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Doing Business in a Volatile World

Despite growing global uncertainty and instability, companies have yet to take the same formal and measured approach to political risk as they do to managing other exposures.

By Duncan Wood | Updated on May 01, 2009

Political risk can be devastating. Ask the mining companies in the Democratic Republic of Congo (DRC) that have been forced over the past two years to renegotiate their contracts. Ask HSBC, whose headquarters in Istanbul was wrecked by a terrorist attack in 2003. Ask the hedge funds that bet Brazilian stocks would tank after firebrand left-wing president Luiz In?cio Lula da Silva took office in 2003, then suffered heavy losses when the exact opposite happened.

Companies have always faced these kinds of risks: terrorism, civil unrest, regulatory change, the seizure of assets. But the exposure has never been as great as it is today, argues Christa Davies, CFO of Aon Corp., the global risk-management consultancy and insurance brokerage based in Chicago: “People are doing business in more countries–and a more diverse range of countries–than ever before. They might have operations on the ground, or they could be exposed through their supply chains, by sourcing product components or services in certain locations, or simply through the customer base. It absolutely has to be a core consideration in the way people run their business.”

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