CEOs attempt to navigate minefield of populism, cyber threats

From recent responses in surveys of global business leaders and from the discussion at our 2017 CEO Retreat with leaders of Global 1000 companies, three things are clear: Executives are bullish about the global economy, but they also believe that economic and financial volatility are on the rise. Political risk looms large over their business decisions. Technology is at once a source of exciting opportunities and daunting challenges.

Every year we ask 400 global C-suite executives and board members about the near-term outlook and the opportunities and challenges their businesses face. In this year’s Views from the C-Suite, executives point to a stronger macroeconomic environment as a key source of business opportunity. This is a notable shift from last year, when executives told us that a weak macroeconomic environment was a top challenge.

{mosads}It also confirms what global investors told us in our 2017 Foreign Direct Investment (FDI) Confidence Index survey. After being abnormally bearish on the global economy last year, 60 percent of investors are more optimistic about the economic outlook this year.

It is not all smooth sailing in the global macroeconomic environment, however. More than three-quarters of global executives told us that they also expect greater economic and financial volatility over the next 12 months. We are convinced this is the result of political risk, rather than economic fundamentals, driving economic and financial outcomes. In both of our surveys this year, global executives highlight a variety of political risks to their businesses.

Of course, one of the main political risk factors in the world today is populism. About three-quarters of the executives we surveyed believe that populism will continue to gain ground in democracies around the world. Populist governments are more likely to include dramatic changes to regulatory and tax policies, creating a more uncertain and potentially volatile policy environment for businesses operating in those markets.

Executives are clearly expecting policy changes to materialize. For instance, 74 percent of the global C-suite predicts that global trade and other cross-border flows will decline in the coming year as a result of protectionism. In fact, trade — in both goods and services — is the aspect of globalization that executives see as at most risk from rising populism and protectionism, followed by the flow of labor through immigration. 

Political risk, as executives see it, appears to be throwing a wrench into the globalized economy. The concern in the C-suite about this “islandization” versus globalization trend has been palpable in our recent conversations with executives. We wondered whether this anecdotal evidence would be confirmed with a broader sample of global executives, and the answer was an emphatic “yes.”

Fully 69 percent of global executives say that government policies are having greater influence on their companies’ decision-making than in the recent past. Two-thirds are placing greater emphasis on public and government relations in the current economic and political environment, and more than 90 percent are making or are considering making changes in their supply chains and international footprints due to the current political and economic environment. 

But while government policies and political risks have a lot to do with executives’ decisionmaking, it is far from the only priority. Technology shifts are also a key factor affecting business decisions and strategies. Executives see technology as both an opportunity and a challenge. On the plus side, 78 percent believe technological innovation will bring increased productivity growth in the next year. But an overwhelming 85 percent also predict more frequent and costly cyberattacks in the coming year.

While one-third of executives see difficulty in adopting new technologies as a top challenge, 38 percent believe that the successful adoption of new technologies is a key opportunity — the leading pick for business operational opportunities this year. Technology disruption in a company’s sector is also seen by global executives as a top external opportunity. These results demonstrate that technology truly is a double-edged sword that has far-reaching business implications.

Our latest Views from the C-Suite shows that executives see a minefield ahead in terms of both political risk and technological disruption. How is the C-suite dealing with all of this uncertainty? Almost all executives told us they are employing strategic foresight techniques to manage the risks they face. This makes sense given the nature of the risks in the current global environment.

In contrast to attempting to forecast the future policy or technology environment — an exercise in futility if there ever was one — foresight enables business executives to systematically manage future uncertainty by detecting emerging trends, exploring multiple plausible futures and developing contingency plans. The most popular strategic foresight tool among executives we surveyed is scenario planning, followed by horizon scanning and crowdsourcing.

We agree with the global C-suite that the next 12 months are going to be highly uncertain. But uncertainty does not need to mean negative business results: Changes in the operating environment provide important opportunities as well as challenges. The outcome for each business depends on what its leadership does to anticipate and prepare for disruptive events, rather than merely responding after the fact.

The C-suite’s emphasis on utilizing strategic foresight in their strategic planning is thus a smart move. But other steps are necessary too. Our advice is to improve cybersecurity defenses, actively monitor all aspects of political risk, and assess the company’s globalization strategy with a view to identifying local strategies in those markets experiencing a backlash to globalization. After all, it is better to map out the minefield before getting caught in the middle.

Paul A. Laudicina is partner, chairman emeritus of A.T. Kearney, a global management consulting firm that focuses on strategic and operational CEO-agenda issues. He’s the chairman of the firm’s Global Business Policy Council, a strategic advisory service designed for the world’s top CEOs and leaders in business and government. Erik R. Peterson is a partner and the managing director of the A.T. Kearney’s Global Business Policy Council. 

The views expressed by contributors are their own and not the views of The Hill.