Social media heightening political risk, says Marsh

Social media has intensified the political risk that some organizations face, as the technology plays a greater role in demonstrations, notes a new research briefing from Marsh.

“Social media can exacerbate political risk by accelerating the formation of political protests, and enabling civil unrest to more easily and quickly transition from a single-country phenomenon to a regional event,” noted Evan Freely, global credit and political risk practice leader for Marsh.

“Conversely, authoritarian governments may use social media to deflect popular discontent away from political leadership and toward foreign entities.

This unrest can translate into a variety of political risks for businesses, including expropriatory actions, forced abandonment, forced divestiture, property damage, contract frustration, business interruption, and trade disruption.”

Marsh points to protests in Egypt, where in June 2010, a page created on a social media site rapidly gained thousands of followers, leading to massive demonstrations on the streets of Cairo.

That means that the “rear-view” approach – examining past events for risk management – is no longer sufficient, Marsh argues.

Instead, the company advocates a multi-country and multi-hazard approach to managing political risk, including purchasing broad, multi-country insurance policies and detailed planning for business continuity.

In its research briefing, Marsh suggests that organizations doing business in countries with high levels of political risk should:

• Review their business interruption and supply chain resiliency plans, evaluate the impact of potential political risk events on their own operations and on those of their customers and suppliers.
• Ensure that they can communicate potential problems to employees, customers, and suppliers, and review crisis communication plans to ensure the safety of employees.
• Review their credit risks and credit control policies and procedures. Ongoing financial monitoring can identify strengths and weaknesses in their credit risk management processes, enabling firms to avoid bad debts and improve cash flow.

“The proliferation of social media will likely accelerate in the years to come, at times facilitating protest movements, including in some countries traditionally deemed ‘safe,’” Freely said. “It is vital that businesses recognize the added risks that social media can present and manage those risks accordingly.”