US boards increasingly face a “make or buy” decision in acquiring expertise on geopolitical risk, according to a leading academic, as big companies come to terms with “geoeconomics”—the use of economics by governments to pursue power politics.

Curtis Milhaupt, a law professor at Stanford, says few companies disclose how they manage geopolitical risk. The warning comes against a backdrop of rising tensions between the US and China, which have triggered sanctions, tariffs and export controls to be navigated by multinational companies.

Milhaupt writes that the situation is having a knock-on effect into “firm-level” governance, with impacts on boardroom expertise, assessment of risk, compliance, supply chain management and litigation risks.

He raises questions about the readiness of boards; his research “indicates that while the number and percentage of independent directors with international experience is significant and increasing steadily, the number of independent directors with experience in government or the military—presumably valuable training ground for skills directly relevant to the oversight of geopolitical risk—is modest and declining.”

After examining disclosure on geopolitical risk management, Milhuapt finds: “A small number of companies have assigned the task to a specialised risk committee or risk officer. Virtually none of the disclosing companies provides any information about how geopolitical risk is assessed or mitigated.”

Hands across the water

When it comes to supply chains, Milhaupt finds companies engaged in “friend shoring”—turning to suppliers in allied countries. But he notes: “Successful friendshoring will be a complex, protracted process requiring close collaboration between Western governments and corporations to evaluate and manage each stage of often lengthy supply chains.”

Recent research by professional services firm KPMG found that global companies see geopolitical risk, along with trade policies and AI governance, as the greatest threats to growth. Around 3,000 trade restrictions have been imposed since 2019, according to the firm. KPMG also points out that 91 countries were involved in “some form” of conflict in 2023.

According to the World Economic Forum, 60% of people expect “stormy or turbulent times” in the next decade, while geopolitical concerns have overtaken inflation as the number one risk factor for central banks and sovereign wealth funds. Central banks intend to bolster their reserves and further diversify their holdings in response.

Global politics and trade are in a state of flux. That is bound to have an impact on corporate decision-making and governance. Adapting to the new environment will be a priority issue for boards.