October 09, 2020
October 09, 2020
Contributor: Rob van der Meulen
Enterprise risk management (ERM) and chief audit executives should manage risks stemming from the 2020 U.S. presidential election.
Every four years, the U.S. presidential elections raise regulatory, trade and other enterprise risks that enterprises must plan for, but 2020 presents an especially challenging environment for assurance leaders given the range of uncertainties and polarized state of political opinion.
“The polarization in mainstream politics is clearly spilling into the workplace,” says Laura Reul, Specialist, Research. “This in itself is a major risk, but we advise risk managers to assess the entire range of risks relating to the election.”
Download Research: U.S. Presidential Election Risks
Election-related risks range from workforce contention to economic risks. Assurance leaders should consider these five ways to address some of the major risks.
Read more: COVID-19 Makes a Strong Business Case for Enterprise Risk Management
Social unrest is particularly acute in the U.S. compared to prior years. Social instability creates broad operational and economic risks over time, but the fastest-moving risks come from company responses to contentious issues.
“Customers, employees and investors increasingly expect companies to take a stand on social issues,” says Reul. “But figuring out the right response is fraught with the potential for missteps.”
Risk and audit professionals should assess the risks of their organization’s decision-making approach to commenting on social issues. Strict rules for commenting can help get everyone on the same page, but leaves little wiggle room when companies enter uncharted territory.
On the other hand, decentralized decision making based on individual judgment might offer more flexibility and sincerity at the risk of sending mixed messages.
Instead, find ways to define and translate corporate principles into guidelines. This gives everyone a north star to follow (and helps make sure the company is actually living up to its stated principles).
Read more: Should Corporate Comms Engage in Social Issues?
Recent Gartner surveys show that political disagreement is becoming more prevalent in the workplace, with 60% of employees reporting that the election is impacting their ability to get work done. That’s up from 47% in February and 39% in December 2019. Four out of 10 U.S. employees say they have avoided co-workers due to their political views.
Most organizations should address politically driven employee actions directly. Risk and audit leaders can partner with HR to review political expression policies that pertain to things such as political campaigning during work hours, using organizational assets to support a party or candidate, or political dress such as logos or buttons.
Another important step is to equip managers to support employees and manage political conflicts when necessary as part of a wider commitment to building a safe and inclusive workplace for everyone.
Making predictions based on either candidate’s stated policy platform probably won’t be helpful in preparing for the post-election landscape, because the connection between campaign promises and enacted legislation is always tenuous.
Instead, risk and audit leaders should create a dashboard that charts the complexity, volatility and dependency of the regulatory landscape. Use this dashboard to keep senior leaders informed on critical regulatory issues, and as a starting point for educating stakeholders on the implication of new legislation and discussion of any possible control deficiencies or gaps that could jeopardize operational continuity in the face of changing regulations.
Risk and audit leaders can’t control the economy or the outcome of the election, but they can mitigate the effects of market volatility with a few principles around risk communication. Work with the investor communication team to ensure your organization communicates long-term, not just immediate, risks to investors. Also, communicate specific proactive mitigation plans.
“Risk and audit leaders need to collaborate with investor relations teams to settle on what types of information about risk preparedness and mitigation strategy is most valuable for investors,” says Reul. “Not everything will be fit for public consumption, but a little can go a long way to soothe investor fears.”
With the spectre of fresh coronavirus lockdowns looming, in addition to the uncertainty from the election, it will also be critical for many organizations to be well-prepared for trade risks.
Risk and audit leaders need to ensure supply chain contingency plans are in place for critical goods and services that may be affected. Further, they must create and monitor key trade risk indicators, such as the number of suppliers in affected geographies or the percentage of third-party suppliers deemed critical to business operations. These indicators can then provide the trigger for enacting any contingency plans when necessary.
Most organizations need to modernize their risk management tactics to address the increasingly interconnected geopolitical landscape. In terms of political risk insurance, assess whether it makes sense to move from country-specific risk policies to an inclusive global policy that covers all revenue streams and supply chains more comprehensively.
In terms of monitoring and intelligence, risk and audit leaders should be aiming to build in-house expertise rather than relying on externally sourced experts. Secure access to relevant data to help guide the decisions of in-house experts.
Governance and structure is, in most organizations, quite siloed to specific geographies and uncoordinated with environmental, social and corporate governance or corporate social responsibility efforts. In today’s interconnected geopolitical environment it makes more sense that enterprise leaders manage political risks holistically and take a cross-functional approach to address multifaceted threats.
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Recommended resources for Gartner clients*:
U.S. Election Prep: Assess Risks Across 5 Categories
*Note that some documents may not be available to all Gartner clients.