How busi­nesses can cope when sur­prises hit

The Washington Post Sunday - - BOOK WORLD - RE­VIEW BY MAR­CUS BRAUCHLI Mar­cus Brauchli is a man­ag­ing part­ner of North Base Me­dia and a for­mer edi­tor of The Washington Post and the Wall Street Jour­nal.

The head­lines tell part of this story: Facebook fails to stop wide mis­use of user data. Self-driv­ing Uber car kills pedes­trian. United Air­lines vi­o­lently re­moves pas­sen­ger from over­booked seat. Pur­due Pharma is crit­i­cized for lax over­sight of opi­oid dis­tri­bu­tion.

It’s our daily cor­po­rate kalei­do­scope. Com­pa­nies fum­ble their mis­sions and in­stantly be­come ob­jects of vi­rally spread pub­lic ridicule, po­lit­i­cal con­dem­na­tion and some­times, even­tu­ally, gov­ern­ment regulation.

For busi­nesses, this so­cial-me­dia-fu­eled cy­cle is a mod­ern chal­lenge of the phe­nom­e­non known as po­lit­i­cal risk — the dan­ger that un­ex­pected, ex­ter­nal fac­tors can sud­denly and dra­mat­i­cally af­fect a busi­ness’s best-laid plans. Po­lit­i­cal risk is as old as com­merce: From its found­ing in 1600, the East India Com­pany lost its ships to tem­pests and pi­rates and its mar­kets to wars. Today’s ex­ter­nal fac­tors can be tech­nol­ogy glitches or state-spon­sored hacks; shift­ing pub­lic at­ti­tudes; and un­scrupu­lous man­agers, em­ploy­ees or cus­tomers. And all the while po­lit­i­cal sys­tems keep chang­ing, crimes keep hap­pen­ing, catas­tro­phes keep oc­cur­ring.

For the past six years, for­mer sec­re­tary of state Con­doleezza Rice and fel­low Stan­ford Univer­sity busi­ness pro­fes­sor Amy Ze­gart have jointly taught a course that ex­plores the ever-shift­ing na­ture of po­lit­i­cal risk and how com­pa­nies can cope. They have now turned their class into an en­gag­ing, prac­ti­cal hand­book for think­ing about these is­sues, “Po­lit­i­cal Risk: How Busi­nesses and Or­ga­ni­za­tions Can An­tic­i­pate Global In­se­cu­rity.”

Both of­fer in­trigu­ing per­spec­tives. Ze­gart, a pro­fes­sor of po­lit­i­cal econ­omy, worked in gov­ern­ment and for the busi­ness con­sul­tancy McKin­sey & Co. Rice brings in­sights not just from the board­rooms of cor­po­rate gi­ants she’s served, such as Chevron, Hewlett-Packard and Charles Sch­wab, but from the Sit­u­a­tion Room of the White House, where de­ci­sions have pro­found im­pacts on com­pa­nies and peo­ple around the world.

In­deed, it’s im­pos­si­ble to read this book with­out think­ing how rel­e­vant its ad­vice is for Amer­i­can busi­ness lead­ers in the age of Pres­i­dent Trump, whose in­stinc­tive mis­un­der­stand­ing of economics ri­vals his will­ful ig­no­rance of the world. A spat­ter­ing of half-baked pres­i­den­tial ac­tions, from tar­iffs and threats to aban­don trade agree­ments to tweets at­tack­ing or prais­ing in­di­vid­ual com­pa­nies and in­dus­tries, has made plan­ning a slip­pery ex­er­cise for ex­ec­u­tives.

While Rice and Ze­gart op­ti­misti­cally view some of Trump’s ac­tions as ephemeral (“It is likely that eco­nomic re­al­i­ties will tem­per these pro­tec­tion­ist im­pulses — af­ter all, glob­al­iza­tion is a state of be­ing, not a pol­icy”), the chaos caused by re­cent pro­nounce­ments re­in­forces the im­per­a­tive in this era for com­pa­nies to in­te­grate po­lit­i­cal­risk plan­ning into their busi­nesses.

Be­yond politics, a num­ber of fac­tors Rice and Ze­gart iden­tify con­trib­ute to the com­plex­ity that ac­counts for the need for struc­tured think­ing about po­lit­i­cal risk. Con­sider some of them:

Tech­nol­ogy and trans­porta­tion have al­lowed man­u­fac­tur­ers to spi­der-web their sourc­ing and man­u­fac­tur­ing op­er­a­tions across the globe, seek­ing out the lean­est, most ag­ile part­ners — not al­ways in Hu­man Rights Watch-friendly coun­tries. Big con­sumer brands such as Nike and Ap­ple have come un­der pres­sure for work­ing con­di­tions in Asian fac­to­ries that make their prod­ucts.

The In­ter­net creates se­cu­rity risks, with un­scrupu­lous op­er­a­tors, hack­ers and even states ever more able to dis­rupt a busi­ness. Facebook’s fail­ure to stop a Bri­tish firm from im­prop­erly har­vest­ing data from 87 mil­lion users for po­lit­i­cal pur­poses is but one re­cent ex­am­ple; a more sala­cious episode was North Korea’s sur­gi­cal hack in 2014 and high-im­pact re­lease of pri­vate and work emails from Sony’s movie stu­dio and ex­ec­u­tives, an ac­tion ap­par­ently launched to pun­ish the stu­dio for making a (pretty good) com­edy mock­ing North Korean leader Kim Jong Un.

At the same time, smart­phones and so­cial me­dia al­low ac­tivists to net­work glob­ally and to launch cam­paigns that can put se­ri­ous eco­nomic pres­sure on a busi­ness. The U.S. entertainment com­pany SeaWorld was fi­nan­cially crip­pled by a boy­cott cam­paign that fol­lowed the re­lease of a com­pelling doc­u­men­tary on SeaWorld’s treat­ment of a cap­tive killer whale, or orca, and the com­pany never came up with an ef­fec­tive re­sponse.

Rice and Ze­gart sys­tem­at­i­cally enu­mer­ate var­i­ous types of po­lit­i­cal risk — from the po­lit­i­cal and geopo­lit­i­cal, to the le­gal, reg­u­la­tory and con­trac­tual, to the more con­tem­po­rary forms of ter­ror­ism, cli­mate and cy­ber. How com­pa­nies cope with these kinds of chal­lenges, or how they should, is the heart of “Po­lit­i­cal Risk.”

The book does an ex­cel­lent job of lay­ing out con­cisely how to an­tic­i­pate, as­sess, re­spond to and mit­i­gate the im­pact of po­lit­i­cal risk. Top of the list is be­ing bru­tally hon­est about the risks you face, a tough task for most big or­ga­ni­za­tions. Be­yond that, plan­ning is cen­tral, given the near-in­evitabil­ity of po­lit­i­cal risk. Rice and Ze­gart cite the ex­am­ple of An­glo-Dutch pe­tro­leum gi­ant Shell, which had an­tic­i­pated the pos­si­bil­ity of sharply higher oil prices in the run-up to the 1970s Middle East oil em­bargo and was able to ad­just more rapidly than its global ri­vals.

“While the prob­a­bil­ity that a sin­gle po­lit­i­cal risk will af­fect Com­pany A’s busi­ness in a par­tic­u­lar city to­mor­row may be low, the over­all prob­a­bil­ity that some po­lit­i­cal risk will sig­nif­i­cantly af­fect Com­pany A’s busi­ness in any one of its key lo­ca­tions over some pe­riod of time is sur­pris­ingly high,” Rice and Ze­gart warn.

One rea­son is that much po­lit­i­cal risk doesn’t em­anate from ac­tions tar­get­ing com­pa­nies but from ac­tions that side­swipe them. The Trump ad­min­is­tra­tion’s pur­suit of a bor­der wall with Mex­ico or a trade show­down with China is driven by po­lit­i­cal fac­tors, but if you’re do­ing busi­ness in ei­ther mar­ket, the im­pact on your busi­ness can be large.

This is a book aimed at busi­ness prac­ti­tion­ers. Through­out, there are handy, end-of-chap­ter bul­let-point sum­maries of the take­aways. Its chap­ters are nar­rowly fo­cused and writ­ten for quick read­ing.

The book also is rich with com­pelling case stud­ies. Hap­pily for read­ers, but per­haps less so for many of the com­pa­nies men­tioned, there is no short­age of them. Rice and Ze­gart draw les­sons from ob­vi­ous dis­as­ters such as BP’s Deep­wa­ter Hori­zon Gulf of Mex­ico oil spill, and from sur­pris­ing ex­am­ples such as Dan­ish toy­maker Lego — a com­pany that ranks among the world’s “best at man­ag­ing po­lit­i­cal risk” — which showed alacrity in chang­ing man­u­fac­tur­ing pro­cesses af­ter crit­i­cism from the environmental group Green­peace. One of the most im­pres­sive com­pa­nies, ac­cord­ing to Rice and Ze­gart, is Mar­riott, which had to cope with ter­ror­ist bomb­ings in Jakarta, In­done­sia.

The au­thors do not delve deeply into the mar­ket ben­e­fits of po­lit­i­cal risk in an open cap­i­tal­ist sys­tem. They de­scribe the risk largely from the view­point of busi­ness op­er­a­tors or own­ers. That leads them to un­der­ap­pre­ci­ate the pub­lic-scru­tiny ben­e­fit, in some cases, from the po­lit­i­cal risk of so­cial me­dia and po­lit­i­cal cam­paigns. Watch “Black­fish,” the doc­u­men­tary that ex­posed the way SeaWorld mis­man­aged the killer whale stars of its live shows, or read United CEO Os­car Munoz’s ham-fisted ini­tial re­sponse af­ter United forcibly re­moved a pas­sen­ger from one of its over­booked planes, and you’ll con­clude that any dam­age to these busi­nesses was self-in­flicted. It wasn’t so much that the com­pa­nies didn’t have po­lit­i­cal-risk plans in place, it was that they didn’t un­der­stand their obli­ga­tions in the first place.

Rice and Ze­gart de­vote too few words to a sec­tion called “Risks From Within,” not­ing that “or­ga­ni­za­tions can hurt them­selves by pay­ing too lit­tle at­ten­tion to their own cor­po­rate cul­tures and prac­tices.” They cite as ex­am­ples the firestorms of crit­i­cism Fox News and Uber faced over their treat­ment of fe­male em­ploy­ees. Those in­ter­nal is­sues can rapidly be­come ex­ter­nal crises, and those cul­tural and busi­ness-prac­tice is­sues are like­li­est to trig­ger so­cial me­dia and po­lit­i­cal back­lash.

In the end, how­ever, the big­gest chal­lenge for any com­pany try­ing to man­age po­lit­i­cal risk is an­tic­i­pat­ing what may oc­cur and head­ing it off. It’s hard to get buy-in for that, Rice and Ze­gart write: “No­body gets credit for fix­ing prob­lems that never hap­pened.” True. But this book lays out a use­ful frame­work for hav­ing the right mind-set, prac­tices and teams in place for when things go badly wrong.

MATT MCCLAIN/THE WASHINGTON POST

Facebook CEO Mark Zucker­berg tes­ti­fied to Congress last month amid fresh scru­tiny of his com­pany’s data and pri­vacy prac­tices.

By Con­doleezza Rice and Amy Ze­gart Twelve. 321 pp. $30

PO­LIT­I­CAL RISK How Busi­nesses and Or­ga­ni­za­tions Can An­tic­i­pate Global In­se­cu­rity

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