Businesses are taking steps to boost their geopolitical expertise to help with increasingly delicate judgments on target markets and supply chains.
While some are using specialist consultancies others, such as Hitachi and Lazard, have been hiring former diplomats, civil servants and politicians to provide advice.
Lord Malloch Brown, an ex-diplomat and president of the Open Society Foundations, said “There was always some retired diplomat in the corner office of a multinational company ready to advise the chief executive on some local political difficulty. What’s happened more recently is that we’ve moved from peak globalization, where markets determine the location of manufacturing and selling, to the era of a much more politicised global marketplace”.
Russia’s invasion of Ukraine caught a number of businesses unprepared. They are looking much more closely at flashpoints such as China’s relations with Taiwan, fallout in the Middle East from the Hamas attack, and a possible second Trump presidency in the US.
In Japan, which has strained relations with neighbors including China and Russia, companies such as Hitachi, Suntory and the biggest banks have in the past three years hired ex-diplomats, international relations experts and former foreign correspondents.
Four people with direct knowledge of the situation said that in the most recent rounds of hiring, diplomats and other experts had been poached by two of Japan’s largest insurance companies and three of its biggest trading houses, Mitsubishi, Mitsui, and Itochu. Elsewhere in Japan, the role of “chief geopolitical risk officer” has been created in a sign of how seriously the subject is taken.
“Two of my colleagues have recently gone to work at trading houses, and one went to an energy company,” said a Japanese diplomat. He himself had received at least one offer.
Businesses were “desperate for a more granular understanding of risk . . . and they figure they can give themselves what they don’t have by offering [diplomats they seek to hire] money. Unfortunately, it seems to be working”.
Mitsubishi said it had set up a global intelligence committee last year to feed back information on “geopolitical risks, economic conditions, new technologies, policy trends” to management.
Smaller Japanese companies are hiring outside consultants at what advisers said was an unprecedented rate.
The invasion of Ukraine, said one consultant, solidified the idea that risks were becoming less predictable and that some — including military action by China and tougher US sanctions — had reached a point where businesses needed outside help. “They don’t just want us to tell them about one or two situations. They are asking us to rank all the risks they could be exposed to.”
Industries such as oil and gas, with operations in volatile regions, have traditionally been the main clients of geopolitical advisers. But as companies in other sectors have expanded markets and supply chains, they have found themselves in need.
Amy Lashinsky, chief executive of risk management firm Alaco and board member of FTSE-listed oil and gas company Energean, said: “The general shareholding public has become more aware that these issues are not reputational risks; they are inherent off-balance-sheet factors affecting the balance sheet.”
One industry that has built in-house geopolitical expertise is the US tech sector, which must navigate reliance on specialist chips made in Taiwan and its presence in China.
Some analysts say Big Tech has amassed political heft by turning top executives into ambassadors for the industry. In Microsoft’s case, it is one of the only companies that has a UN affairs office in New York.
“The tech industry is furthest ahead apart from oil and gas in managing geopolitical risk, because of how consumer-facing they are,” said Manas Chawla, founder of consultancy London Politica. “Microsoft is best in class at building up its internal geopolitical team.”
As companies look for more guidance, a number of former intelligence officials and diplomats have moved into the private sector. Former UK National Security Adviser Sir Stephen Love Grove became an adviser at investment bank Lazard this year, while former MI6 head Sir Alex Younger joined Goldman Sachs as an adviser in 2021.
They add to a list of high-ranking civil servants and diplomats advising companies, including former World Bank president Bob Zoellick and Pascal Lamy, former EU trade commissioner and director-general of the WTO, who work for PR firm Brunswick.
Mark Freebairn, a partner at headhunter Odgers Berndtson, said that companies hiring former ambassadors, military people, or ex-intelligence officials for consultancy work could pay as much as £2,000 to £5,000 an hour.
Consultants can open doors for companies seeking to build relations with governments. Dana White, head of global strategic advisory at Ankura, a consultancy, said her firm had bought a USChina advisory business that helped set up “high-level engagements”.
Consulting groups confirm the surge in demand. A Financial Times analysis of US and global corporate filings on data platform AlphaSense found that “geopolitics” was increasingly mentioned from 2017 and that the use of the word shot up after the Ukraine invasion.
Analytics firm J.H. Whitney Data Services said that after the invasion, US clients began to ask for advice on supply chains and exposure to countries in Asia, in case of conflict. “Many companies in the US, particularly web retailers and financial services companies, have significant call center operations in the Philippines,” noted J.H. Whitney chair John O’Connor.
Barton Malow, a US construction company with 3,000 employees headquartered in Michigan, is one business that is taking geopolitics seriously in its planning. “This disruption to globalisation of course has implications for business,” said chief executive Ryan Maibach. The company engaged consultancy Prism, which has also advised UK telecoms group BT, to help it evaluate the impact of potential threats.
*Article published in Financial Times, 25 November 2023