Strategic risks

Strategic risks⇒ are entity-level risks that affect the whole organization. Some examples of strategic risks include the economy, global market conditions, and risks that are connected to the organization itself such as reputation risk, brand risk (patent and trademark protection), leadership risk, and the risk of customers’ needs changing. Entity-level risks also include risks related to actions of competitors and changes in the regulations to which businesses are subject, as regulatory changes could cause significant increases in compliance expense.

Of particular note are the unforeseeable, detrimental effects associated with political risk. Political risk arises when political conditions in a given country cause a company’s investments or assets— in that country or in other countries—to lose value or even to become worthless. Political risk includes the more benign, expected problems of taxes, regulations, and government bureaucracy. 

Consumer attitudes may vary from culture to culture. Corruption, official and unofficial, can add uncertainty to business transactions. More worrisome risks include blockage of fund transfers, inconvertible currency, currency devaluation, and inconsistent or contradictory enforcement of laws. Worst case scenarios might involve expropriation (that is, government seizure of private property with or without compensation), civil unrest, or war.

Because strategic risks are so global in nature, it is difficult for management to directly or actively manage or reduce (mitigate) them. Furthermore, the number of things that could possibly go wrong on a global scale is vast; therefore, it is financially impractical to forecast, plan for, or influence all contingencies. At best, management and the board of directors should identify and monitor potentially troubling events.