Political Risk Brief

Political Risk Assessment: A Solution for the Era of Volatility

Introduction

Driven by powerful trends, America has entered a new and tumultuous political era marked by ideological activism, government intervention, and electoral turbulence.  As a result, business leaders confront proliferating regulatory and legislative vulnerabilities.  The challenge to CEOs, boards of directors, and other senior decision makers: anticipating and managing political risk to core business interests amidst heightened uncertainty.  

Developed and proven over more than a decade, Baron’s Political Risk Assessment provides a powerful solution to the most serious threats to the Fortune 500, high-growth middle market companies, and leading startups.  The core of Baron’s approach is applying the discipline of Net Assessment that the U.S. Department of Defense employed to win the Cold War.

The Problem

The complexity and difficulty of political risk can thwart the efforts of industry leaders.  Many companies struggle to assign clear internal responsibility for the tasks of assessing risk and developing solutions, with various executives involved in government relations and public policy dividing the portfolio.  Consequently, organizations tend either to overlook or downplay the mounting danger, especially broad trends that have not yet produced a specific attack on the company.

When confronted with direct criticism – usually generated by an external shock and/or ideologically-driven third parties in concert with sympathetic elected officials – companies understandably seek to avoid a crisis.  In such situations, corporate leaders often pursue relief through a combination of substantive concessions and hires who enjoy credibility with the attackers. 

Such efforts commonly fail, as the concessions undermine the company’s moral confidence and standing, encouraging additional demands.  Furthermore, to maintain credibility with their ideological peers, the hires push internally to deliver even more concessions.  This approach alienates the company’s natural political allies, who resent being abandoned to satisfy implacable enemies.

Caught between ideologically-driven internal hires empowered by external pressure groups and the urgent need to rebuild trust with natural allies, the company struggles to find equilibrium.  The frequent consequence: a serious deterioration in morale, reputation, and political position, leaving the company vulnerable to onerous regulation and legislation.

Baron’s Solution: Political Risk Assessment

Baron illuminates the forces shaping the political landscape.  Electoral, legislative, and regulatory outcomes reflect cultural, ideological, and demographic trends.  Often, success requires that companies not merely understand these fundamental drivers, but actively engage the processes that translate civilizational trends into political impacts. 

Baron’s approach is modeled on Net Assessment, the Pentagon’s pre-strategy analytical process that produced deep insights into the Soviet Union during the Cold War.  Even as prominent strategists predicted long-term Soviet advancement and victory, practitioners of Net Assessment revealed critical weaknesses by “studying broad societal, demographic and technological trends to give early warning” of genuine challenges and opportunities.1   Inspired by Net Assessment, Baron identifies the under-appreciated currents that drive events and equips clients with a practical plan of action.

Baron’s Political Risk Assessment begins with obtaining an understanding of client objectives and conducting a rigorous analysis of the history, culture, institutions, and personalities that define the relevant competition of interests.  Baron then maps the decision-making process and holds detailed conversations within a trusted network of decision makers and opinion leaders to obtain high-quality, granular insights.  Baron distills this information into actionable recommendations enriched by a deep understanding of the broader environment.

Baron’s methodology differs markedly from other government relations vendors – including attorneys, lobbyists, public relations firms, and grassroots mobilizers – who define themselves tactically.  Organized by function, such companies presume a particular response to a given problem.  In contrast, Baron focuses exclusively on the development and management of strategy without any programmatic bias.

This “tactical neutrality” aligns the incentives of the firm with the best interests of clients, preserving the integrity of objective, fact-based strategy development and implementation.  For more than a decade and across diverse business sectors, this approach has reliably guided clients through the most challenging political terrain.

Case Studies

 

A company with a market cap in the tens of billions of dollars prepares for a major expansion that carries substantial reputational risk.  Baron conducts a Political Risk Assessment, involving dozens of sensitive meetings with policy experts and political leaders, to develop a strategy that upholds the company’s values and codifies best practices while avoiding a potentially serious political confrontation.  The resulting strategy helps guide the company through a successful announcement without any erosion in political position.

 

A company with approximately 5,000 U.S. locations confronts onerous regulations from a federal agency.  Baron conducts a Political Risk Assessment to assess the challenge and develop a comprehensive legislative, communications, and coalitions strategy to reverse the agency’s direction.  Baron recruits and manages a coalition of other businesses operating more than 20,000 U.S. stores.  The coalition’s campaign results in the introduction of legislation with more than 100 House and Senate co-sponsors, producing tangible pressure on the regulating agency.  The result: savings of more than $100 million in averted compliance costs.

 

A corporation in a highly-regulated sector prepares to make an investment that would rank among the largest in the company’s history.  Baron executes a Political Risk Assessment to help protect and enhance the company’s multi-billion-dollar investment.  The project involves consultations with nearly 100 government officials and experts, as well as real-time monitoring and guidance concerning policy, public relations, and political developments.  The analysis reveals unforeseen vulnerabilities and opportunities, equipping the client with critical insights.

 

Backed by more than $100 million in venture capital, an innovator seeks to disrupt a heavily regulated market.  Established incumbents and vested political groups respond with state and federal regulations that would prohibit competition and undermine innovation in the industry.  Baron generates a  Political Risk Assessment that successfully predicts the next two years of actions by Congress, numerous executive agencies, disparate non-profit groups, and private-sector competitors. 

 

1  Editorial Board, “Editorial: Honor Andy Marshall,” Defense News, January 5, 2015,  https://www.defensenews.com/opinion/intercepts/2015/01/05/editorial-honor-andy-marshall/.  See also: Andrew Krepinevich and Barry Watts, The Last Warrior: Andrew Marshall and the Shaping of Modern American Defense Strategy (New York, 2015).