Category Archives: Political Risk

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Is Fear of Terrorism Grounding Your Business Travel?

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Paris

The recent acts of terrorism in Paris stunned the world, when 150 were killed and more than 300 were wounded. But the collateral damage went far beyond buildings being ripped apart and one of the most popular cities in the world being virtually shut down.

Business Travel Coalition, a U.S.-based lobby group, recently released a survey of 84 corporate, university and government travel and risk managers from 17 countries on their attitudes of trips to France following the bombings.

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Twenty-one percent of the respondents said they were very or somewhat likely to cancel travel to France for “some period of time,” and 20% were somewhat likely to cancel travel to and within Europe. A large majority said they’d probably allow employees to decide whether they were prepared to head to France.

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One in five corporate travel managers is likely to cancel trips to Paris “for some period of time.” These are not surprising statistics.

Terrorism has been defined as “The use of violence to instill a state of fear,” and that effect is far-reaching; a bomb explodes in Paris and it’s likely that 5,600 miles away in California some corporate risk manager for a Fortune 500 company is seriously considering cancelling a business trip to Europe—a visceral reaction that could cost his company untold sums of money. Mission accomplished.

But it doesn’t have to be that way.

I fully realize that the fire that fuels business owners is the desire to overcome any obstacles perceived to hinder the bottom-line. But there’s no way a sane person can watch the news today and not wonder, “What is the risk of undertaking a business trip overseas? Will I fall victim to a terrorist act?” I contend that the answer to this question is to put your risk in perspective.

Although it’s a sad state of affairs that there will most likely be another terrorist attack in Europe sometime in 2016, it doesn’t mean that a high degree of risk involved for you, personally. According to the U.S. State Department, the number of U.S. citizens killed overseas by incidents of terrorism from 2001 to 2013 was 350. In other words, your odds are greater to be killed in a car crash (one in 19,000), drown in your bathtub (one in 800,000), or be struck by lightning (one in 5.5 million) than to perish in a terrorist attack (one in 20 million).

It is important that we don’t allow acts of terrorism to knock the wheels off our economy. Business travel is a key element in making us what we are, so it’s imperative that we mitigate that risk whenever possible.

The first thing is to make sure you are not so focused on terrorism that you fall victim to the common risks swirling around us every day. For instance, when traveling overseas don’t be so obsessed with where you think an incident might happen (no matter how statistically unlikely) that you select an alternate route that takes you through the last place on earth where you’d want to get a flat tire in the middle of the night.

Second, minimize the risks you have control over.

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Stay up-to-date on the State Department’s list of global hot spots, and have your business travel professional plan each step, down to the slightest detail (air, hotels, ground and communication).

Detailed planning is paramount because with any type of business travel in these uncertain and even downright scary times, it is all about controlling the risk. And that can start with the simple act of driving carefully on the way to the airport. That way the most likely risk you’ll ever face on your trip is already behind you before you even board the plane.

3 Strategies to Protect Your Organization from Political Risk

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From the Middle East to Eurasia to Eastern Europe, events and potential events that translate into political risk fill the news.

Political risk is instability that damages or threatens to damage an existing or potential asset, or significantly disrupt a business operation. Examples include sustained political and labor unrest, terrorism and violent conflict. This risk is increasingly regional in nature, as the Arab Spring and sudden spread of Islamic State control demonstrate.

According to the new Clements Worldwide Risk Index, political unrest is the number one concern among top global managers at multinational corporations and global aid and development organizations.

Risk managers in these organizations responded in the Worldwide Risk Index survey that political risk and instability—including cyber attacks—are real and growing. Twenty-eight percent of top managers surveyed stated political unrest was their top concern, while 25% cited kidnapping, and nearly 10% cited terrorism.

When it comes to terrorism, the Worldwide Risk Index results align with the data. The U.S. State Department’s Annual Country Report on Terrorism released recently indicates that the number of terrorist attacks worldwide in 2014 increased 35%, while total fatalities from terrorism activities grew by 81%, compared to 2013.

But as violence and unrest have increased, readiness for it trails far behind. Twenty-one percent of respondents admitted being “not prepared at all” for a terrorist attack, while 11% considered themselves “very prepared;” 17% said they were “very prepared” for the ramifications of a disease outbreak, while 10% they were “not prepared at all” for that threat; and 21% said they were “not prepared at all” for a cyberattack.

Perhaps most troubling, these concerns and lack of preparedness are impacting business decisions. Twenty-one percent of Worldwide Risk Index respondents had delayed plans to expand into new countries due to rising international risks.

So what can executives do to bring their organizations’ preparedness in line with growing risks around the world?

First, they can invest more in risk management overall. This means emergency planning, training, security and other techniques to manage and reduce risk. An important element is also testing the plan, which typically highlights gaps. Forty-four percent of Worldwide Risk Index respondents increased spending on this activity. While not a majority, it is still a significant percentage of organizations investing more in basic risk management.

Next, corporate executives should consider retaining the services of the growing number of political risk, insurance and security consultancies that provide political intelligence. While the quality of these firms vary and they are not a substitute for direct experience, these companies provide useful insights into potential risks one might encounter, especially when starting operations in a new location. Risk managers can also personally monitor catalysts to political unrest, such as elections, which are often linked to demonstrations and disturbances in developing countries, particularly with the rise of social media. Elections and other catalysts have caused disruptions in surprising places around the globe, such as Thailand. Corporate executives, including risk managers, need to understand that no country is absolutely “safe” anymore.

Finally, organizations need to consider increasing their spending on international insurance. Fifty-seven percent of the respondents to the Worldwide Risk Index report doing just that. There are more options than ever before for political violence and risk, kidnap and ransom (K&R), evacuation and related policies. Organizations can work with individual carriers, or with brokers who can help tailor policies to specific risk profiles. The best organizations link their brokers or insurance carriers to their overall risk management strategy and ensure their plans include which broker to contact in case of which emergency, as it may differ for a medical versus a property event.

The global economy is more integrated than ever, with more markets opening every year. Yet global supply lines and other business operations and investments are more dependent on particular political factors than at any time in modern history. Political unrest, instability and even conflict are “normal” realities that drive business decisions in evermore areas of the world. This risk can be managed. To do it, executives need to get serious about bringing their risk management strategies into line with the new “facts on the ground.”

Enterprise Risk Management Needed in Battle Against Corruption

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Even though the U.S. government has broadened its pursuit against corruption, only about 9% of organizations see Foreign Corrupt Practices Act monitoring as a top concern, according to “Bribery and Corruption: The Essential Guide to Managing the Risks” by ACL.

Many companies have policies against corruption, but it still exists. Although remaining competitive can be difficult in some parts of the world that see payments, gifts and consulting fees as part of doing business, companies need to identify these risks and manage them across the organization. There is much is at stake, as penalties are rising and more companies globally are being fined, the study found.

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According to ACL, if a formalized ERM process exists within an organization, then the anti-bribery and anti-corruption (ABAC) risk assessment process should ideally be carried out within that ERM framework. In some organizations, however, the overall risk management process is fragmented, meaning that the risks of bribery and corruption are considered in relative isolation. Whichever approach is taken within an organization, the process of defining the risks should involve individuals with sufficient knowledge of the regulations and ways the business actually works.

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“We encourage companies to maintain robust compliance programs, to voluntarily disclose and eradicate misconduct when it is detected, and to cooperate in the government’s investigation. But we will not wait for companies to act responsibly,” said Leslie Caldwell, assistant attorney general in the criminal division at the Department of Justice. “With cooperation or without it, the department will identify criminal activity at corporations and investigate the conduct ourselves, using all of our resources, employing every law enforcement tool, and considering all possible actions, including charges against both corporations and individuals.”

The study’s findings also include:

Shale Shakes Up Energy Sector

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shale oil industry

HOUSTON—In the words of the well-known rock group REM, “It’s the end of the world as we know it,” at least for the energy sector in the last decade, said Ross Payne, managing director of Wells Fargo Securities and keynote speaker at the IRMI Energy Risk and Insurance Conference here. Since 2009, production in the United States is up 72%, he said. “That’s a phenomenal increase, driven by shale production.”

The huge boon in shale production was the result of technology. “Just sticking one straw into shale was not going to be economic, butwhen you were able to take that drill bit and turn it horizontal, and go out one to two miles horizontally and pop a hole into the ground every hundred yards along that one or two miles, you got enough flow to make that economically an option,” he said. “That’s why, when we broke the technology on that, it did change the world as we know it.

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”

Looking at energy from 30,000 feet, he explained that, since the early ’90s, the energy sector has enjoyed “one way pricing,” which was brought about by constricted supplies. The only new technology before developments to extract shale came along was in the deep water offshore arena, “a brand new territory for drilling in the 1980s and ’90s.”

Adding to that was dramatic global growth and demand, primarily from the BRIC countries–Brazil, Russia, India and China–and geopolitical issues such as the Arab Spring and the Iraq war, Payne said.

With high prices, however, “you get substitutions and you get disrupters. Clearly shale has become a disrupter.” What kind of impact has shale had on the industry? “Just since 2011 to 2013, the Energy Information Administration (EIA) doubled their crude basin estimates to 95. There are now 41 countries out there with significant shale assets.

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Shale reserves increased 980% in that two year time frame. Currently in the United States, 42% of production is through shale, with crude production around 50%,” he said.

As technology continues to evolve, Payne said, “we are continuing to do a better job of pulling this gas and crude out at a lower price. We are going to get more prolific and drive down costs even further.” Meanwhile, other countries, including China and Russia, are doing the same.

“Shale is the future, it’s the future on a global basis as well,” he said. The country with the largest shale reserves, he noted, is Russia, with the United States in second place. “We’re obviously the largest producer of shale crude, and China is number three.

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On the natural gas side, China is number one and the U.S. is number four.”

But how long will crude prices stay low? “We think it’s going to be awhile,” Payne said. “Because of shale, prices will be capped. As prices start to come up, we will see a situation where rigs come back on line very quickly. We think that, as we get into the $65 to $70 per barrel range, a lot of rigs will come back on line,” he said. “At peak, we were at 1,610 crude rigs in the U.S., and if you have 1,610 rigs working in the fields primarily on shale, you will get 1 million barrels of growth year-over-year.” He also does not see prices going much above $80 because of the ability to turn these rigs so quickly, primarily in the U.S.

A poll among energy experts in the audience as to where prices will be by the end of 2015 reached a consensus of $55 to $60 per barrel. Asked whether he believes the Nixon-era ban on exporting oil will be lifted, Payne pointed out that a number of CEOs have been pushing for U.S. exports of crude. “I’m surprised that Obama let LNG [liquefied natural gas] exports materialize as quickly as he did,” he said, adding that the president has allowed for other similar exports as well. However, he warned, “Once we start to export, there could be a knee-jerk reaction from OPEC. We are going to be viewed as a competitor rather than a customer, and they may want to squelch that competitor a bit longer than people’s expectations. So I think there is a danger to doing that, but it could very well move forward.”