The Tribune

Managing political risk was the subject of a column I wrote more than a year ago. Since then, COVID-19 has transitioned from a disruptor to a consistent and daily reality for the world. The political risk landscape has changed, as have all other risk categories, and businesses face a fragmented and different geopolitical environment. Forecasts and models may have been useful in the past, but recent events make their limitations abundantly clear. Locally, pre-emptive management of political risk is also critical as The Bahamas enters a general election scheduled for September 16, 2021.

The EY Geostrategy in Practice 2021 survey found that more than 90 per cent of executives reported their companies were impacted by unexpected political risks in the recent past, due to policy changes and new regulations because of the COVID-19 health crisis. Additionally, Jones & McCaffrey (2021) argue that political risk must be identified, assessed and managed on a proactive basis by leaders.

As a result, I urge all the candidates for public office, as well as boards of directors, top management executives and my regulatory and risk management colleagues, to play their part in managing risks responsibly. In this, the first of a two-part series, three key recommendations will be discussed in brief from a corporate aspect.

Strategically plan for political risks

It should not be business as usual. Political risk should be integrated into the ERM (enterprise risk management) process so that companies have a full understanding of macroeconomic risk. Integration such as this can be especially helpful if it leverages quantitative evaluations of political risk, and concrete estimations of its effect. Additionally, qualitative reviews can be accomplished by executives, boards of directors and senior management asking themselves difficult questions. Some questions may include:

1. Is there any impact on geopolitical agreements, or economic and fiscal policy, from the change of political leadership?

2. Will there be new policies that are likely to drive investments and spending by the government?

3. To identify potential disruptors and signals, what mechanism should be deployed?

Build Resilience

There must be a careful balance between being aware of political risks and being engrossed. Board members and executives should be trained on political risk regularly, and consult with outside experts. Then, to demonstrate a shared commitment from the top, they should be actively involved in the assessment of political risk as part of strategic decisions. Moreover, top management must challenge any biases you already have (and those of your team) that might prevent your company from spotting surprises or tie them to traditional approaches. True resiliency, and the ability to respond rapidly and confidently to potential disruption, can be achieved by a willingness to question what is most likely to happen.

Respond

In May 2018, Amy Zegart and Condoleezza Rice, in a Harvard Business Review article, wrote: “Good crisis management can be distilled into five steps: Assess the situation, activate a response team, lead with values, tell your story (and be honest), and do not fan the flames.” A company’s response should not be haphazard and rushed, but instead well thought-out and strategically positioned. This can only be achieved if the steps above are followed and infused into your company’s culture.

Conclusion

In short, as a country, companies and people become more agile, political risks can present opportunities. In the second and final article, political risk will be discussed from the perspective of government and anti-corruption.

NB: Derek Smith Jr has been a governance, risk and compliance professional for more than 20 years with a record of leadership, innovation and mentorship. He has held positions at a TerraLex member law firm, a Wolfsburg Group member bank, and a ‘big four’ accounting firm. Mr Smith is a certified anti-money laundering specialists (CAMS), and the compliance officer and money laundering reporting officer for CG Atlantic’s family of companies (member of Coralisle Group Ltd) for The Bahamas and Turks & Caicos Islands.