Companies Need Robust Legal Strategy to Manage Geopolitical Risk

Over the past few years, the geopolitical environment has become increasingly volatile, nuanced, and fluid, requiring businesses to prepare and respond quickly to protect their global interests and customers.

These issues are incredibly complex, and each action—or inaction—can create risk or unintended consequences. The legal function should intimately understand geopolitical issues and their ripple effects and be prepared to advise the organization and guide necessary responses.

But managing geopolitical risk goes beyond lawyers’ traditional scope and legal training. Additional steps will help ensure your legal function—and your business—are set up for success.

Embed Legal

To effectively plan for and manage geopolitical risks, the legal function needs to be part of the dialogue to shape overall business strategy and transformation plans and have an ongoing seat at the table. General counsel should know what’s fueling growth (now and in the future), how it may intersect with the geopolitical landscape, and how that could impact the overall business strategy.

As businesses operate in an ever-changing economic and political landscape, transformation is key. Large-scale transformations should engage different parts of the business to work collaboratively and implement business transformations effectively.

The legal function plays a key role paving the way and achieving desired outcomes, even against the backdrop of geopolitical uncertainty. This allows businesses to respond with agility to address issues in their supply chain, consumer sales, workforce, overall business continuity, and path to growth.

Crisis Response

In recent years, we’ve seen several examples of significant geopolitical events around the world—wars, the pandemic, inflation pressures—that forced businesses to make dramatic changes in their locations, operating structures, supply chain, workforce, and more. And more of these types of events are likely to happen in the future.

Many organizations enhanced their crisis response procedures in response to the Covid-19 pandemic, as well as with eruption of wars and growing sanctions. But many didn’t enhance processes with the expectation of addressing broader and similar geopolitical risks on a more regular basis.

Businesses should advance their crisis response to prepare for and respond to complex events and trends that could arise anywhere in the world, simultaneously, with multidimensional corporate threats.

How does this look? Companies need a broad crisis framework that considers integrated risk vectors—data and intellectual property, supply chain and trade, workforce implications, more robust third-party diligence, and stakeholder communications—while noting who is involved and informed, how decisions are made, and the specific risks being considered. This should be done while mapping stakeholders’ interests in the company and thoughtfully considering the trade-offs that may need to happen.

Enhance Dialogue

General counsel should already be communicating regularly with their board of directors on major risks that go beyond significant litigation and regulatory matters. These discussions should also focus and educate on forward-looking geopolitical risks, including scenario planning, and better communicate the nature of risks, and the governance and path to developing strategic response.

Proactive and consistent conversations help educate the board and focus their governance lens on the company’s preparation, plans, and procedures. That way, they will be prepared when an issue arises and an urgent response is required, rather than try to get up to speed in real time while managing a geopolitical crisis.

Committees may be the best fit to lead deeper-dive scenario planning, or it could be discussed during a board retreat. It’s another sign of why many corporate directors note that boards have increasingly more meetings than ever before, and board composition of skill sets continue to be a regular dialogue.

Engage Government Affairs

Significant geopolitical events bring a new level of complexity to the government affairs team’s roles and responsibilities. The board, C-suite, general counsel, and government affairs teams must be aligned.

Even if the team is primarily focused on a domestic agenda, geopolitical issues can easily trickle in unexpectedly and impact the firm’s goals, how they approach certain issues, and how they impact and are perceived by various stakeholders. It’s important to review the government affairs team’s mandate, goals, and capabilities to make sure they are purposeful.

Do they have the talent and skills needed to identify and manage certain situations, especially when a course of action may be a choice between less-than-ideal options or seemingly no-win scenarios? Are there additional training or experiences that would enhance the team’s capabilities? This can play a significant role in how companies manage their market position amid geopolitical uncertainty and avoid missteps.

Regulatory Response

The regulatory environment has grown exponentially complex across industries, especially for multinational companies as they navigate different regulatory bodies in jurisdictions around the world.

Regulators at the local, state, federal, and international levels are conversing and sharing more information with each other as they pursue inquiries and actions. In extreme cases (but likely to become more common), certain government entities are driving an agenda by leveraging regulatory bodies to force specific actions from companies.

As businesses manage inquiries from regulators, they must provide consistent and congruent information on similar topics that may arise in different jurisdictions and regulatory domains. Inconsistencies can open and create additional risks or regulatory scrutiny. But the volume of inquiries and short time frames often required for responses create increasingly untenable processes for tactical response. Traditional ad hoc teams to support are no longer sufficient and a defined and intention program is often now a necessity.

A response program should include these abilities:

• To quickly understand if the same or similar question has already been posed in any territory, and the legal strategy that informed the response
• To see trends on the volume and types of questions being asked, in addition to resulting actions by regulators
• To quickly mobilize and have the right subject matter experts and leadership approvals
• To scale up or down based on real-time volume and urgency

To gain these insights, companies across industries should consolidate their own regulatory response data management while strengthening core teams and technology workflows.

A robust legal function and capabilities should build in transparency and better visibility into requests from various regulators in different parts of the world. Enhanced program, workflows, and the underlying database puts businesses in a stronger position to best respond to regulatory inquiries, regardless of territory, and reduce risk and time inefficiencies.

The uncertain and volatile geopolitical environment is unlikely to let up soon. Businesses that think proactively and strategically are better positioned to handle these issues quickly and correctly.

This approach creates opportunities to supercharge growth or generate a competitive advantage. Companies that don’t adjust will open themselves up to increased layers of risk, capacity constraints, and hurdles to growth.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jane Allen is a PwC US consulting principal and legal business solutions practice leader, with focus on technology, utilities, and banking, and is a member of PwC’s Global Board.

Write for Us: Author Guidelines