Political risk analysis: an industry fighting wars on two fronts

Milena Rodban is an independent geopolitical risk consultant and global

fellow at PS21. She tweets at @MilenaRodban and blogs
at MilenaRodban.com.
Im currently writing a book on the tradecraft of political risk analysis. I use
the word tradecraft not because Im suggesting that political risk analysis
involves the same type of cloak and dagger tactics of espionage, but because
I believe the best analysis is done by analysts who complement their
research with experience in the field, talking to locals, surveying
environments first-hand, and constantly accumulating new experiences, not
just sitting at a desk. Political risk analysis is not just summarizing information
found on the Internet; it is the result of research, discussions with experts, on
the ground experiences and advanced analysis, involving not just raw data,
but also a good deal of creativity.
My draft thus far does not paint the political risk industryby which I mean
firms from which other companies purchase political risk analysesin a
flattering light. In fact, the state of the industry appears to be quite tenuous,
and its no secret. When I had the chance to speak briefly with Nassim Taleb
at the Fletcher Conference on Managing Political Risk at Tufts University in
March, and told him that Im a geopolitical risk consultant, he gave me the
sort of sad smile that I imagine people reserved for proud typewriter
repairmen circa 1998. At best, most people now see political risk firms as

glorified research services with poor track records, and at worst as dens of
snake oil salesmen, promising far more than they could ever deliver.
It seems everyone whos paying any attention knows that the political risk
industry is mired in battles that it is by no means guaranteed to win. The
reality is that thousands of companies are paying massive sums of money to
political risk firms that claim such advanced proprietary analytical techniques
as literature majors sitting at a desk Googling all day long. Thats what a
business is missing, clearly- a Pushkin expert dissecting the details of
complex international sanctions related to financial transactions. The bigger
problem is, not every question can be found by Googling, but thats all most
analysts ever do.
Until recently, the political risk industry was only fighting a war on one frontclients finally realizing that theyre paying for mediocre intelligence. Clients
are increasingly pushing back on the bad products theyre receiving. They
know the potential that the industry has in helping them navigate complex
security and business environments, but these firms are not only falling short
of their potential, theyre casting doubt on the industrys value. In addition,
with the infusion of inquisitive millennials into their workforces, all of whom
expected to find fulfilling, intellectually satisfying careers, but are increasingly
ending up disappointed, these political risk firms are facing an internal battle.
The political risk industry is now facing a two front war- one from without,
waged by dissatisfied clients, and one from within- waged by disappointed
analysts.
The political risk industry emerged when businesses seeking to expand
abroad realized they were facing a complicated world full of tremendous risks
and enormous opportunities. Back then, in the 1980s, those individuals who
spoke languages, travelled widely and accumulated vast professional
networks were in demand, for the rich insights they could provide. These
people had accumulated years of travel experience and sector or political
expertise by serving in governments or international organizations, as
researchers, practitioners or engineers in lucrative industries such as oil and
gas, mining, etc. When they joined political risk practices, they brought their
experience with them, and these firms didnt have to invest very much time

or resources in their professional development. Clients generally got good

information, allowing them to seize lucrative opportunities, while
sidestepping major risks, because the analysts writing their products were
experienced, not because they were good at library research.
This was all well and good before the Internet, when specialized information
was hard to obtain, and well worth buying from specialized firms. Now, its
harder for political risk firms to pretend that they hold a monopoly on private
intelligence. So to stay relevant, many lobbied for regulations such as duty
of care and other compliance rules that make it necessary for clients to seek
the services of political risk firms. But if they want to be invaluable, if they
want to be indispensable, they have to do a good job. But these firms arent
meeting high standards, largely because of the war theyre fighting internally,
against cadres of disappointed analysts who realize that these firms arent
interested in doing a good job- they just want to make a profit by doing the
minimum.
Nowadays, those with significant expertise arent staying at political risk firms
any longer than necessary to gain some experience and clout. Others, not
based in major political risk centers like D.C., NYC and London, face hurdles to
entering the industry. Many dont see the point in joining what they believe to
be a doomed industry. Increasingly, theyre starting their own oneman/woman consulting shops- and many arent succeeding because its hard
to be a one-man global expert, especially if they lack the connections to find
paying clients. Sadly, anyone with substantial experience sees bigger firms as
a stepping stone to their own firm out of necessity, rather than desire. Once
they realize that promises of doing compelling work for interesting clients
means sitting at a desk and Googling all day long, without the expected
travel, first-hard experiences or intellectual satisfaction, they believe that
they have to go it alone to do things the right way. These companies simply
arent willing to invest in helping their own analysts hone true analytical skills
or expand their first-hand knowledge of locations or industries.
For the most part, the bigger political risk firms are now staffed with recent
grads who have little experience, but happen to speak an in-demand
language. As a colleague recently told me, most of these firms wont even

consider someone unless theyre fluent in the right language- even if that
candidate has years of real experience in politics or in international
organizations. Stunningly, a literature major who speaks fluent French is more
valuable than someone who worked to draft legislation at the EU.
(Interestingly, some now charge upwards of USD 400 per hour for access to
grad students doing research on topics of interests to political risk firms
clients. Thats one way to fund a dream of being a professional student, I
suppose.) And not only do these firms hire mediocre or inexperienced
analysts, but they avoid investing much time and resources in developing
these analysts skills, short of a few training sessions here and there. Some
analysts stay because they want to get paid. But the best ones, having
realized that there is no clear career progression or future for them, decide to
move on. A major firm experienced what one person with knowledge of the
situation called an exodus, having grown tired of the presidents use of
analysts as a way to prop up a personal media profile. So clients end up with
even worse products, because political risk firms are left with weak analysts,
some of whom are focused on making sure their boss sounds good on TV,
rather than working on the complex questions that businesses need
answered.
As a result, some firms have concluded that political risk will never meet its
potential. Many, especially smaller firms for whom major retainers are cost
prohibitive, are now seeking bargain analysis. If the products are going to be
useless, they reason, why pay more than necessary for them? As long as they
can tick the boxes on their compliance checklists, even bad analysis- which
no one will read anyway- will suffice. For someone like me, committed to
intellectual honesty, thats hard to swallow. Those who truly need the insights
that political risk analysis can offer are looking inward- bringing the capability
in-house instead of paying for retainers with the bigger political risk firms. But
maintaining an in-house function quickly becomes expensive.
Apparently some people are now realizing that the ways things are being
done in the political risk industry actually doesnt make much sense. And the
evidence is in the numbers. The balance sheets of some of the big names
that come to mind when you think of political risk firms are barely breaking
even, or firmly in the red. Some of their financial statements are readily

available on the Internet. So now what? Now that the industry is waging a war
on two fronts, how does it escape collapse?
Ive written previously about what we can do to improve the caliber of
analysts, but none of the solutions are easy fixes. Millennials are certainly
trying to innovate the industry, trying to cut out the bureaucracy and use
technology to streamline the process, turning static reports into ever-evolving
wikis, creating dynamic simulations or interactive workshops. But companies
launched by millennials are facing the same problem most do when they
decide to take matters into their own hands- theyre learning that they cant
simply bypass the issues the industry is facing with enthusiasm and a splashy
website. Many of the problems that the industry is facing outside of the two
front war are major obstacles. These include lack of awareness of the industry
among the very firms most likely to benefit from it, and the problems of
convincing C-suites to take a gamble on a new provider rather than simply
sticking with a long time provider.
If it continues to ignore clients complaints and analysts grievances, the
industry is doomed to fail, because it will simply become a race to the
bottom- which companies can do the bare minimum at the lowest price. If
that happens, the political risk industry will truly never meet its potential. Its
not like a specialized surgeon whos the only one qualified to do surgery, and
therefore cant be cast aside.
Political risk is becoming increasingly accessible to the layman, especially
laymen who have experience in industries that are highly exposed to political
risk, and who can figure out what information to look for and how to analyze
it. Like people who realized they didnt need the Pope to communicate with
G-d, clients will realize they can bypass the big political risk firms and simply
hire the consultants they need just when they need them. Perhaps the best
resolution to the political risk industrys two front war lies in listening to the
ideas of their dissatisfied analysts, and using those as new methods to win
back their clients trust. Itll take time and resources, but the political risk
industry can either take the risk and revolutionize itself, or be defeated.
This piece originally appeared on MilenaRodban.com on August 7, 2015.

PS21 is a non-national, non-governmental, non-ideological organization. All

views expressed are the author's own.