The role of Finance in a world of political instability
Posted by Noelia Gomez Rivero
A few weeks ago, when I was planning to write this post, my thinking was to write a completely impersonal post about political instability. From a distance, from safety, from a viewpoint that was confident about my nationality.
Given the change of events on the afternoon of the 27/10/2017, with the unilateral declaration of independence of Catalonia, the country where I was born but not brought up, political instability and all the challenges that it creates for us as individuals but also for us as finance professionals has become a topic more relevant than ever.
For some years, the world enjoyed relative peace and wealth. The credit crunch put a stop to it and what is more, it completely changed the sentiment within the electorate.
Trends that had been dead for decades such as populism, nationalism and terrorism in developed economies have come back and they seem to be here to stay. Politicians are adjusting their agendas to respond to these new demands and those who don’t, simply don’t seem to win elections that easily any more.
The changes introduced by this new breed of politicians, supported by their electorate, affect all areas of life, some for the better, some for the worse. Whether the effect results in benefits to your industry (for example, if defense expenditure is raised and you work in the industry); or in more complexity (if tariffs are introduced as a result of new borders); or in more instability for supply chains as a result of terrorism; or even in greater opportunities as the result of the fourth industrial revolution, it is clear that all companies need to adjust to the new norm of political instability.
The contribution from CFOs to political instability is critical as the response time to any event depends heavily on:
- How finance looks at risks. If risk management is limited to all well-known and tabulated risks and it is reported using an old fashion system, chances are by the time the team notice the risk, the competition and the world is already ahead of them. However, if risks are looked upon as dynamic variables whose presence and weight changes frequently and they can be reported easily, the identification and management of the risk is likely to beat the competition.
- How readily available the information is. If the finance department needs a month to produce a report and the final result does not include some very business specific information, it will be very difficult to find deviations and to respond in time. If the information is granular and readily available in real time, monitoring and reacting to changes is a lot easier.
- How adaptable the finance department is. This includes people and systems. If the team has always done things one way and they resist to adjust, in the event of a crisis, they will be difficult to manage and that will impact negatively your response. If, on the other hand, you have a fantastic team but your system doesn’t allow you to implement changes without deploying an army of external consultants and spending a few months, it may be that you are too late for legal changes and too late to respond to unplanned events.
If CFOs are able to assess their current situation, acknowledge the requirements raised from political instability and implement any necessary changes, they will transform the current threat of political instability into an opportunity, whether that splits Europe, countries or disrupts their supply chain. As political stability and economic change become the new norm, businesses have to be prepared with the right systems and processes in place to assess and deal with risks.
If you want to learn more about how Finance can support their company going through uncertain times, join our webinar on the 7th of November