Political Risk Management

75 Pages Posted: 20 Jan 2022 Last revised: 14 Feb 2023

See all articles by Omari Scott Simmons

Omari Scott Simmons

George Washington University Law School

Date Written: December 31, 2021

Abstract

The COVID-19 pandemic and social unrest have focused considerable corporate attention on political risk. The disruptions to company operations are voluminous and diverse: entertainment and hospitality industry closures, airline industry cancellations, eviction moratoriums in residential real estate, international trade interruptions, manufacturing supply shortages, employee vaccination mandates, and ride-hailing service restrictions. Enterprise risk management (ERM) is the mechanism through which boards and their respective firms can manage complex political risks. In the current business climate, more companies should emphasize and integrate political risk oversight in their ERM programs. Although neglecting political risk may not trigger legal liability from regulators or courts, it can cause significant financial and reputational losses to the company. Contemporary corporate boards should not operate with political blinders; they must remain politically sensitive. Politics should not be avoided but managed in a nuanced way pursuant to effective board oversight of ERM. Companies must contend with courts of law and the court of public opinion, each with its own distinct rules. Missteps in the latter may injure the corporation more seriously than unfavorable judgments in the former. The failure to manage political risk is not in the best interests of the corporation. This article adds to the legal literature in three important areas. First, it situates political risk within the contemporary ERM discussion. Second, it re-examines how corporations engage with politics in the contemporary context. Finally, it contributes to theories that posit the large modern corporation as a quasi-public institution and argues, with some caveats, that it functions as a quasi-political institution, mandating more robust board oversight of political risks.

Keywords: directors, boards, board of directors, enterprise risk management, ERM, ESG, corporate governance, risk, politics, corporate, political risk, shareholder, stakeholder, oversight, corporate law, regulation

Suggested Citation

Simmons, Omari Scott, Political Risk Management (December 31, 2021). William & Mary Law Review, Vol. 64, 2022/2023, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3998403 or http://dx.doi.org/10.2139/ssrn.3998403

Omari Scott Simmons (Contact Author)

George Washington University Law School ( email )

DC
United States

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