Just over a year ago I questioned whether BBVA had sufficiently analysed the geopolitical risk of investing in Turkey before buying a majority shareholding in the Turkish bank Garanti (http://www.shaunriordan.com/?p=209). As time has passed and Turkey’s geopolitical, economic and political problems have grown, my comments begin to look more prophetic. More recently I questioned the capacity for geopolitical risk analysis and management of the Spanish led consortium constructing the high-speed rail link between Riyadh and Jeddah (https://blog.aurorapartners.co.uk/2016/03/10/can-the-saudi-rail-project-emerge-from-the-diplomatic-void/). Not only did the consortium apparently fail to realise that the Saudi desert contained sand, but it also failed to develop the thick networks of influence and information among the Saudi Royal Family and among Saudi officials that would help protect the project. The latest Spanish company to suffer from its inability to analyse and manage geopolitical risk is Ferrovial. According to the Guardian newspaper: Ferrovial has been warned by the Stanford Law School that its directors and employees risk prosecution under international law for breaching human rights in Australia’s refugee detention camps on Nauru and Manus Island in Papua New Guinea. Ferrovial acquired responsibility for the offshore detention camps in May when it bought 90% of Broadspectrum, the company managing the camps.
Ferrovial’s response has been to say that it will not renew the contract, claim that it is a signatory to various human rights commitments and point out that many of the alleged abuses at the camp predated Broadspectrum’s involvement. It has also argued that it does not run the camps, but merely provides a considerable number of services. Apart from the feebleness (and irrelevance) of these responses suggesting that Ferrovial needs a new director of international communications, the responses also make clear that Ferrovial does not yet understand the potentially serious consequences for its reputation and its operations, across the world, and that it carried out insufficient geopolitical analysis before making the investment in Broadspectrum. Concerns about human rights abuses long pre-dated the Ferrovial investment. It would not have been difficult to discover them.
An increasing number of corporations now pay lip service to the concept of corporate or business diplomacy, or corporate social responsibility. But few appear to understand the full implications for the reputation of the corporation or its future operations. This appears to be a particular problem for Spanish corporations, which stumble from one avoidable geopolitical crisis to another. They seem to believe it is sufficient to appoint retired ambassadors to the board, or buy overpriced geopolitical risk analysis from large consultancy companies. They are wrong, as Ferrovial is about to find out.
Business Diplomacy for entering a new market, as Ferrovial was doing with it investment in Broadspectrum, envisages 4 phases:
- 4D strategic vision: analyse the geopolitical, political, economic, social, legislative and technological risks to the company, not only in the narrow context of the new investment, but also how that investment will impact on the company’s other operations in other markets. In other words an analysis that is holistic across all the markets where the company is operating. The analysis should also be dynamic across time – the world changes!
- Geopolitical stakeholder audit: identify the broad range of geopolitical stakeholders, governmental and non-governmental (including universities, NGOs, other companies, local government, media and civil society groups) who shape the geopolitical risk profile of the company and decide how risks impact on the company’s bottom line.
- Develop networks of influence and information among the geopolitical stakeholders identified in the previous phase.
- Building on these networks, generate multilevel and heterogenous coalitions of state and non/state actors to help promote and protect the commercial interests of the company.
What would this have meant in terms of Ferrovial’s investment in Broadspectrum? Firstly they would have analysed the full range of risks which the investment implied not only to their operations in Australia, but also to the other operations across the world, including in Spain and, for example, the UK. This analysis would have picked up in particular the risk to their reputation, but also the risk of legal action against the company and its employees in a variety of jurisdictions. If, having carried out this analysis, Ferrovial had concluded that the investment was still worthwhile, they would have developed network of influence and information among the key geopolitical stakeholders. This would have included human rights groups and other NGOs, as well as academics and the media. Developing these networks in itself should have allowed them to identify better the problems in the camps and develop joint project with NGOs and others to rectify them. These networks would also now mean that Ferrovial would be in a better position to defend its actions to a more sympathetic audience. There are of course NGOs and other groups in Australia who would attack Ferrovial whatever their performance in the camps as part of an attack on the Australian government. However, if Ferrovial had developed networks properly, it would now be able to use them to construct coalitions to isolate these diehards. In other words, if Ferrovial had developed a proper Business Diplomacy strategy for it investment, it would have understood better the risks it was undertaking, would have been better placed to avoid the problems in the camps, and when the crisis did arrive would have been better placed to respond and ensure a more sympathetic hearing for its case.
This is not the first time Ferrovial has encountered these kind of problems. Its investment in BAA encountered a broad range of political and other problems, which could have been avoided if a proper Business Diplomacy strategy had been adopted in the first place. In a volatile international business environment, in which universal rule sets are fragmenting and NGOs and other non-governmental actors are finding their power enhanced by new communication technologies, companies can no longer focus only on the commercial aspects of their business. Whether they like it or not, geopolitical and political factors will intrude. Either they develop effective business diplomacy strategies, or the non-commercial crises which hit hard at their bottom line will continue.