Managing Political Risk in International Trade

There are a number of risks for an entrepreneur to consider before taking their business to the global markets. One of the major risks to consider is the political climate of the country. Political instability can lead to a government overthrow, ethnic warfare and terrorist activities aimed at foreign nationals. In volatile times, the business climate in another country can quickly turn disastrously toxic for foreign companies. Multinational businesses devise various contingency plans and strategies to identify, reduce and respond to this type of operational risk.

Due Diligence

Multinationals perform a great deal of research before committing to doing business in a foreign market. Here, the work of expert, such as an international lawyer, is of significant value when conducting due diligence. Legal memorandums for prospective international operations include detailed political and legal risk assessments. Legal counsel often explains how these risks may be offset through lobbying efforts or through building key community-based alliances.

Personnel Security

When political risks pose personal danger, security is increased for both company employees and customers. Private security is often employed to supplement government security through policing services. Reductions in personnel levels may be warranted in areas where risks are particularly high and security can not be guaranteed. It is a good security practice to maintain accurate records for all employees, which may become very valuable in the event of an emergency.

Customer Accommodations

Customers, suppliers and partners may be adversely impacted by a company's inability to continue normal operations. For example, when an airline receives a terrorist threat, risk management acts may include informing the media about threats and providing temporary shelter to both customers and employees. In such a case, business interruption insurance may protect a company from such unexpected costs.

Insurance and Performance Contracts

Financial lost can occur for multinationals when political tensions erupt into interruptions to global supply chains or into violence that results in damages. Costs are frequently mitigated in these worst case scenarios through business insurance that covers production stoppage or damage claims due to political risks. The force majeure clause in a contract also takes on great significance where it seeks to excuse a party from the cost of non-performance of a contractual duty when certain unforeseen events occur beyond the company's control. The comparative differences in contract law between countries can result in varying interpretations of such provisions.

The Social Media Policy, Risk Management and Employment Law

Developing Corporate Social Media Polices. Photo: Joe Lodge/Flickr (CC)

Social media communications can have an eternal shelf life with significant impact on a company's brand. Sensitive company information can quickly become subject to public scrutiny or create legal exposure in this era of instant micro-publishing. Communication outlets like Facebook, Twitter and LinkedIn can turn an employee's general discontent into to a brand manager's nightmare. All of this should give pause to those charged with developing risk management strategies.

To Post or Not to Post? Is That the New Question?

Companies recognize the growing risk management concerns related to social media. The practical and proactive strategy used by most managers is to develop a written social media policy. In fact, coupled with computer software blocking and filtering techniques, many employee handbooks already cover some social media policy during business hours. What happens after an employee leaves work is becoming the area of growing concern for employers.

The Overly Broad Social Media Policy

A disgruntled employee's Facebook communication about her supervisor did not justify her employer, American Medical Response of Connecticut, Inc. (AMR), firing her, according to a February 2011 National Labor Relations Board settlement announcement. AMR had a social media policy in place when firing the employee and it did purport to cover the employee's post-work activity.

The NLRB complaint against AMR was that its policy was overly broad. The complaint's settlement included AMR's agreement to revise the policy. Though it would have been quite instructive for industry, the NLRB did not publish the exact content of the AMR policy that was found too restrictive.

On April 27, 2011, the NLRB announced approving settlement of another Facebook related firing which included making the employee whole by the company for lost earnings. A telling search at the NLRB website performed for "Facebook" recently returned 17 case results, and 7 case results for "Twitter". The increased use of social media by workers may lead to greater employment law disputes involving this realm of electronic communications.

Industry Benchmarking and Professional Counsel

Many companies make their social media policies directly available on their websites. Chris Boudreaux developed a handy database of policies from 174 companies. Sort it by industry to gain comparative insights on the risks that mainstream organizations are covering in their policies.

Suffice it to say, a comprehensive policy is shaped by a company's industry standards and the requirements of its legal jurisdiction. Small and midsize businesses without in-house counsel, should take care that an HR or compliance officer, or outside legal counsel, regularly reviews an existing, or prospective, policy. This will make sure that it complies with applicable federal and state laws, as well as the growing administrative law settlements and decisions.