Navigating the Shifting Currents of Social Risk

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By Christopher Thackray, William Bandon, and Joseph Venturato

Prior to the technology age, it took years for social movements to shape law and policy, as well as corporate, non-governmental organisation (NGO) and individual behaviours. Transformative movements, such as women’s suffrage, the abolition of slavery and the expansion and equitable enforcement of civil rights in both the UK and the US, germinated and gathered force over decades (Figure 1).

Companies, due to the nature of their businesses, often had only tangential or indirect public roles in the progress of social movements. Thus, a company could credibly maintain a separation between the pursuit of its business interests and the perceived position of that company, or its leaders, on such movements. Though, admittedly in several instances, companies played significant roles in actively opposing social movements, particularly during the late 19th and early 20th centuries, such as the newsboys’ strike of 1899 and subsequent such strikes which eventually led to urban child-welfare practices.

Unless directly affected by the movement – such as a mining company vis a vis child labour laws – a business could stay publicly silent on a social subject without much fear of reproach, thus allowing it time to formulate and implement policies to address these issues in its own manner and timeframe without significant outside scrutiny.

But where previously social movements took years to affect the political, social and economic course of society, the rise of nearly instant global communications and a more ubiquitous travel infrastructure, and broader access to such technology and travel, has resulted in “on-demand movements” which generate a fellowship-effect allowing more rapid groupings of participants. Now, overnight, these social movements can leverage modern technology to bring to bear unprecedented social pressure to quickly transform existing social norms.

The resulting “enforcement” of these new social norms via social media, legislative and government policy change and consumer demands will unavoidably require companies — many of which have already used social media as a way to connect on a more intimate level with their consumers, stakeholders and employees — to publicly announce their position on social movements. With such greater global visibility comes the pressure to address head-on, rather than “stay neutral”, social movements that use and grow through these same social media technologies. This requires companies to rethink their approach to management of social risk.

There are various definitions of “social risk” available today, but they can be compiled and summarised as “the risk of a party (a company or individual person) suffering reproach from segments of society due to transacting or associating with another party that is perceived by society to have objectionable biases or incompatible views.” This is an easily comprehensible construct, familiar to so many as having its roots in the age-old concept of ‘peer pressure’. However, when social risk is translated from the schoolyard to the business world, particularly through the lens of the discipline of risk management, the way in which a company navigates the shifting perceptions of social norms requires:

  • Credible leadership with sound appreciation of the relationships between management of social risks, business strategy and results.
  • Strong risk management processes and structures.
  • Informed, nimble and predictive grasp of global social movements.
  • Understanding of the potential cascading effects upon the company’s business.
  • Strategies to address those risks.

Social risk in “neutrality”

Throughout history, individuals, politicians and company leaders have been pressured to declare a position — or declare “neutrality” — on movements to address local, national and global issues that challenge societal norms and unwritten rules. However, today’s global technology infrastructure, particularly social media, has accelerated the speed at which such social movements evolve and affect their change on government policies. More significantly, these technologies have amplified the reach and effect of those movements across the globe and across all sectors of society, including industry and business. The consequent social risks can quickly morph into simultaneous geopolitical, strategic and reputational risks for that same company.

This threatens not only to upend existing social norms and unwritten rules that are the subject of the social movement itself, but to also upend the historic ability of many companies to rely upon a muted or “neutral” response so as to appear unbiased. Rather, as has been made clear in recent decades, “neutral” is not the same as “unbiased”, and particularly when some of these movements are not necessarily partisan in nature. “To not have a position is to take a position” is still as true as always, and a “non-position” position can still be amplified and flagged within social media with or without the company’s involvement. In other words, companies do not have the ability to control their own narratives if they wish to remain silent.

The key for a company to successfully navigate a social movement’s risks is a detailed understanding of:

  • The specific movement and the societal shift for which it is advocating.
  • The underlying objective morality of that movement (both today and historically) – i.e., whether this is the “right thing to do”.
  • The likelihood and nature of the movement’s impact on government policy, and whether such changes may pose additional geopolitical or strategic risks for the company.
  • The consequences of the movement upon the company’s reputation, specific commercial offerings and stakeholders, such as employees, suppliers and other business partners.
  • Projections of how that movement might transform over time and affect (or be affected by) other movements.

The accelerating speed at which today’s active movements evolve, and the breadth and depth of their reach, is causing new iterations of geopolitical effects and risks. Some of these movements, although they may have been active for years, have suddenly hit “critical mass” of broad acceptability and gravitas in an unprecedentedly short period of time. Companies are now confronted with a decision on what stance to take well before their historic internal decision-making processes have been able to agree on what that stance should be. A company’s position on an emerging social movement may seem acceptable on the surface today and in the immediate future, but it carries the material risk that the position could ultimately have unintended adverse consequences for the company.

For example, the initial positions advocated by a social movement may thereafter transform into advocating views and establishing written or unwritten rules which the company had no intention of supporting. In other cases, there are likely still customers of the company who continue to appreciate that the company remains disengaged from active social advocacy — whether that advocacy is vocal and public or behind the scenes via influence lobbying.

Grappling with critical mass

As social movements evolve and gain critical mass within and beyond national borders, the effect on the political systems of affected localities, countries and regions can be profound and as rapid as the progress of the social movement itself. When this happens, particularly globally, what was initially a local social movement with local social risk can now become a geopolitical event. This leads to geopolitical and even strategic risks to the company that may manifest in several different ways, in several different countries or regions, each with a potentially unique consequence for the company.

For example, in one country, the social movement may spur much needed legal and economic reforms. In another country, that same movement may be met with strong opposition and reaction from its government or ruling class. This results in countereffects, such as exacerbation of political division, racial and/or class discrimination and hatred and retreat from international cooperative organisations or compacts. These countereffects can inflame (sometimes dangerously so) the societal tensions around the issue which is the subject of the social movement and pose significant geopolitical and strategic risks to companies conducting business in that country.

The challenge for a company and its strategic planning, communications and risk management teams is to have in place the processes and the training to recognise each specific effect of the social movement as being either a distinctly social, geopolitical or strategic risk. Then, to coordinate its risk management responses for each such risk type under what may be three distinct risk policy structures.

Companies will further be drawn (voluntarily or involuntarily) into the conversation by politicians who seek to leverage or oppose the values and loyalty of the company as they themselves grapple with the growing influence of the movements. Layering additional complexity upon this delicate challenge is the unavoidable reality that the company will likely have to navigate this situation publicly, in part because politicians are involved, given the ubiquity of social media and the 24-hour news cycle.

The companies, on the other hand, when faced with these competing interests, coupled with naturally heightened emotions and potentially damaging unrest, seek better ways on how they can incorporate the positive aspects of social movements and trends into their strategy planning and reputation management, while avoiding negative aspects and consequences of those movements.

Globally, the world has recently witnessed (and is still experiencing) several intense examples of these social movements morphing into geopolitical events that challenge how companies address social issues. These include:

  • Movements in reaction to global free trade, including trade sanctions and trade agreements, such as the UK’s exit from the European Union (Brexit).
  • The speed at which a movement, even one which may have been active for many years, can go viral, such as the Black Lives Matter movement.
  • Companies being expected to take sides in geopolitical disputes, such as China’s proposed changes to Hong Kong’s special status.
  • Social platforms supplanting traditional media outlets to deliver news and information in ways that highlight the inherent conflict between free speech and misinformation, leading to accusations of media bias, such as the divergent stances on this issue from Twitter, Snapchat and Facebook.

In each of these cases, the rapidity with which the triggering event led to a critical mass of widespread activism was met with strong counterreaction from the affected interests and governmental regimes.

Participating in the conversation

Because many movements have political implications, companies are now realising that the social risk of taking or not taking a position has real implications that can result in broad business impacts, both positive and negative. Before participating in the conversation, company leaders need to understand and weigh what is both tactically and strategically important to their shareholders, employees, customers, suppliers, sales distribution channels, etc.

Silence will not always protect the company, but how companies respond to a social or political movement that draws them into declaring a public position could have severe ramifications on the strategy and reputation of the company. The response could open or close access to a particular market, define the company as either part of the solution or problem and put its brand front and center in the movement. Therefore, companies face many challenges as they try to manage social risk by determining what position to take and the consequences of staying silent.

These are some steps companies can take:

  1. Incorporate social risk into strategy planning, promoting the awareness and preemptive mitigation of risks relating to how strategic decisions could draw the company into geopolitical and social movements.
  2. Include social risk in crisis management planning and preparedness, such as the development and exercising of social risk playbooks, ensuring that they are coordinated with similar playbooks for geopolitical and strategic risks.
  3. Test management’s competency in managing social risks with tailored training offerings.
  4. Create customer and shareholder communication templates linked to existing and emerging geopolitical and social movements.
  5. Review and update people policies to address the social risks of employees, contractors and/or consultants when representing the company brand.
  6. Establish a social risk management process with social risk intelligence incorporated into corporate governance processes.

Conclusion

The force and ubiquity of today’s social and political movements bring to mind the phrase, “you can run, but you can’t hide,” when addressing the substance and conduct of a mass social movement.

Although currently somewhat disparate, social movements are demonstrating how quickly they can build to a point where they drive the social or political agenda. Companies in turn have a decision to make on where they stand on an issue — one that heightens their social risk — and it is often one that must be made quickly which can lead to reactive decision making instead of proactive planning. Still, reactive (as vs. proactive) social risk management, like other risk types, can have negative consequential effects that have not been factored into the company’s future planning. With murky waters concealing unknown obstacles and a fork in the river ahead, companies need expert guidance to navigate the currents of social risk that lead to either dangerous rapids or calm waters.

To discuss the emergence of social risks and how they affect your company’s strategy, start a conversation with us.


By Christopher Thackray

Chris is a Managing Director of Periculum with extensive experience advising companies on the development of risk management, from credit and liquidity risk, to strategic, operational and reputational risk. Chris is a trusted advisor to Boards and C-suite executives across a variety of industries and is a keen author of risk management publications.

and Bill Bandon

Bill Bandon is a Director (non-executive) of Risk Adisory at Periculum and a leading technology and operations lawyer and shared services and sourcing professional with over 30 years’ experience. He is a co-author of "Emerging Technologies and the Law: Forms and Analysis," a two-volume treatise published by Law Journal Press. In 2017, he was part of the team from GE Capital that won the Innovation Award from the International Association for Contract & Commercial Management (IACCM).

and Joe Venturato

Joe is a Senior Independent Advisor to Periculum, leveraging his business-oriented approach and deep domain expertise in general management, finance, acquisition and divestitures, sourcing, and supplier/third-party risk management. He has worked in various roles at GE Global Banking, GE Global Supply Chain and Supplier Risk Management, and as a CFO and Managing Director at two different GE Industrial businesses. In 2017, after retiring, Joe founded EEEP Consultancy.

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