Five Ways Leaders Can Navigate an Increasingly Politicized Business Ecosystem

Article

June 17, 2024

3 min

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Executive summary

We look at the shifting interaction between politics and business, and share five ways leaders can navigate an increasingly politicized business ecosystem.

Political dynamics are constantly shifting, with the continuation of the Ukraine War; instability from the effects of the Israel-Gaza conflict; the anticipation of high-stakes elections across 76 countries; and uncertainty around China’s economy, as well as its national security and trade competition implications.

The pressing issue of climate and environmental challenges, increasingly effective activist pressures on corporations, and other social causes also impact political dynamics. Leaders can no longer afford to retroactively think about political risk when a specific event occurs, or view it in a vacuum.

45% of leaders rate geopolitical uncertainty as a top-five threat to organizational health.

Given these interacting issues, it’s unsurprising that our Global Leadership Monitor found that 45% of leaders rate geopolitical uncertainty as a top-five threat, an 8-percentage point increase from six months ago. What’s more, it’s a threat leaders feel least prepared to address.

The traditional view of political risk is obsolete. Nearly everything has changed—power dynamics have transformed, transparency is expected, and government intervention has increased. Above all, the fundamentally political perspective on the role of business in society has evolved. Yet only 27% of organizations say they are developing new leadership skills to address the evolving political landscape in the long term. It’s critical for leaders to recognize that they are now operating in a highly political business ecosystem and focus on developing the capabilities to evaluate their business strategy and operations through a political lens.

The interaction between politics and business

While business has always considered the broader political backdrop, that backdrop is now a fast evolving tapestry made up not just of government positions and political parties, but also of customers, employees, external partners, and numerous other stakeholders across various communities. Increasing digitalization also amplifies and polarizes this politicized ecosystem; information and opinions (regardless of their veracity) are quickly disseminated, and tools to engage in everyday activism are more accessible. Broadly speaking, politics—the expression of values and beliefs about how society should operate— must now be central to business leaders’ priorities.

Examples of how issues are increasingly driven by political perspectives

Social and cultural issues

At the height of the pandemic, wearing masks in the US was not merely a matter of public health or civic courtesy, but also became a symbol of political allegiance. Instituting mask mandates were anything but simple; businesses needed to understand the political implications of these policies. Business goals’ impacts on society and culture must also be considered. For example, an Australian mining company faced public denouncement for destroying an ancient Aboriginal site when they expanded their operations. Attempts to repair the organization’s brand and image have been extensive, including replacement of the CEO, the chair of the board, two senior executives and a board member. This incident also increased investor pressure on the industry to address heritage management practices.

Geographical concerns

At its core, globalization is a socio-cultural phenomenon, and is naturally intertwined with geographical concerns. Consulting firms and multinational organizations—which have grown tremendously via globalization—are now dealing with the complexities that come with having a significant presence in all corners of the world, particularly in countries that are going through their own economic and political difficulties. These companies now need to reconcile their work, advice, and clients with the reputation they strive to have.

Technological advancement

There is an increasing demand for technology companies to take responsibility for unintended usages and consequences from their products and services. Most recently, twenty notable technology companies—including Microsoft, Google, and Meta—have committed to ensuring that their products and services are not interfering with elections, and The Center for Countering Digital Hate has generated a report to ensure accountability. Technology companies that have not made this commitment and fail to block false images or, worse, generate misleading content, will find themselves in poor market standing.

Economic uncertainty

It’s no surprise that economic uncertainty fluctuates with political platforms and cultural expectations—the political institution in seat will impact the economy and, in turn, business strategies. This interaction is currently at play in China, as leaders explore various ways to revive its economy. Not only will businesses have to decide how to partner or invest with China, but they will also need to develop a perspective on China’s cultural exceptionalism and government, as operating in a single-party state brings fundamentally different implications from operating in a democratic environment. Political perspectives and government actions are becoming ever more relevant to market movements, and their impacts are becoming less predictable. In addition the recent immigration flow into Western countries will have both an economic impact (inflation, productivity metrics, and government budgets), as well as continued cultural impacts (opportunities for low-skilled migrants, increase in diversification and specialization, and living standards).

These examples illustrate the cultural disruption businesses are facing. As expectations change around the role of business in society, organizations need to demonstrate how their purpose, business model, and growth strategy coexists with developing social mores. If businesses are unable to integrate a political perspective into their strategy and operations and tangibly demonstrate their responsibility to the communities in which they operate, they open themselves to additional risk and uncertainty.

Adopting a political perspective for effective decision-making

Only 36% of leaders feel it’s important for the CEO to speak out on political and social issues their employees care about.

While there was a period in which CEOs and business leaders were under pressure to speak out publicly, and many did, this appears to have now settled down. Only 22% of leaders think that employees expect the organization to take a stance on political issues that don’t immediately relate to the business. Even when considering stated employee priorities, only 36% of leaders feel it is important for the CEO to speak out on political and social issues their employees care about.

While leaders are not expected to speak up on every issue, they should not make the mistake of becoming politically disengaged. Instead, leaders need to evolve their understanding of the new political risk equation, as well as the intricacies of effectively engaging with and responding to specific issues within a politicized ecosystem.

To address this, organizations should evolve to become politically-skilled. This requires leaders to learn how to view their business through a political lens, understand divergent and conflicting sociopolitical views, and judiciously enhance business strategy amidst these dynamics.

While it isn’t necessary for organizations to associate themselves with a particular set of issues, they need to proactively develop a unifying, strategic perspective on how they engage with societal issues, international relations, domestic politics, and global factors that impact their specific ecosystem of societal good, employee sentiment, investor/shareholder priorities, public opinion, and business operations.

This may seem like a tall order when everyday operational challenges are simultaneously demanding attention. Yet leaders who are skilled at such political thinking are better at making effective, cohesive decisions and maintaining a resilient, strategic mindset, which consequently contributes to smoother and more effective operational performance.

Some organizations—political champions—may be interested in taking a direct position and publicly advocating for issues that are important to the business, employees, and/or their targeted consumers. Political champions do not engage in ad-hoc, seasonal issues; their political perspectives are built into the business’ DNA.

Notable champions include:

Patagonia: Embedded environmental and societal values in business practices and consistently engages in advocacy efforts on climate change and public lands conservation.
Chick-fil-A: Associated with conservative values; leadership is publicly involved in philanthropy and advocacy aligned with their beliefs.
Ben & Jerry’s: Outspoken about social justice issues and uses products and marketing to promote social and political causes.

Only 43% of CEOs feel they have the support and expertise internally to help them navigate political issues.

Political champions can either be vocal (engaging in public advocacy or lobbying efforts) or quiet (demonstrating their stances through the types of vendors they work with, external organizations they partner with, or how they support their employees or customers).

One potential barrier in becoming a politically-skilled organization (or, if relevant, a political champion) is a capability gap at the top. Even though 80% of CEOs are clear on what issues they need to speak up on, only 43% of CEOs feel they have the support and expertise internally to help them navigate political issues.

How can leaders effectively operate in an increasingly politicized business ecosystem?

We spoke with Dr. Joe Zammit-Lucia, an expert on business leadership in contemporary culture, public speaker, and author of The New Political Capitalism: How Businesses and Societies Can Thrive in a Deeply Politicized World. He shared five recommendations for leaders to effectively navigate an increasingly politicized business ecosystem:

Recognize that there is a new political paradigm. Traditionally, business leaders have not had to look at their businesses through a socio-political lens because it wasn’t a necessity. Business schools didn’t (and mostly still don’t) teach how to look at businesses as political actors, in addition to commercial and economic actors. However, leaders who can develop these skills and new perspectives will be more effective, successful, and resilient in our politicized ecosystem.
Embrace the spirit of learning. To stay abreast of evolving political sentiment, leaders need to embrace the spirit of learning regarding how their organizations can continue to provide value in a highly politicized world. It is not enough to try to be on the “correct side” of the short-term socio-cultural virtue signaling. Leaders are now expected to think critically about how they can provide net value beyond financial capital, including social, political, human, knowledge, environmental, and institutional capital.
Understand how issues are relevant to the business. Leaders aren’t expected to publicly engage with every issue. When leaders do take a stance on specific topics, they should do so with clarity on how engaging with these issues will impact stakeholder experience with the business. The challenge is to be proactive. Organizations should not merely act in response to activist pressure, engage with the hot topic of the day just for the sake of it, or delegate fundamentally political topics to a remote department—these actions relegate strategic questions into simplistic tick-box exercises. Instead, organizations need a solid understanding of how their business strategy and operations align with the ever-evolving socio-political environment.
Amplify integrity and transparency in decision-making. Actions speak louder than words. When leaders “declare their values,” they need to ensure that these values are reflected in their business’ strategy and operations. An empty declaration of support is a surefire way to incite activists to examine every aspect of your business, and practices that misalign with values are certain to be uncovered.
Strengthen cultural leadership skills. With stakeholders holding a wide range of values and beliefs, business leaders are more likely to find themselves in situations where it is important to “build a coalition of everybody.” This is a leadership capability which many have still yet to build in this new political paradigm. Organizations are comprised of people who, of course, cannot be reduced to a simple spreadsheet model. To effectively reconcile differing social and political perspectives, leaders need to understand the interaction between identity and culture in the workplace, continue to lead with purpose, be inclusive around values and beliefs, and be cognizant of how emotions are influencing decisions and relationships.

Authors

Joy Tan and Tom Handcock of RRA’s Center for Leadership Insight conducted the research and authored this report.

Learn more about the authors and the Center for Leadership Insight

Dr. Joe Zammit-Lucia is the founder of RADIX and author of The New Political Capitalism: How Businesses and Societies Can Thrive in a Deeply Politicized World. He is based in London.