Businesses around the world are taking steps to boost their geopolitical expertise to help with increasingly delicate judgments about target markets and supply chains.
While some are using specialist consultancies, others such as Hitachi and Lazard have been hiring former diplomats, senior civil servants and politicians to give advice directly to executives.
Lord Malloch-Brown, a former diplomat and president of the Open Society Foundations, said that in the past “there was always some retired diplomat in the corner office of a multinational company ready to advise the chief executive on some local political difficulty”.
“What’s happened more recently is that we’ve moved from peak globalisation, where markets determine the location of manufacturing and selling, to the era of a much more politicised global marketplace.”
Russia’s invasion of Ukraine last year caught a number of businesses unprepared for the fallout. Now they are looking much more closely at political flashpoints such as China’s relations with Taiwan, the fallout in the Middle East from the deadly Hamas attack on Israel, and a possible second presidential term for Donald Trump.
In Japan, which has strained relationships with neighbours including China and Russia, multinational companies such as Hitachi, Suntory and the country’s biggest banks have in the past three years hired former diplomats, international relations experts and foreign correspondents in a bid to expand their expertise in assessing geopolitical risks.
Four people with direct knowledge of the situation said that in the most recent rounds of hiring, diplomats and other experts had been poached by two of Japan’s largest insurance companies and three of its biggest trading houses, Mitsubishi, Mitsui and Itochu.
Elsewhere in corporate Japan, the role of “chief geopolitical risk officer” has been specially created in a sign of how seriously the subject is now taken.
“Two of my colleagues have recently gone to work at trading houses, and one went to an energy company,” said one Japanese diplomat currently based outside Japan, who added he has also had at least one offer.
“[Companies] are desperate for a more granular understanding of risk and basically using the foreign ministry as a source of expertise, and they figure they can give themselves what they don’t have by offering [diplomats they are trying to hire] money. Unfortunately it seems to be working.”
Mitsubishi told that Financial Times it had established a global intelligence committee headed by the president last year and had a system to feed back information on “geopolitical risks, economic conditions, new technologies, policy trends” to management. “We are proceeding with these initiatives based on the increasing importance of this.”
Meanwhile smaller Japanese companies are hiring outside consultants at what advisers say is an unprecedented rate.
The invasion of Ukraine, said one consultant providing advice to multiple Japanese companies, solidified the idea that risks were becoming less predictable and that some of those that were closer to home — including military action by China and tougher US sanctions — had reached a point where companies needed outside help.
“They don’t just want us to tell them about one or two situations. They are asking us to rank all the risks they could be exposed to around the world,” said the adviser.
Industries such as oil and gas, with significant operations in volatile parts of the world, have traditionally been the main clients of geopolitical advisers.
But as companies in other sectors have expanded their markets and supply chains, they have also found themselves in need of expertise.
Amy Lashinsky, chief executive of risk management firm Alaco and board member of FTSE-listed oil and gas company Energean, said: “The general shareholding public has become more aware that these issues are not reputational risks; they are inherent off-balance sheet factors affecting the balance sheet.”
One industry that has built significant in-house geopolitical expertise is the US tech sector, which must navigate a combination of reliance on specialist chips made in Taiwan and its presence in the Chinese market.
Some analysts say the big tech businesses have amassed major political heft by turning top executives into ambassadors for the industry. In Microsoft’s case, it is one of the only companies that has a UN affairs office in New York.
“The tech industry is furthest ahead apart from oil and gas in managing geopolitical risk, because of how consumer-facing they are”, said Manas Chawla, an academic and founder of consultancy London Politica.
“Microsoft is best in class at building up its internal geopolitical team, including an executive in charge of relations with the UN.”
As companies look for more guidance, a number of former intelligence officials and diplomats have recently moved into the private sector.
Former UK National Security Adviser Sir Stephen Lovegrove became a senior adviser at investment bank Lazard this year, while the former head of MI6 Sir Alex Younger joined Goldman Sachs as an adviser in 2021.
They add to a long list of high-ranking civil servants and diplomats now advising companies, including former World Bank president Bob Zoellick and Pascal Lamy former EU trade commissioner and director-general of the WTO, who both work for the public relations firm Brunswick.
Mark Freebairn, a partner at headhunter Odgers Berndtson, said companies hiring former ambassadors, military and intelligence officials for consultancy work could pay fees as high as £2,000 to £5,000 an hour.
As well as providing analysis and advice, consultants can help open doors for companies seeking to build relations with foreign governments. Dana White, head of global strategic advisory at Ankura, a US-based consultancy, said her firm had bought a US-China advisory business that helped set up “high-level engagements” between executives and Chinese officials.
Consulting groups confirm the surge in demand for political advice from companies. A Financial Times analysis of US and global corporate filings on data platform AlphaSense found that “geopolitics” was increasingly mentioned from 2017, and that the use of the word shot up after Russia invaded Ukraine last year.
Analytics firm JH Whitney Data Services told the FT that after the Ukraine invasion, US clients began to ask for advice on their supply chains and exposure to countries in Asia, in case of conflict in the Pacific.
“Many companies in the US, particularly web retailers and financial services companies, have very significant call centre operations in the Philippines,” said JH Whitney’s chair John O’Connor.
Barton Malow, a US construction company with 3,000 employees headquartered in Michigan, is one business that is taking geopolitics more seriously in its planning.
“It’s fair to say the state of the world went from relative stability and order to far less stable; this disruption to globalisation of course has implications for business,” said chief executive Ryan Maibach.
The company engaged political risk consultancy Prism, which has also advised UK Telecoms group BT, to help it evaluate the impact of potential threats, including conflict between China and Taiwan and climate change, on its business and clients.
“Geopolitical events are now [affecting] also companies that in the past felt that kind of exposure was remote,” said Prism’s co-founder Johan Gott. “Even companies with largely domestic footprints could face existential risk through supply chain disruption and economic shocks”.
Maziar Minovi, the chief executive of geopolitical consultancy Eurasia Group, said that multinational companies have begun to plan for geopolitical crises in the same way they make contingencies for natural disasters.
“We are seeing meaningfully more requests to speak to the management and board of multinationals,” he said. “The direction of travel is one where this becomes a routine part of long-term strategic planning.”
Additional reporting by Andrew Edgecliffe-Johnson in New York and Oliver Telling in London
Source: Economy - ft.com
