At a board meeting of a top ten multinational corporation, the question of whether to invest $80 million in a project in an African country was discussed. The President of the company subsidiary seeking approval to make the investment suggested that the country was a safe place to invest because of its recent history of economic and political stability. Unknown to the Board or the President at the time was that the information they were given was inaccurate, because the company’s risk management function was faulty. The Board approved the investment, and later regretted it.
Too many decision makers pay too little attention to country risk and other subjects of crucial importance when making cross-border trade and investment decisions. There are a number of reasons for this, but the most common are a lack of education at the Board level (which leads to an inability to discern fact from fiction) and not knowing the right questions to ask of corporate management. Companies also tend to rely on risk management processes they believe are bullet proof, which may instead be riddled with gaps, inconsistencies, and contradictions.
If the Board had been better educated about the economic and political situation in the country, the flaw in the vetting system might have been uncovered. But the truth is that candor often gets lost in the politeness of Board proceedings; too many Board members believe they exist to address emergencies, rather than to prevent problems from occurring. Too often, Boards are focused on building consensus, which inhibits due diligence and proper risk management. In addition, many Board members are appointed because of their accomplishments, prestige, or connections rather than their knowledge, and tend not to want to demonstrate their ignorance — preferring instead to remain silent when complex or controversial issues are discussed.
