Political Risk

March 12, 2018
Rice (Democracy), the former U.S. secretary of state and a political economy professor at Stanford's business school, and Zegart (Eyes on Spies), senior fellow at Stanford's Center for International Security and Cooperation, and the Hoover Institution, distill the advice they convey to M.B.A. students on how companies should handle political risks ranging from indignant activists on Twitter to hostile foreign states with teams of dedicated hackers. The text offers a detailed framework for responding, illustrated with true stories of corporate nightmares (including those of SeaWorld, which failed to properly respond to a critical documentary film and related viral tweets, and Sony Pictures, which had internal emails stolen, allegedly by North Korea) and risk-management exemplars (notably FedEx, which employs "a bevy of meteorologists working around the clock"). The framework's steps-understand, analyze, mitigate, and respond-are broken down in separate chapters, with useful questions business leaders must ask ("How can we limit the damage if something bad happens?") and actions they should take (forming a crisis team ahead of time with defined roles). Clearly written and timely, this book will interest not only current and future business executives but also would-be whistle-blowers and corporate watchdogs. Agent: Wayne S. Kabak, WSK Management.

Starred review from March 15, 2018
Former Secretary of State Rice (Democracy: Stories from the Long Road to Freedom, 2017, etc.) and Zegart (Eyes on Spies: Congress and the United States Intelligence Community, 2011, etc.), both Stanford political scientists, describe how political risk can affect businesses--and what to do about it.SeaWorld is devastated by online social activism over its mistreatment of killer whales. Sony Entertainment loses trade secrets to hackers. Kazakhstan becomes independent, and Chevron faces a nightmare over an oil-and-gas concession in the dissolving Soviet Republic. Such are the new dangers--from geopolitics to cyberthreats and terrorism--facing corporations in the turbulent global landscape of "unprecedented" economic opportunities and political risks of the past 30 years. During this period, societal changes--e.g., supply chain innovations, the communications revolution, and post-Cold War politics--have given rise to potentially harmful actions by individuals with cellphones, local officials using city ordinances, terrorists using truck bombs, and the U.N. imposing sanctions. Now, write the authors, "anyone armed with a cell phone or a Twitter or Facebook account can create political risks." Based on a Stanford seminar taught by the authors, the book examines the "notoriously difficult" job of managing the countless political risks that businesses face. Some firms excel, notably FedEx, Marriott, Disney, and the Lego Group as well as many cruise lines, chemical companies, law firms, tech companies, and others. Some have even created "mini-CIAs." Drawing on research, interviews, and their own experiences, Rice and Zegart provide detailed examples of companies that have succeeded or failed in meeting the new challenges and outline key ways to approach risks: Get good information. Build trusting relationships. Analyze continually. Integrate political risk analysis into business decision-making. As the authors write in closing, "the most effective organizations have three big things in common: They take political risk seriously, they approach it systematically, and they lead from the top."A carefully assembled, thorough book that should be required reading for corporate leaders.

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