The CEO As Chief Geopolitical Officer

The CEO
as Chief
Geopolitical
Officer
Rohitesh Dhawan
Director, Strategy and Alliances
Eurasia Group
Sean West
Deputy CEO and
EMEA Managing Director
Eurasia Group
KPMG International
kpmg.com/geopolitical
Today’s geopolitical environment is nothing
like what we’ve seen in the past. CEOs are
beholden to the outputs of an increasingly
complex geopolitical system that moves at
an accelerated pace, with few guardrails.
Outcomes are hard to predict without
careful focus. Time to react is limited. Only by
moving politics to the forefront of strategy,
and personally being the point (wo)man for
geopolitics can a CEO lead their organization
to success in turbulent times.
© 2018 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated.
Geopolitics:
a boardroom issue
Adapting to today’s changing landscape.
Politics is nothing new — companies away. Plus opportunities from political
have long seen their fortunes rise and shifts can be exploited by competitors
fall on the decisions of lawmakers and before a CEO even understands what is
the onset or cessation of wars. Many occurring.
have become quite good at reacting to
This report reasons that only by moving
events or at least buying insurance to
politics to the forefront of strategy can
limit risks like expropriation. Teams of
a CEO adequately steer today’s global
lobbyists and public relations companies
businesses. Such thinking starts with
fight for the opportunity to express the
an acceptance that global companies
wishes of their client businesses and
are assumed political entities and CEOs
react to limit damaging events.
de-facto political players. It means
However, today’s geopolitical recognizing that a different approach is
environment is nothing like what we’ve required, one that elevates politics in
seen in the past. CEOs are beholden to the boardroom and puts it on a par with
the outputs of an increasingly complex other strategic challenges. Furthermore
geopolitical system that moves at an it requires CEOs to personally play the
accelerated pace, with few guardrails. role of Chief Geopolitical Officer (CGO),
Outcomes can be hard to predict using specialized insights and stress-
without careful focus. Time to react testing tools to focus the company’s
is limited. Downside risks may often attention on managing an increasingly
be too esoteric to adequately insure uncertain environment.
“We need to reposition our businesses more

deliberately given a very polarizing political
environment. We must be more nimble, recognize
the shifting client sentiment in terms of pricing,
cyber security and regulatory transparency as well as
consumer and corporate activism.“
Mitchell Harris
CEO, BNY Mellon Investment Management
The CEO as Chief Geopolitical Officer | 3

New world: new rules or no rules?
Speed and interconnectedness are hallmarks
of 21st century society, and the intersection of
geopolitics and business is no different.
In the past, high politics would play out boundaries, shock-and-awe political
over months and years of negotiations moves like demonetization in South Asia
at the United Nations, or the G20. There or a corruption purge in the Middle East
were rules of engagement and competing can unleash a decade’s worth of change
interests to be balanced. When all in days.
else failed, the country with the upper
In essence, the global economy is more
hand could simply impose its will. For
exposed to political instability than at
businesses caught in the middle, they had
any point in recent memory. Figure 1
time to react and reposition — and often
is one way to think about this. The line
could insure away core business risks like
represents whether the impact of politics
civil war or political violence.
on the business environment in countries
Today, politics moves at the speed of that make up most of the world’s GDP
social media. Rifts are instantly public, is improving or worsening. Admittedly,
and opinions are shifted and shaped in it is a small slice of data in a particularly
hours. Politically expedient labelling of turbulent political time, but the variability
other countries can fundamentally change and trajectory may not be far off the new
the playing field for an entire sector normal for the short-to-medium term.
virtually overnight. Even within a nation’s
“Investors today are confronted with a dramatic

increase in the political risk profile of what were
supposedly low-risk, or indeed risk-free, developed
markets. A dozen years ago it seemed geopolitical risk
was a thing of the past, and that the apparent dominance
of the liberal economic and political model had indeed
heralded the end of history. Now geopolitical risk has
returned as a great shadow on the horizon of all
significant investment decisions.”
Duncan Wales
CEO, Exotix
4 | The CEO as Chief Geopolitical Officer

Figure 1: Impact of Politics on the Global Economya,1
Improving
Declining
Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017
Legend: Periods where the impact of politics on the global business environment is positive (above the line) or negative (below the line)
While opinion may be diverging on the that have expanded into frontier and
current speed and future forecasts for emerging countries with potentially
globalization, it has undoubtedly added weaker institutions, civil unrest and low
to the complexity of today’s corporate resilience. At the same time, previously
world. Companies have transitioned ‘stable’ developed markets can also
from national, to multinational and for become politically turbulent from the rise
some, to global corporations. CEOs find of populism, nationalism and country-first
themselves facing new, unfamiliar and approaches to international trade.
complex situations — often resulting
For the global CEO, the odds are
from geopolitical issues — which
increasing that it is a geopolitical event
they may have had limited exposure
they must explain as the root cause for a
to in their previous core markets.
performance challenge.
Exposure to this political instability can
be particularly marked for businesses
a. The line graph summarizes a GDP-weighted diffusion index of all Political Trajectories. At points above 0,
most of global GDP is represented by countries with improving Political Trajectories (month/month); below
0, most of global GDP is represented by countries with declining Political Trajectories (month/month).
1. Eurasia Group analysis of proprietary, International Monetary Fund (IMF) and World Economic Outlook
(WEO) data.

The modern CEO: business
(wo)man or politician?
In addition to geopolitics imposing new threats, “Earlier, you would
CEOs are being held to new standards. communicate if asked,
Many companies are larger economic Corporate leaders are looked to for so you had a lot more
entities and with potentially greater social media comments and responses time to think about it and
influence than the countries in which to political events almost in real time.
they operate. According to one In a world without social media, ‘no
respond. Now, you have
estimate, 69 of the top 100 wealthiest comment’, ‘we are monitoring the to have an action plan
economic entities in 2016 were situation’ and ‘our company does not pre-emptively ready.“
corporations, not countries2. As a take political positions’ were previously
result, they have essentially become reasonable public positions. This is no
political actors assumed to have political longer the case, and any CEO who
Former president of a global
agendas. The ‘revolving door’ between appears unprepared on political matters beverage company
CEOs and top political appointments of public interest may be seen as aloof
in developed and developing countries at best, and inauthentic at worst.
alike has further reinforced this
perception. If top business roles are
seen as stepping stones to political
careers, the public will expect a CEO to
behave like a politician even while they
simply occupy a business seat.
“During these times of profound political and

economic change, business leaders cannot sit on the
sidelines and watch. We need to be a force for change,
and draw on our missions and our values to make a
difference — and we need to partner across the public
and private sectors to address the economic pain points.”
Dan Schulman
CEO, Paypal
2. 10 biggest corporations make more money than most countries in the world combined, Global Justice Now,
12 September 2016. (https://www.globaljustice.org.uk/news/2016/sep/12/10-biggest-corporations-make-
more-money-most-countries-world-combined)

“Political risk is the Beyond the general public, Boards are risk seen as an acceptable response
also increasingly unwilling to accept and having a list of ‘known-unknowns’
new fox in the chicken a shift in ‘external conditions’ as an can be seen as shirking away from the
coop. Boards that explanation for failing to deliver results. issue. CEOs can expect Boards to want
are used to routine Many companies whose earnings were to see geopolitics appearing on the risk
affected by the volatility of the British register, as well as mature mitigation
dashboard-style Pound in the wake of the Brexit vote and response plans.
reporting of operational report having tough conversations at
Perhaps the thorniest issue of all
and financial risk Board level about whether they could
is connecting with employees and
have prepared and mitigated better.
find there is now Boards have grown in confidence
customers by taking public positions
on politicized issues. Some will expect
a more dangerous in their responsibility to act on non-
the company to take a public position —
and apparently less traditional business risks such as
and those that do might be on opposite
climate change, cyber security or ethics.
predictable factor in No longer is the ability of management
sides of the issue — while others would
rather see it kept quiet.
play — politics.” to fully measure or forecast a ‘new’
Lord Malloch-Brown
former UK and Global Civil
Servant and now Senior ”There were many political decisions I did not agree
Member of multiple Boards with and wanted to speak out against. But I knew that
if I went public with my views, I would alienate a
significant portion of customers and employees. So
I tended to keep my head down, but if asked, would give
my honest opinion.”
Former head of a global insurance giant

How smart companies are
responding
Three proactive responses to today’s geopolitical “Firms need to
uncertainties. recognize that the

Appoint a Chief Geopolitical officials and being visible in the media. PR department
1
Officer This gives the government affairs team cannot influence real
credibility externally and within the
A CGO is a member of the senior
organization.
change, and the Chief
leadership team with single-point Executive needs
accountability for managing the A strong government affairs team may
impact of politics on the company’s remain severely under-utilized unless to be talking to the
business interests. They work closely joined at the hip to strategy, business relevant political
with functional experts (particularly planning, risk and public relations actors personally.
government/public affairs teams) and functions. Generally only someone
other executive portfolios (particularly sitting in the CEO’s seat has the visibility This matters especially
Strategy & Risk) to maintain a whole-of- and influence to do this successfully. when it comes to
company view. Signs that this collaboration is tight and regulators, who
working as it should include:
This is a job for the CEO personally. generally — despite
In times past, having a dedicated —— having an ‘all bets are off’ business
government/public affairs team was in plan scenario
best intentions —
itself a sufficient response. Now it is tend to try and stymie
—— geopolitical considerations at
simply the start. Those professionals
the center of market entry/ nimble and flexible
are highly effective when issues are
well defined, lines of engagement
rationalization decisions (rather than behavior by large
with government are clear and open,
an afterthought) and corporations.”
and government counterparties have —— a risk register where geopolitics is
capacity. Issues of industry regulation incorporated into other risks rather Former head of a global
and technical operating standards still than a standalone line item.
largely present this way.
financial services firm
In short, companies could do better in
Yet, those teams need cover and the current geopolitical environment if
connections to be effective in today’s someone is responsible for navigating
world of greater geopolitical noise. through political volatility. Else,
Cover means that CEOs need to be business strategy will be anchored on
willing to be the face of government/ business metrics like market sizing
public relations instead of delegating without discounting for the likelihood
public engagements to the team, with of execution and realizability due
acts such as taking meetings with to politics.

Conduct a geopolitical One way to do this is to conduct a scenario in a time of heightened
2 stress test geopolitical stress test on the strategy geopolitical tension. A stress test
and planned initiatives. could help evaluate the impact of
Getting a handle on current levels of
such disruption. A CEO could take
activity and exposure to geopolitical For example, virtually every company
their company’s 3-year business plan
developments is an important building would be gravely affected by a global
and model the following scenarios
block, especially if this hasn’t been a outage of transport or communication
(individually or collectively) to get an idea
subject of active thought for the CEOs. networks, which is not a far-fetched
of their exposure and resilience:
Figure 2: Evaluating the company-wide impact of geopolitical risk
Area of disruption Examples
Financial model —— 2x increase in operating expenditure of transacting across borders

(financial hedges, professional fees, regulatory compliance, travel
Key fundamentals of the financial
costs and the like). Consider that such a doubling of expenditure is
model — interest rates, tax rates,
in the ballpark of what many businesses contending with Brexit are
tariffs etc. — could face significant
accounting for.
change following political or
regulatory shifts. —— Monetary measures or geopolitical tensions leading to large swings in
global currencies, stock markets or commodities.
Business model —— The loss of access to a key geographic market, perhaps as a result of
sanctions, damaging political interference or even loss of cross-border
The attractiveness and feasibility
passporting arrangements.
of aspects of the business model,
such as geographical footprint, —— Restrictions imposed by new product regulation or issues product/
product attractiveness and customer material supply chains.
profile, may also be challenged by
—— The impact of a significant deterioration in customer sentiment.
geopolitics.
Operating model —— 72-hour outage of information backbone (website, online gateways,

encrypted messaging services and similar). For reference, if a major
Key components of the operating
cloud provider went down in a cyber-attack, the economic damages
model — core processes, technology
are estimated to be similar in scale to that of a physical event such as
and operations infrastructure etc. —
Hurricane Sandy or Katrina (an estimated US$50-120 billion3).
could be significantly destabilized by
a geopolitical event. —— Zero cross-border travel for one week (no plane, train or road journeys
across international borders). Consider for example, the very real
threat of an imminent global flu pandemic4 or perhaps the impact of a
sudden change in a country’s immigration restrictions or governments’
travel advice by country.
—— Double transport time (and/or cost) of transporting goods (sea, air,
road, rail). Such an outcome is wholly plausible in the Strait of Hormuz,
through which one-fifth of global oil is transported, given current
geopolitical tension in the region.
—— Potential restrictions on the movement of people which may impact
staff availability in scenarios like Brexit.
3. Emerging technologies drive more risks than firms can protect against, Global Trade Review, 17 January
2018.(https://www.gtreview.com/news/global/emerging-technologies-drive-more-risks-than-firms-can-
protect-against/)
4. We’re not ready yet for a flu pandemic, Gulf News, 10 January 2018.(http://gulfnews.com/opinion/thinkers/
we-re-not-ready-yet-for-a-flu-pandemic-1.2155062)

Such exercises can be highly instructive go beyond relying on mass media for have access to are of the same standard
and do not require significant resources information and invest in specialized as in other areas. For example, just as
to perform. One way of building them geopolitical forecasting and monitoring investment teams would have access to
into the slipstream of ongoing health capabilities. specialized financial information feeds and
checks is to frame them in the spirit of an not rely on internet searches or ad-hoc
It can be tempting to feel covered on
assurance exercise. Geopolitics is now meetings, anyone in decision-making
the basis of easy and costless access to
well placed to be included in the scope positions should be equipped with the
news coverage and analysis. However, it
of a company’s core risk management best geopolitical insights from within and
is precisely the 24/7 news cycle and the
framework alongside other ‘new’ risks outside their organization.
over-abundance of current affairs coverage
such as climate change and cyber
and commentary that makes it more Similarly, it is not just the fast-paced and
security. However companies choose
important to be discerning. In a noisy changing geopolitical environment which
to do this, a regular stock take of the
world, it can be harder to separate fact needs to be monitored. It is becoming
geopolitical risks and opportunities is now
from fiction, sentiment from strategy, and increasingly important for businesses to
essential to business resilience. Perhaps
decisions from drama. However, there truly understand and get to know not just
more importantly, businesses should
are tools available to help companies their customers, but other stakeholders
aim to develop appropriate responses or
navigate this landscape in real time, and with influence over their business. What
contingency plans for different scenarios,
support available from specialized teams are their sentiments and how are they
and embed them into their strategy as
of political analysts focused on covering changing? Which geopolitical risks would
appropriate.
politics in real-time and translating those be most material to their behaviors?
Implement a geopolitical into business implications. What can be done to minimize risks and
3 forecasting and monitoring
If the core argument made here that
capitalize on any opportunities this may
present?
solution
politics is central to business decisions
For companies to truly feel like they have holds true, then it is only appropriate
a handle on geopolitics, they should that the data and insights that teams

Kick-starting the discussion
Is your business wired for geopolitical change?
Geopolitics is nothing new, but help make CEOs view themselves and —— What does increased geopolitical
to succeed in today’s charged the companies they lead in a different uncertainty mean for the availability
environment, companies are going to light; as takers of political risk and and cost of capital and resources?
have to do things differently. It starts opportunities, but also as shapers of
Business model:
with recognizing that politics influences societal outcomes. There are also a
the business environment more than it range of boardroom questions which —— How resilient is your business to the
has for decades. should be high on the CEO agenda to loss of a key customer as a result of
kick-start the discussion and identify a geopolitical event?
While it might be easy for CEOs to have
geopolitical implications for financial,
a relatively informed view on this new —— How could your distribution network
business and operating models.
geopolitical landscape, it’s hard to be a or product portfolio be impacted by
specialist — particularly when economic While geopolitics has the potential to major geopolitical changes?
logic is seemingly no longer a constraint disrupt, for those that are prepared
—— Which new or alternative markets
on politics and companies can take and ready to act, it can also create
should be explored in light of
nothing for granted. Furthermore, while opportunities. Armed with a well
possible political trajectories?
a ‘wait and see’ approach might be thought through strategy, analysis and
seen as the easiest route — especially information, an effective CEO acting like Operating model:
given the range of known-unknowns a Chief Geopolitical Officer can help lead
—— Who in the business is responsible
or unknown-unknowns defining the the company towards a more certain
for monitoring, analyzing and
current social, political and economic path in an uncertain business world.
interpreting geopolitical events?
environment, the signals can be
Financial model:
predicted if you look in the right places, —— Is your operating model sufficiently
risks managed if you know how, and —— What business planning agile to respond to a surprise
opportunities exploited if you can turn assumptions could be derailed by geopolitical event?
foresight into action. geopolitics?
—— Is your geopolitical intelligence of
In this paper we have explored three —— Have your financial forecasts and comparable quality to financial and
proactive responses to the current business plans been stress-tested operational data?
geopolitical environment which should for geopolitical disruptions?

About Eurasia Group
Eurasia Group is one of the world’s leading global political risk research and consulting firms. KPMG International has formed an
alliance with Eurasia Group to develop solutions that help businesses deal with geopolitical challenges.
Authors
Rohitesh Dhawan Sean West
Director, Strategy and Alliances Deputy CEO and
Eurasia Group EMEA Managing Director
T: +44 (0)7770 221 062 Eurasia Group
E: dhawan@eurasiagroup.net T: +44 (0)7478 884 284
E: west@eurasiagroup.net
Contacts
Eurasia Group KPMG
Alexander Kazan Andrew Mantilia
Managing Director, Global Strategy Director
Eurasia Group Global Lead — Geopolitics
T: +1 646 291 4076 KPMG International
E: kazan@eurasiagroup.net T: +44 (0)7468 350 805
E: andrew.mantilia@kpmg.co.uk
Ashish Sarkar
Director
Global Strategy Group
KPMG in the UK
T: +44 (0)7468 718 659
E: ashish.sarkar@kpmg.co.uk
kpmg.com
kpmg.com/socialmedia
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endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the
particular situation.
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with
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The KPMG name and logo are registered trademarks or trademarks of KPMG International.
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Publication name: The CEO as Chief Geopolitical Officer
Publication number: 135323-G
Publication date: March 2018

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The CEO

“We need to reposition our businesses more

The CEO as Chief Geopolitical Officer | 3

“Investors today are confronted with a dramatic

4 | The CEO as Chief Geopolitical Officer

The CEO as Chief Geopolitical Officer | 5

“During these times of profound political and

6 | The CEO as Chief Geopolitical Officer

The CEO as Chief Geopolitical Officer | 7

8 | The CEO as Chief Geopolitical Officer

Figure 2: Evaluating the company-wide impact of geopolitical risk

Area of disruption Examples

Financial model —— 2x increase in operating expenditure of transacting across borders

Operating model —— 72-hour outage of information backbone (website, online gateways,

The CEO as Chief Geopolitical Officer | 9

10 | The CEO as Chief Geopolitical Officer

The CEO as Chief Geopolitical Officer | 11

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