Geopolitical risk is at the top of the CEO agenda, according to McKinsey’s latest survey of global economic conditions. In the face of fragmentation and uncertainty, many business leaders are responding by intensifying their focus on resilience.

For the past three decades, going global meant unlocking specialization and scale, developing markets, and creating multinational corporations. In 2021 alone, low interest rates and ample cash led US firms to spend $506 billion on foreign mergers and acquisitions.

But the orthodoxy of globalization is under strain. The latest salvo: multiple disruptions triggered by Russia’s invasion of Ukraine. The world seems to be tethered to crisis, or the threat of it. CEOs need to know whether they can still remain global players and, if so, how.

Looking ahead, the challenges are likely to only become more acute. According to the US National Intelligence Council’s Global trends 2040 report, in the next two decades, competition for global influence is likely to reach its highest level since the Cold War: “No single state is likely to dominate all regions or domains, and a broader range of actors will compete to advance their ideologies, goals, and interests.”

Amid these challenges, the value of resilience is on the rise. That is why McKinsey and the World Economic Forum launched the Resilience Consortium earlier this year. The consortium aims to convene government ministers, chief executives, and heads of international organizations to develop a common resilience framework for public- and private-sector organizations. Leveraging the principles set out in the framework, the consortium can hope to achieve more sustainable, inclusive growth amid external shocks.

To be sure, many global executives have an intuitive sense of where to focus initially to build resilience. However, most are seeking a more rigorous and analytical approach to fostering geopolitical resilience and to creating an enterprise-wide “resilience premium.”

To address the geopolitical risks of the present—and future—leaders should challenge their organizations on six key dimensions of resilience: business model, reputation, organization, operations, technology, and finance (exhibit).

1. Business model resilience

“Organizations that take a serious, systematic, and senior-driven approach to political risk management are likely to be surprised less often and recover better.”

– Condoleezza Rice and Amy Zegart, Political Risk: How Businesses and Organizations Can Anticipate Global Insecurity (Hachette, 2018)

Building business model resilience starts with the board. To exercise effective oversight and decision making, boards need to first develop an understanding of geopolitical developments that are material to the organization.

While most board members will have a “high altitude” perspective on specific risks, individual members may vary in their insight and interpretation, and the aggregate view may fluctuate as board membership evolves. To establish a benchmark for resilience, organizations should take a systematic approach to radiating insights on geopolitical developments and trends to the board and leadership team. This may take the form of analytical products, briefings, or scenario exercises—anchored not on the “what” but on the “so what” and “now what.”

Second, the sheer pace and volatility of geopolitical developments means that boards should not waiver in paying attention. They should dedicate time at each meeting to discussing relevant topics, and convene as necessary in the interim.

One way to focus and structure the board discussion is to identify priority geopolitical risks. Boards could leverage a tiered approach, with tier five denoting markets with the highest level of geopolitical risk and tier one denoting markets with localized risks that can be managed by local leadership and teams.

For many boards, the higher-tier markets are often identifiable. Questions we hear from CEOs on business model resilience in high-tier markets include:

How should I think about my corporate footprint and intellectual property amid geopolitical tensions?

Should I view my operation as a separate region that is carved off to insulate it from geopolitical tensions, or does the lack of direct control itself generate risk?

How should I view my relationship with my joint venture partner in the near, medium, and long term?

How do I manage extraterritorial and/or contradicting legal, tax, or regulatory requirements?

Is there a point where I will be forced to exit, and how I do work backward from that point?

In addition to grappling with these strategic questions in a top-tier market, boards also need to manage the longtail risk of operating across multiple tier-one markets.

To do so requires organizations to establish a mechanism to conduct regular global market scans and to assess in a scorecard fashion across internal teams—legal, security, finance, risk, and communications—the aggregate risk (versus opportunities) of operating in a particular market. These teams can provide recommendations to the board on options to recalibrate market presence or evolve the legal and financial structure of the organization. Their efforts can be coordinated by a dedicated geopolitical risk unit that may sit within an organization’s finance, government relations, legal, risk, strategy, or other teams depending on the organization’s structure.

Understanding and exercising oversight over geopolitical risk is necessary but not sufficient. The board should drive and direct the development of proactive risk-mitigation measures and crisis response with standing updates from teams on execution and material new issues.

2. Reputational resilience

“While there is a rising call for business to be more engaged in geopolitics, the call also extends to CEOs, who are expected to not only be the face of the new geopolitical corporation but they are also expected to shape policy on societal and geopolitical issues.”

– 2022 Edelman Trust Barometer special report: The geopolitical business

A first step to building reputational resilience is to strive for internal alignment around operations connected with geopolitically sensitive markets. In short, organizations need to know what they stand for (and what they are against).

Not every geopolitical crisis will comprise as sharp an inflection point as Russia’s invasion of Ukraine, in response to which many organizations have chosen to curtail or halt their Russia operations. In many cases, decisions will be less cut and dried. Therefore, organizations need to step back and parse out their stance on individual situations. One way to do that is to create market-specific assessments, or “compacts,” that fuse corporate strategy and risk management. These compacts should be clear in the organization’s priorities in high-risk markets and the criteria on which organizations assess and manage risks. They should also set out how to deploy the criteria in a way that is aligned with operational and performance goals. The risks could come in many guises, including financial, health and safety, legal, political, or reputational—for example, working with the public sector in countries governed by authoritarian regimes.

A clear stance is a prerequisite for the next step in building reputational resilience: developing a coherent values-driven narrative. Indeed, many organizations today are grappling with how to explain not just their stance but their core identity, notably around their presence in markets governed by authoritarian regimes. There is a recognition that the old arguments pegged to globalization and wandel durch handel (change through trade) have dimmed.

Based on our benchmarking of US-based multinational companies, we see three potential postures: proactive—for example, engagement is important for US competitiveness and leadership; reactive—for example, principled engagement with close attention to supply chain integrity; or silent—meaning generally avoiding public statements.

Whichever narrative an organization chooses, it needs to bear in mind that, in the age of instant information, the story told in one market won’t stay there. And a narrative that works in one place could inhibit market opportunities in another, or create sensitivities internally and among regions. In short, there is no silver bullet.

With a clear stance on the core of the narrative, the third step in bolstering reputational resilience is a robust government and public-affairs capability to communicate the narrative to key stakeholders. While the ultimate responsibility of articulating stance and narrative falls on the CEO, government and public-affairs professionals situated across key markets are critical to managing stakeholder relations, cultivating “air cover” in sensitive markets, and providing an escalation mechanism for CEO and leadership-level engagement.