Managing Geopolitical Risk Starts with a Pragmatic CEO
The fact that a Duke University study found 80 percent of CEOs fit the profile for strong optimists should come as no surprise to anyone. People with an optimistic mindset have the confidence to ascend to top leadership roles, seize a market opportunity, develop an innovative product, and inspire others to reach for excellence. Dealing with risk has historically required this quality of optimistic idealism. But as the nature of “business risk” itself shifts with heightened global instability, does a different CEO profile emerge as most likely to succeed?
The changing nature of risk
Here’s where idealism as a strategy falls particularly short in addressing the new risks plaguing 21st-century global businesses: Where most risks were once either preventable (or at least insurable) or strategic risks that could be taken with reasonable calculation, the rising tide of geopolitical risks are none of the above.
Let’s be honest: All the scenario-building in the world will never adequately predict the nature and severity of geopolitical risk. Some of these risks are political and regulatory decisions over which American businesses have little or no control. Higher on the threat scale are the less likely (but increasingly less unlikely) scenarios of coups, insurrections and terrorism that can rupture a supply chain, cut off offshore labor and services, threaten company intelligence and endanger employees as they travel the globe. These risks are mostly unpredictable, unpreventable and uninsurable.
Lloyd’s city risk index reported that about half the economic risks faced by 301 cities around the world were related to manmade threats such as cyberattacks, market crashes and power outages. Many businesses respond by drawing back from markets, but in doing so, many miss out on golden opportunities. How then should leaders deal with this new brand of risk?
“Pessimists are usually right and optimists are usually wrong but all the great changes have been accomplished by optimists,” Thomas Friedman, a Pulitzer Prize-winning journalist and author and columnist at The New York Times, said.
Do the current threat levels mean it is more important to be right than to shoot for the great changes? Is a defensive posture what global CEOs are forced to adopt now?
Rather than kicking optimism to the curb and ushering in the naysayers, I suggest there is a different approach to establishing leadership specs most fitting to today’s shifting climate of risk.
Some risks are unpreventable, unpredictable and uninsurable, calling for a more pragmatic approach.
Situational pessimism to the rescue
Annie Murphy Paul wrote in Psychology Today that “science now sees optimism and pessimism not as good or bad outlooks you’re born with but as mindsets to adopt as situations demand” – a good piece of common sense and one that would behoove us to remember in candidate searches and succession planning today. Finding leaders who can employ situational pessimism, where appropriate, may be more successful in handling the unpreventable and highly unpredictable global decisions we increasingly face today. Hello, pragmatism.
Many CEOs don’t have the mindset or experience to do this, sometimes equating pragmatism with “pessimism”. They often have a built-in bias against “pessimism”, equating it to being a naysayer, risk-averse or easily spooked. However, in an uncertain macro-geo-political climate, being pragmatic may lead to the best outcomes for this category of risk. The unthinkable happens and does so with greater frequency.
The CEOs responsible for the travel and residential safety of employees around the world, the integrity of HR information and company intellectual property and an intact supply chain have a lot to worry about and should have the temperament to recognize the sober nature of their responsibilities.
“CEOs who can best manage geopolitical risk are politically astute.”
The CEOs who can best manage geopolitical risk need to be:
- Politically astute and well-informed to wisely evaluate recommendations by the risk management team versus simply rubber-stamping them.
- Personally uber-networked with sources of ongoing information in volatile countries and industries.
- Committed to devoting resources to planning for and mitigating the impact of a disaster should it occur.
These leaders may be a different breed altogether than the confident, optimistic superstars who earned their stripes through aggressive deal-making, marketing savvy or edgy new product development. These are more holistic, nuanced leaders, tuned-in beyond the traditional business perimeters.
CEO Job Complexity Deepens
PricewaterhouseCooper’s Global CEO Survey showed that executives’ concern over geopolitical uncertainty scores now ranks second to only to overregulation on the list of the top 12 threats to their organizations’ growth prospects. With this rising concern, the CEO job description gets only more complex, more rife with challenges that make growing a business anything but a straightforward, strategic leadership task. Before your Board selects the eternal optimist to lead the charge into new markets, keep in mind that a situational pessimist, a pragmatist, with an eye on the distant storm clouds and a sturdy lifeboat nearby may be the one who keeps your company afloat.