Why is political risk on the rise?

Posted by: on Feb 9, 2017 | No Comments

2016 was full of political surprises, some more welcome than others. But more than merely being surprises, for many organisations the outcomes represented risk. Risk always needs to be managed to avoid devastating consequences.

The role that public affairs plays in the risk management process should be substantial. It should help to identify potential risks (through people changes, policy changes, new legislation etc.), to then prioritise those risks, and then to manage them.

Political risk reports are not always prepared but should be offered to the right part of the organisations – legal, external communications, or direct to the senior leadership. I, for one, do not believe that public affairs should be behind in offering such help and support. It shows value and worth in a time when there is increasing pressure to materially demonstrate such things.

But why is political risk apparently on the rise? Why was it more of a problem in 2016, and now seemingly 2017, than it was before?

There seem to be several key drivers.

  • Twitter – whilst not just about Twitter, politicians are looking to bypass traditional media channels to get their message directly to the electorate. For President Trump this means directly challenging individuals and organisations. Whether that needs to be responded to, or even as an opportunity for a bit of impromptu marketing is up to those involved. Whereas the media will look to secure balance and a right of reply, that doesn’t come with Twitter.
  • Action of politicians – many increasingly feel the need to show that they mean business and are prepared to take action against ‘bad hombres’ wherever they lurk – across borders, within the marketplace or in board rooms. Ironically, the more that Trump fires off Executive Orders the more likely it is that other politicians will follow suit and will want (and need) to be making big decisions. The question from electorates will be ’he can do it, why can’t you?’.
  • Financial markets listening more – you only need to listen to the most recent Times Red Box podcast (2 Feb 2017) to appreciate that the financial markets were caught out just as much as anyone else. Where they used to listen just to what Central Banks did, now the politics have risen in importance. If the financial markets are listening then corporates, investors, fund managers etc. all need to listen as well. What politicians do just got more important for more aspects of operations.
  • The electorate – it appears that they can no longer be relied upon to make the same sorts of decisions that they did in the past. There is a volatility amongst the electorate that hasn’t been seen for many years. That can make politicians themselves more twitchy and volatile as well – if they can’t quite read the runes then this could make them more likely to jump on bandwagons.
  • Action of business leaders – whether this is a symptom or a cause of political change is unclear but there are now a number of high-profile business leader who seem prepared to stand up against political decisions. For many years, business leaders preferred not to antagonise politicians and even when pushed would not criticise decisions. Trump’s curbs on travel and immigration drew criticism from Goldman Sachs, Apple, Facebook, Google, Amazon, Morgan Stanley, Netflix, Nike, Starbucks and others. The Uber CEO, as a consequence, stood down from the President’s economic advisory council. In the past such decisions would have been considered political suicide, now they seem part of normal business operations. We could well imagine a similar position here if businesses feel that the Prime Minister fails to deliver on a Brexit deal that meets their needs.

The risk needs to be considered in public affairs strategies. Ideally, public affairs should help in shaping, for instance, company responses to the likes of stray political tweets. A strait corporate response, not considering the wider political context or timings, could well illicit further political action. The last things anyone wants to be involved in is a tit-for-tat exchange.

Sensitivity may be needed and even the most hardened public affairs practitioner knows when to be humble!

Leave a Reply