings us very valuable insights into new threats and actors. It is a must read for those running businesses with a global reach and footprint. It is also a pleasure to read as it is told by authors who teach and want you to get the message in a practical and simple manner, with solutions, as leading American business schools, often easily decried today, have always been very good for.

On a related matter, I am thinking of setting up a blog, to be aptly named thanks to a great Prague man of superior wits: “Desperate Measures” (at SG Warburg, I was to some great colleagues “Desperate Serge” for reasons you will easily guess, showing yet again that inner British sense of humour – except for Brexit of course (with a wink to old friends who know who they are) – and this OxBridge je ne sais quoi which is so pleasant).

I wish you all a great weekend.

Warmest regards,

Serge

(*) Please forgive the pun, even if the Dutch retailer doubtless takes political risk very seriously.


Serge Desprat, June 2018 (Prague)


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