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New Corporate Risk: The Four Corners of Geopolitics

New Corporate Risk: The Four Corners of Geopolitics

A man watches a television screen reporting news of North Korea's latest submarine-launched ballistic missile test at a railway station in Seoul on August 25, 2016. (Jung Yeon-Je/AFP/Getty Images)

By and
Monday, 19 September 2016 09:58 AM Current | Bio | Archive

The four corners of today’s geopolitical earth are blazing wildfires.

In Eastern Europe, for the first time since World War II, military force has been used to redraw borders as a revanchist Russia digests the Crimea. In Syria, Russia is demonstrating its re-emergence as a great power by using aerial sorties effectively in defense of the Assad regime, including bombing bases the United States set up for its allies.

In Southeast Asia, China ignores international law by creating reefs to expand illegal claims on a large portion of the South China Sea. In Northeast Asia, Kim Jong-Un — who starved millions of his people to death and lashed out at his neighbors with terrorist acts — is now doubling down as a global fountain of instability by initiating his fifth nuclear missile test. And, in case anyone missed the significance of this act last week, Kim fired missiles towards Japan.

Google’s server farms may well have raised the world’s temperature carrying extensive commentary, analysis, and predictions about political and geopolitical implications of these four crises. But little comment, coverage or analysis has been dedicated to the implications of rising geopolitical tension and their effect on businesses and commerce.

Consider business implications of the crisis in the South China Sea, the seaways for 70 percent of global trade. Or consider what might happen if chaos in Syria spread through the Middle East, prompting a closure of the oil-bearing Straits of Hormuz by Assad’s ally, Iran. Or the economic implications for South Korea and Japan turning a cold war red hot on the Korean Peninsula. Or the disruption to European economies if NATO suddenly finds Putin’s “little green men” have moved from Ukraine to the Baltics.

If any one of these international crises should boil over, corporate directors, CEOs, CFOs, and top global risk and insurance managers must be prepared. The 24/7 digital world poses new expectations for quick and ready responses, as well as opportunities to quickly coordinate those responses. This level of effectiveness requires new thinking with actionable, rehearsed, and responsive crisis plans that protect capital assets and investments, shipping and supply chains, and above all, safety of human capital.

As companies act, they must also be seen to act, using digital media to inform, guide, and reassure employees, vendors, investors, customers, and other important constituencies. Some companies are adept at this, but many do not have the digital "muscle memory" to effectively execute such a plan.

It is tempting to downplay conflict potential by pointing to intimacy between global economies. By this line of reasoning, all sides realize there is simply too much at stake to risk shared economic benefits. The United States imported $482 billion of goods and services from China in 2015. China controlled $1.2 trillion of American debt last year. The EU, including the Baltics, remains the largest U.S. trading partner.

The argument that economic interdependence renders war — or even limited conflict — impossible was famously advanced in Norman Angell’s 1909 book The Great Illusion. The Nobel Peace Prize-winning author Angell was proven wrong five years later when a school dropout, Gavrilo Princep, shot the Archduke Ferdinand, sparking the First World War. Today’s world is full of potential Princeps, whether an Islamic terrorist or Chinese or Russian military officer who “didn’t get the memo.”

If there is a restraining factor today it is likely not just money or trade, but the nuclear arsenals of Russia, China, and the United States. It wouldn’t take an apocalypse for any of these crises to pose a severe disruption for global business and our lives. Even a resumption of a cold war — say SWIFT sanctions that would cut off Russian access to banking, or a curtailing of trade with China — would entail serious blowback for U.S. firms.

Diplomacy and credible new policies from a new U.S. administration may forestall dire consequences. But they may not.

In an always-on, 24/7 digital world, companies must have responses they can publicly execute in real time. They must be prepared to act instantly to protect human capital, from the need to move people out of harm’s way, to scenario planning for repatriating employees stranded under belligerent regimes. In addition, companies must be ready to counter wide-ranging effects of an escalating crisis on asset and equity value, supply and balance sheets.

Richard Torrenzano is chief executive of The Torrenzano Group, a New York strategic communications and high-stakes issues management firm. Mark Davis is a former White House speechwriter. Torrenzano and Davis are co-authors of "Digital Assassination: Protecting Your Reputation, Brands, or Business Against Online Attacks." Read more reports from Torrenzano and Davis — Click Here Now.

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Consider business implications of the crisis in the South China Sea, the seaways for 70 percent of global trade. Or consider what might happen if chaos in Syria spread through the Middle East, prompting a closure of the oil-bearing Straits of Hormuz by Assad’s ally, Iran.
corporate risk, iran, north korea
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