General counsel seek clarity on rising geopolitical risks

As Iran was firing dozens of long-range missiles into Israel, in April, Sean West’s phone would not stop ringing.

The Los Angeles-based geopolitics analyst was fielding inquiries not from leaders on the global stage but from chief legal officers inside some of the world’s largest companies. They were worrying about what this latest escalation of the Middle East conflict would mean for their businesses’ supply chains, employees and customers. 

“There are a set of questions [raised by the event] for any company that has exposure in the Middle East,” says West, co-founder of Hence Technologies, a software company at the nexus of geopolitics and law that helps companies find appropriate legal advice. “Number one, are my employees safe?”

Beyond that, West’s callers also wanted to know whether their companies would be forced to take a position on the conflict and how staff would react, whether contracts would need to renegotiated, and whether a US-based company might be presumed to support Israel and face boycotts.

And all these questions came before they could even consider whether disclosures for “material” events — for example, one that might harm a company with exposure to oil and commodities prices — would need to be made to the US financial regulator, the Securities and Exchange Commission.

However, such turmoil-inducing incidents have become ever more commonplace for in-house counsel. Many now find themselves dealing with a suite of increasingly complex geopolitical, regulatory and technological matters that fall well outside their traditional remit. 

Earlier this year, Bjarne Tellmann, former general counsel of consumer health company Haleon, warned that political and geopolitical risk was at its highest level yet.

“There’s an uptick in conflicts and geopolitical tensions, populism, etc around the world,” said Tellmann, who is now deputy general counsel at oil producer Saudi Aramco. “And that creates a lot of challenges in terms of how to think about and address political risk. Not to mention Black Swan events like Covid and war in Europe.”

The escalations of conflict in the Middle East and elsewhere come at a time of fragmentation in global governance that is already causing problems for businesses and their legal advisers. After decades of untrammelled globalisation, which facilitated the flow of goods, services and people, a new world of “clubs” and “fences” is emerging, according to a report by law firm White & Case. Now, regulatory harmony is becoming the exception, rather than the norm, it concluded.

The firm’s research suggests that the fragility of the World Trade Organization, the increase in data privacy laws, and the broad array of economic sanctions now being enforced are making risk management more complex for companies.

These concerns come as general counsel report having to do “more with less”, after seeing their budgets squeezed by their own boardrooms and by soaring fees from external firms.

A report published in January by the Association of Corporate Counsel — which surveyed 669 in-house lawyers from 20 industries in more than 30 countries — found that a majority were now in charge of at least three further business functions, such as government affairs or human resources, in addition to their legal responsibilities.

Regulations and enforcement were the main issues keeping chief legal officers awake at night, according to the report, as well as a lack of clarity around compliance obligations.

The EU [in its] AI regulation has one definition, in the Middle East we’ve got other laws that have another definition

The report authors added that data privacy and cyber security were also top of mind, with survey respondents noting a “significant reduction in confidence to respond effectively to those threats over the past year”.

Even businesses looking to embrace future technologies must navigate an often confusing web of guidance and regulations.

Marie Chowdhry, general counsel at Saudi headquartered fintech Lean Technologies, which provides open banking solutions to companies across the Middle East, says the company is looking to adopt artificial intelligence technology and is faced with a plethora of competing protocols.

The difficulty is “understanding what it is that you’re actually talking about when you talk about AI because it has so many different definitions,” Chowdhry says. “The EU [in its] AI regulation has one definition, in the Middle East we’ve got other laws that have another definition . . . it’s not just a ‘one-and-done’ exercise.

“This is something that general counsel globally will need to keep track of and to stay on top of,” she stresses.

Even within the US, several states have issued competing or overlapping AI regulations, while others are in the process of developing their own frameworks.

West’s clients face similar complexities — “with crypto, with the metaverse, with space law” — to name a few. But the surprises thrown up by new technologies are nothing when compared to the broader breakdown in harmonised global governance, he suggests.

This is about more than just political tensions, West argues. He says: “The sense of dread amongst general counsel is the fact that there’s an erosion in the rules of the game that everybody relies on.”