The Role of Legal Leadership in Managing Geopolitical Risk

Banner artwork by PeopleImages.com - Yuri A / Shutterstock.com

In an increasingly interconnected world, geopolitical instability has emerged as a defining challenge for businesses operating on the global stage. From trade tensions to regulatory shifts to regional conflicts and political polarization, companies face a complex web of risks that can impact their operations, reputation, and bottom line.

Half of companies have allocated more resources to managing geopolitical risks in the last five years, according to ACC’s “Navigating Geopolitical Risk Survey,” produced in partnership with Harvard Business School and the US Chamber of Commerce Foundation.

An additional 21 percent of respondents indicated that managing geopolitical risk is not applicable to their organization. This suggests a potential lack of awareness regarding the extent to which their operations are interconnected with and influenced by the global geopolitical landscape. Those at smaller companies (those with US$100 million or less in annual revenue) were even more likely to indicate that managing such risk is inapplicable.

In response to the escalating geopolitical risks, nearly half of the companies surveyed have implemented new due diligence processes and initiated targeted education and training programs to enhance their risk management capabilities. These proactive measures demonstrate a growing recognition of the need to assess and mitigate potential threats arising from geopolitical tensions.

In-house counsel have emerged as key organizational leaders to manage this risk. The role of legal leadership within organizations has evolved significantly. CLOs and general counsel are no longer solely legal advisors; they have become key strategic partners in navigating the challenges posed by global political and economic uncertainties.

In ACC’s new resource, Navigating Geopolitical Risk: A Brief Guide, legal leaders can find 11 strategies to position themselves as indispensable strategic partners in navigating the complexities of today’s geopolitical landscape. Some of these include:

• Becoming a strategic advisor to the C-suite. This involves providing nuanced insights on the legal and regulatory implications of geopolitical events, helping to translate complex risks into actionable business strategies, and participating in high-level decision-making processes related to global operations and expansion.
• Managing reputational risk. This involves advising on the potential reputational impacts of business decisions in different geopolitical contexts, developing crisis management plans to address potential controversies, guiding the company’s public communications on sensitive geopolitical issues, and ensuring consistency between the company’s stated values and its actions across global operations.
• Fostering cross-functional collaboration. Legal leaders should facilitate communication and coordination between legal, compliance, government affairs, and other relevant departments, participate in cross-functional risk management committees or task forces, and encourage a holistic approach to geopolitical risk assessment and mitigation.
• Scenario planning and stress testing. This involves developing hypothetical scenarios based on geopolitical trends and uncertainties, assessing the legal and regulatory implications of different scenarios, identifying potential vulnerabilities in the company's global operations, and recommending strategies to enhance resilience and adaptability.

In-house counsel’s unique perspective, expertise, and ability to provide forward-looking guidance are essential for building organizational resilience and ensuring sustainable success in a volatile global environment.