Lhe vocation of leaders is to make decisions in the service of a vision of the company as a community of people as well as to anticipate the challenges and opportunities offered by the business world. In a troubled or volatile environment such as the one in which we live internationally, each decision also entails political risk-taking. However, managers tend to ignore it and most of them do not integrate any meticulous political analysis into the management of the risks linked to the international development of their company.
Yet the ability to identify, assess and respond to risk is now essential to organizational adaptation and resilience in the face of uncertainty and crisis. In a recent study, the firm McKinsey highlighted the fact that geopolitical instability represented one of the main threats to global economic growth.
Along the same lines, the experts and managers interviewed during the World Economic Forum Davos (May 22-26) placed geopolitical risks and the impact of global warming on the energy sector (up to 8.5 million jobs lost in fossil and nuclear fuels by 2050) as two of the main factors of global imbalance.
These few elements show that the appreciation and understanding of political risk become one of the main keys to any successful initiative in business life.
Despite their importance, it is clear that companies devote much more time and resources to the management of financial, operational or logistical risks than to the identification, assessment and forecasting of political risks – including in unstable, corrupt and even criminogenic environments.
Procrastination, denial and prejudice
The news is there to show us that decision-makers tend to ignore political risk until it occurs acutely and irreversibly (see the recent departures from Renault or McDonald’s in Russia, for example). This systematic underestimation of political risk is explained by its complex, multifactorial, evolving nature, which calls into question previous decisions in the light of a new context and new rules of the game.
Two major reasons explain the leaders’ lack of anticipation on the (geo)political level.
The first is emotional and feeds on bounded rationality and cognitive biases highlighted by many “behaviorist” economists for which deviations in judgment and decision are more the rule than the exception. Procrastination, denial and bias are often more necessary than rational, grounded, evidence-based judgment when recognizing and managing geopolitical risks.
You have 55.14% of this article left to read. The following is for subscribers only.