Diligent & Fortune Director Roundtable Series: Navigating the Geopolitical Landscape
Recent years have brought geopolitical risk into the spotlight, the wars in Ukraine and the Middle East, an upcoming election cycle in the U.S., China’s continued economic rise, to name a few. While these risks may dominate the news cycle, they might not have infiltrated the board room – yet. Fortune gathered an intimate group of board directors for a conversation about how to better manage geopolitical risk in the board room. The conversation was moderated by Peter Vanham, Executive Director, Fortune, who was joined by subject matter expert Tina Fordham, Founder, Fordham Global Foresight, and Dottie Schindlinger, Executive Director, Diligent Institute. While the conversation between directors was under Chatham House Rule, the opening conversation between Vanham, Fordham, and Schindlinger was on the record.
“What we’ve been hearing from directors is that geopolitical risk, particularly the impact on business operations and supply chains, is becoming an increasing part of the risk profile they’re dealing with,” said Schindlinger. According to research from Diligent Institute and Corporate Board Member earlier this year, only 7% of board directors listed geopolitics as a top risk for 2024. Now, she revealed, that number has almost doubled, rising to 13% in this year’s survey of U.S public company board members. At the same time, she told us that directors might not be prepared for rising geopolitical risk. “We also know from our research that directors aren’t quite sure what to do about [these risks],” she said. Scenario planning is one way that board members have identified to plan for potential geopolitical changes, she continued, but that does not cover events that companies don’t foresee happening.
To this point, Fordham noted that there are very few “black swan” events that truly surprise experts, so planning for geopolitical risks can often be fruitful. For example, she described attending Davos the year before the COVID-19 pandemic. She said that epidemiologists there were warning of the risks of a pandemic, but it was generally perceived as boring. This is why, throughout this conversation, Fordham emphasized the need for a mindset shift among board members and corporate leaders. She argued that we have become accustomed to a time of relative peace, but this is not necessarily the status quo. “The period between the fall of the Berlin Wall and the fall of Lehman Brothers in 2007 [was] the most peaceful and prosperous period in all of human history,” she stated, noting that this anomaly is crucial for business leaders to understand. Moving forward, she said, we may be in a “geopolitical super cycle.”
To understand the shift in mindset that Fordham advocated, we must first understand what geopolitics really is. “Geopolitics is what states do, what
countries do, to project power beyond their borders,” Fordham explained. Their actions may take the form of cyber warfare, espionage, war, tariffs, embargos, and more, and they impact every business, she affirmed. In geopolitics, power comes first and money comes second, she continued. However, most business leaders think of money first and power second, and incorrectly assume that geopolitics works this way as well, according to Fordham. Take, for example, the conflict in Russia. Fordham said that corporate leaders she spoke with assumed Putin would not invade the Ukraine, as such an action didn’t make economic sense. We now know that something else— Fordham would argue power—was driving Putin’s actions, as he invaded Ukraine despite economic consequences.
In addition to viewing and understanding geopolitics as motivated by power, Fordham encourages leaders to think of geopolitics as crucial to growth. She described hearing from many corporate leaders that they are uninterested in risk and would prefer to focus on growth. She argues that being prepared for geopolitical disruption is necessary to securing growth. To illustrate this point, she gave us a saying: fortune favors the brave, but chance favors the prepared mind. “Having our minds prepared means raising these points [in board meetings],” she said. This preparedness goes for geopolitical risks abroad, as well as those at home. She reminded us not to forget about the potential impacts of the upcoming election in the U.S. Mass deportations, for instance, could affect the labor market and drive up food prices, affecting many companies.
Many leaders on the call asked about concrete ways they can prepare for geopolitical risk. Fordham offered a few options. A good place to start, she said, is to map out supply chains to understand exposure to different risks. Inviting an expert advisor to board meetings is another option. Fordham and Diligent have also partnered to provide Diligent clients with a monthly, five-minute talk with Fordham herself to keep board members up-to-date on geopolitics.
At the same time, she made clear that there is no one-size-fits-all approach. “You’re not alone,” she assured the attendees. “No one knows what to do right now.” For those looking to mitigate their geopolitical risk, Fordham advised that events like these group discussions are important. “I think these conversations are the first step to say, ‘have we really thought about this?’ Maybe the best takeaway is that if we’re going to have growth, we need to incorporate these [geopolitical] considerations,” she concluded.
