there are political upheavals who change
the shape of the world think of the
Iranian Revolution the fall of the
Berlin Wall the release of Nelson
Mandela and there are other less
tumultuously vents that still take
people by surprise
take May the 7th 2015 UK Election Day
investors were worried right up until
the vote the polls were unanimous no
party would have an overall majority
there would be weeks of haggling before
a government was formed and there was
every chance that Ed Miliband leader of
the Labour Party would end up as Prime
Minister companies began laying plans
for a dramatic move away from the
policies of the conservative Liberal
Democrat coalition government but by the
end of the day contrary to all
expectations David Cameron's
Conservatives looked as though they were
heading for a big win and so it proved
his party ended up with an absolute
majority in parliament investors were
relieved but soon started worrying about
other things with the Tories victory and
a promised referendum mean that Britain
would withdraw from the European Union
these rapid reversals in Fortune show
that difficult circumstances in which
companies operates and how they need to
master them in order to survive
companies can actually enter markets
without taking political risk into
consideration sometimes entering Egypt
or Argentina or Nigeria can be very
seductive you know let's go to Nigeria
180 million people but essentially some
organizations fail to capture a better
understanding of political risk
especially when there's terrorist
attacks or when there is government's
that are having regime change and as a
result they come in and expropriate the
asset companies have to think beyond
their immediate environment what is
going to happen in Greece what will be
the effect on the rest of
EU will the EU itself begin to unravel
what will happen in Ukraine center of
tension between Vladimir Putin's Russia
and the West will the u.s. reach a
nuclear accord with Iran and what will
the effect be on the oil market and on
relations between the US and Saudi
Arabia Harold Wilson once said that a
week was a long time in politics
companies have to plan over years the
political environment is a constant in a
company's life whether its revolution or
a surprising election results in one of
the world's longest standing democracies
how can companies make decisions in such
an uncertain environment political risk
has changed fundamentally in the last
few years
historically it was kind of core issues
about revolution nationalization seizure
of assets the ability of a government to
kind of fulfill its sovereign
obligations those things of course still
exist but for the kind of modern global
corporation is taken on a much more
amorphous aspect so for major
international companies frankly from all
over the world they see the world as a
global marketplace and they plan their
business strategy accordingly but for
for international governments and for
individual countries their preoccupation
now is increasingly insular
introspective and nationalistic the idea
that governments kind of reflect their
position in the world seems to be behind
us governments are preoccupied by
electorates or public opinion that is
increasingly inward looking and very
very immediate so companies planning
long term in a global market are
inherently at odds with governments that
is whose interests are much much more
short term and that abrasion between the
two is where the modern form of
political risk exists many companies
have got political risk drastically
wrong but some by careful planning have
managed to ensure their survival
Microsoft is a great example of an
organization
that's very proactive in how it
mitigates political risk
they're very performance driven they're
driven by targets they're KPI driven
which is fantastic example of how you
measure political risk how you mitigate
it on an ongoing basis and this company
has invested a lot of effort in time to
engage with the right conversation with
the right capabilities in how they
reduce that political risk but also
actively investing in the right
relationships at the same time
most companies die within a few years of
their foundation those that survive for
decades or even centuries are the ones
that are most alert to their environment
that means their commercial environment
but it also means their political
environment Michaels kapenga Financial
Times London