Topics:   Corporate Governance,Cybersecurity

Topics:   Corporate Governance,Cybersecurity

January 14, 2021

How Biden’s International Relations Will Shape Business and Board Oversight

January 14, 2021

As Joseph R. Biden Jr. prepares to take office in the United States, he faces a more hazardous geostrategic landscape than the one Vice President Biden knew four years ago. The United States’ relationship with China has turned a corner into adversarial terrain, leading to the prospect of confrontation in economics, politics, and security. Russia has demonstrated new capabilities to threaten American society, evolving from election interference to broad-based cyberattacks, for which Biden has vowed to hold Moscow accountable. Iran’s nuclear program and destabilizing activities across the Middle East are even less constrained. North Korea remains a rogue threat, steadily developing its nuclear and missile capabilities as hoped-for diplomatic breakthroughs fell short. Moreover, each of these pressing national security challenges is set against a global backdrop of heightened political unrest, climate distress, and the fallout from the COVID-19 pandemic.

In this volatile global context, the Biden administration has laid out a vision for the restoration of multilateralism and US global leadership to check rival powers and fortify international coalitions of like-minded countries. Though not an exhaustive list, here is what boards should know about relations with Russia, Iran, and China under the incoming presidential administration, as well as key themes they should consider in providing oversight to their companies.

Russia

Renewed multilateralism will be critical in 2021, as the Biden administration is likely to face a relative lack of bandwidth to tackle key foreign policy challenges due to demanding domestic issues. Russia-US relations, already at an all-time low, are set to deteriorate even further as Congress considers additional sanctions and other punitive measures against Russia for the SolarWinds cyberattack on US government agencies and private corporations. The Biden administration’s approach to any new sanctions will likely be in concert with the European Union, despite some differences over issues such as Russia’s Nord Stream 2 pipeline to Europe.

Also pressing is the expiration of the Russia-US New START Treaty, which limits the number and structure of strategic nuclear arms and forces deployed around the world. Although President-elect Biden previously indicated plans for a clean extension of the treaty, revelations of the cyberattack in December may have jeopardized the process. As a result, tensions are set to remain high between Washington and Moscow for the short to medium term. Boards should be aware of the increased risk of cyberattacks from Russia, targeting proprietary data and intellectual property. 

Iran

The Biden administration’s cooperation with international allies will also be tested by Iran in 2021. Within the last several weeks, Tehran has seized a South Korean tanker in the Persian Gulf, announced an increase in uranium enrichment levels, and issued an ultimatum for the lifting of US economic sanctions. Although there remain domestic political obstacles to the Biden administration immediately rejoining the Joint Comprehensive Plan of Action, the United States will likely begin back-channel negotiations to establish re-compliance with the Iran nuclear deal. Even then, both Washington and Tehran face a shortened window of time for progress due to Iranian presidential elections in June.

Despite expected negotiation efforts, provocative actions from Iran remain a threat to critical shipping routes in the Persian Gulf and Strait of Hormuz, through which 20 percent of the world’s oil flows each day. Any disruptions in the Gulf will have severe knock-on effects in the energy industry as well as a range of others, including commercial shipping and corporate insurance. Once President-elect Biden takes office, look for an unspoken detente between the United States and Iran, as both sides seek relative strategic gains on nuclear, economic, and regional issues. However, boards should expect neither immediate sanctions relief on Iran nor more stable economic conditions and should be cognizant that rogue behavior from Tehran remains a threat to regional assets and personnel.

China

The Biden administration’s relationship with Beijing will have critical implications for an array of short- and long-term security issues, from freedom of navigation in the South China Sea to technological and economic decoupling. Biden will prioritize strengthening alliances and building coalitions to counter China’s global influence from a position of multilateral strength, and near-term policy will focus on reassuring partners of the United States’ commitment while continuing to exert pressure against the expansion of Chinese influence. Many aspects of the Trump administration’s approach to China will likely continue, from tariffs and efforts to curb Huawei’s influence over global 5G networks to challenging China’s record on human rights and political freedom. Indeed, recent signals that Biden plans to name Kurt Campbell as the administration’s Asia tsar and appoint officials with known hawkish views, such as Ely Ratner, to top advisory positions reinforce the likelihood that the tough US stance on China will persist.

The Biden Administration will also seek to balance the growing mistrust of Beijing’s international aims with efforts to cooperate on shared challenges such as climate change and public health, as well as long-standing issues including North Korea’s nuclear program and maintaining international crisis communication channels to prevent military conflict in regional flashpoints. The coming reset in US-China relations, if limited, may present opportunities for international companies as the United States works to bolster trade ties with strategic countries as part of efforts to diversify global supply chains away from dependence on China. However, a challenging US-China relationship will remain an enduring feature of the geopolitical landscape for the foreseeable future, even if the Biden administration establishes a working relationship with Beijing on certain issues.

Within this context, boards should be aware that international business will continue to be viewed through a lens of politics and national security—and not just by the United States. This means that foreign investment, international mergers, and even everyday business operations may face heightened scrutiny and political pressure from both the US and foreign governments, an effect that is most apparent in the technology industry but that entails risks for a cross section of sectors from health care to communications.

Recommendations for Corporate Boards

At a time when business is often caught in the crossfire of geopolitics, boards must remain aware of how evolving international relations drive risks in the private sector and work proactively to mitigate potential downsides. The Wild West of cyberspace is the arena of choice for many adversaries seeking to harm US political and economic stability. Depending on posture, businesses can be collateral damage or the front line of defense. The SolarWinds cyberattack demonstrated that boards must be hyper-vigilant about understanding cyber risks and the need to treat cybersecurity as an enterprise-level risk. Companies should also continuously monitor physical risks to property and personnel that may be targeted due to national affiliation and opportunity of location. To address the long-term risks of great power competition, boards would do well to work with management to conduct a net assessment of exposure in sensitive industries and countries and create regional company strategies with an eye on the geopolitical environment, especially in Asia and the Middle East.

As we move past the initial months of the Biden administration, boards should continue to watch for signals of longer-term policy and the shape of relationships with Iran, Russia, and China. To stay ahead of the curve in this expanding risk environment, corporate boards should strongly consider investing in geostrategic analysis and risk monitoring as a key tenet of corporate strategy and safety.

Karl V. Hopkins is a partner and the global chief security officer at Dentons.


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