Business
Baker McKenzie crisis leads on risk-proofing the future: Do you have a blind spot in the boardroom?
As geopolitical tensions reshape the global business landscape, corporate leaders face a new era of risk and complexity. From trade wars to cyber threats, these forces have moved from the margins to the center of strategic decision-making. Companies that employ geopolitical foresight will be better equipped to navigate disruption and unlock growth opportunities.
The return of geopolitics
The impact of geopolitics has surged, with national interests and strategic rivalries once again shaping global affairs and impacting business strategies. This renewed focus has brought economic statecraft to the forefront, as governments increasingly deploy trade restrictions, foreign investment scrutiny, and sanctions as foreign policy tools to advance their agendas and exert influence.
After decades of near-unwavering commitment to free trade and the rapid globalization of markets across the Western world, we are witnessing a protectionist turn, with U.S. tariff levels reaching heights not seen in nearly a century. Even sectors that have traditionally been spared from heavy-handed trade restrictions are facing growing barriers. At the same time, governments are increasingly relying on industrial policy to promote domestic production and strategic sectors, triggering a global subsidy race that is reshaping competitive dynamics.
This shift is unfolding in an increasingly polarized world, marked by the rise of regional power centers such as the BRICS and growing fragmentation within the transatlantic alliance. Armed conflicts have further contributed to supply chain disruptions and undermined the viability of the just-in-time delivery model. Adding to these challenges, state-backed cyber operations are reshaping the threat landscape, with critical infrastructure increasingly targeted. In a world where long-term predictability is eroding, capital-intensive investments are becoming increasingly risky.
courtesy of Baker McKenzie
Blind spots in the boardroom
In recent years, companies have repeatedly felt the painful impact of these geopolitical tensions. Despite months of military build-up, the escalation into a full-scale Russian invasion of Ukrainian territory in February 2022 and the subsequent imposition of sweeping and continuously expanding sanctions came as a major shock to thousands of transnational corporations. Many were obliged to exit the Russian market and unravel complex supply chains, resulting in losses amounting to billions of dollars. In parallel, companies had to bolster their scrutiny of customers in neighboring markets to mitigate the risk of diversion and ensure compliance with expanding export controls.
Similarly, few companies were prepared for this year’s tariff shock, which unexpectedly extended to close trade allies of the United States. Disruptions like these underscore the importance of accounting for both probable and seemingly less probable global developments in strategic decision-making.
A decade ago, companies naturally prioritized operational efficiency and cost when evaluating sourcing or expansion opportunities. Today, overlooking geopolitical risks would be a serious misstep. The cheapest supplier may no longer be the safest, most economically sustainable choice, and increasingly complex and less transparent corporate structures may obscure the particular risk profile of third parties. As a consequence, corporate leadership is strongly advised to consider the geopolitical angle in every investment decision and major supplier contract, and companies should embed geopolitical considerations into their internal procedures to ensure that such risks are appropriately detected and mitigated.
As Henry Kissinger aptly warned, “An issue ignored is a crisis invited.”
courtesy of Baker McKenzie
Building geopolitical resilience
Corporations are best shielded from the economic fallout of geopolitical tensions when they identify risks early and develop appropriate responses before a crisis hits. This requires more than just reactive measures; senior management benefits from the use of proactive tools like risk mapping, tabletop exercises, and stress tests. By playing through likely as well as merely plausible scenarios and modeling their impact on supply chains, companies can detect critical dependencies and explore ways to diversify supplier relationships or sales markets.
The most accurate predictions for likely scenarios can be made when different departments and foreign affiliates are included in coordinated risk management, enabling multinational companies to assess potential impacts across their operations and the jurisdictions (and neighboring countries) in which they are active. Digitalization plays a crucial role in this process: by leveraging internal and external data sources, companies can identify patterns, anticipate disruptions, and make more informed decisions. Advanced analytics and real-time monitoring tools allow for dynamic scenario modeling and faster response times, turning data into a strategic asset.
Developing timely emergency plans for various risk scenarios increases overall preparedness and provides room to maneuver, rather than leaving companies scrambling to respond under pressure when a crisis strikes. Ultimately, companies should be integrating crisis scenarios into risk management frameworks and ensuring that potential threats are considered in strategic planning. To mitigate exposure to likely risks, it is often worth considering options such as friendshoring, nearshoring, or even reshoring production.
Board and supervisory board composition should also reflect the need for broad geopolitical expertise by including individuals with backgrounds in international business, global policy, and diplomatic affairs, to allow for strategic, big-picture thinking. Engaging in cross-sector dialogue and participating in industry groups can further enhance awareness of sector-specific risks and foster a more informed, collaborative approach to business planning.
Foresight as a competitive edge
Though often seen as a liability, geopolitical risk can drive a redirection of corporate strategy and open pathways to long-term competitiveness. Leveraging geopolitical insights allows businesses to build resilient partnerships and seize emerging opportunities before rivals. Companies may benefit from exploring new corridors being opened up by trade agreements or shifting focus to previously neglected, lower-risk segments. Robust corporate reputation management, especially through the careful navigation of geopolitical tensions, has become a key differentiator. Ultimately, those who embed geopolitical awareness into sustainable, future-proof business models will be best positioned to thrive in an increasingly uncertain world.
Crises as opportunities: Now is the time to prepare
Crises today pose both risks and opportunities for companies, and they need to take critical steps to prevent, prepare for, and respond to them.
This includes prevention and preparedness – conducting risk assessments to confirm key areas of crisis risk, designing and conducting practical tabletop scenario exercises to practice response to key risks, and putting in place critical incident response protocols. On crisis response, key steps include structuring advance response teams, balancing legal and reputational risks, and promptly mitigating the impact of those risks.
Companies that weather a crisis anticipate the coming storms, have plans to address them, and execute those plans methodically. The next crises will come. Now is the time for Boards, General Counsels, and business leaders to do just that.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
