This topic of political risk management is an unusual one for me to be discussing as a City Finance Director. As a matter of fact, since 1990 when I began my career in municipal finance, it was ingrained in me to embrace the “politics-administration” dichotomy of our 28th US President, Woodrow Wilson, which basically instructed public employees like me, to “stay out of politics”! This notion goes way back to 1887, when President Woodrow Wilson introduced this idea in his 1887 essay, “The Study of Administration”.
I quickly figured out why taking Woodrow Wilson’s idea would serve me well in my career in local government. The idea that politics (policy “making”) should be a separate function from policy “implementation” (administration) should be a no brainer. Now, I am not sure how this politics-administration dichotomy works at the state or federal level, because I only work for local governments. However, it seems intuitive that professional public management should not meddle in the politics of their communities. I’ve written much during my 35-year career in City government about the wisdom of adhering to Woodrow Wilson’s idea that public administrators stay out of the politics. Politics and policy are the sole job of our elected officials, the Honorable Mayor and Council members that we serve. Our job as municipal employees is to remain 100% professional, and communicate in a way that contributes to the stability, confidence, and credibility of our organization that serves the residents of the community.
With these thoughts in mind, I must disclose that we municipal employees, we do need to be politically “savvy”, but NEVER politically involved at City Hall, if you want to remain effective in your managerial leadership role. We are NOT elected officials, voted in by the community to represent the thousands of residents. We are municipal employees who serve at the pleasure of the City Manager. But you can’t hide your head in the sand either. You still need to be “aware” of the politics in your community to do your job well. We all are in our jobs and serve the City Manager. The City Manager is usually the only employee that is hired by the City Council for your organization. We all report to the City Manager, either directly, or through Directors and other municipal managers, depending on the organizational chart. But ultimately, we are all employees of the City Manager who provides direction as we serve the public and carry out policy…policies that we may have even been involved in crafting for consideration and vote of the City Council.
Forgive the repetition, but it’s important, we as public employees should not ever venture into politics; we do craft policies to address the political challenges, or crises, that our elected officials and our City Manager must address, but we do not publicly take sides in political matters as public employees. We remain aware of the politics, as effective public managers, to be politically savvy in doing our jobs, but not to be political. Our goal is to help the City Manager and the Council to maintain stability and confidence at all levels.
Even so, when doing our jobs as government employees, there are times we have felt like the world is spinning faster than we can keep up. And we are not alone. During this decade of the 2020’s, where every headline feels like a crisis and every decision carries more weight, it’s easy to feel overwhelmed. But let me tell you a secret the smartest organizations already know: political stability doesn’t just happen. It’s built. While others scramble in chaos, resilient leaders build systems that turn disruption into opportunity. And that’s exactly what this article is here to help you do.
With decades of experience in municipal staffing and consulting, MuniTemps continues to deliver skilled municipal professionals who provide the essential professionals and administrative support that cities need to assist the City Manager and Council do their job of navigating political risk and uncertainty. This article is especially relevant for local government and other public sector employees who want to establish a long-term plan for managing political risk and building organizational resilience, no matter what chaos comes next.
Here’s a troubling truth: since January, the relentless news cycle has left many leaders feeling overwhelmed by constant disruption. Every headline delivers fresh uncertainty, and that barrage takes its toll. A staggering 32% of people report feeling paralyzed when facing important decisions, while 42% admit they avoid making choices altogether because the discomfort feels too overwhelming.
Political risk has become unavoidable in today’s interconnected world. Think of it as the potential earthquake that can shake your organization’s foundation – those political decisions, events, and conditions that directly impact your operations, finances, and strategic initiatives. With major electoral shifts reshaping the United States in 2024, understanding these forces isn’t optional anymore – it’s survival.
But here’s the good news: effective political risk management isn’t beyond your reach. Yes, you’re bombarded with reminders of global instability – economic upheavals, political uncertainty, trade tensions, and more. The chaos isn’t disappearing. Your response to it determines everything.
Can you anchor your organization while others drift in uncertainty? This article hands you practical strategies that turn political turbulence from threat into opportunity. You’ll learn systematic approaches that don’t just help you survive chaotic times – they position you to thrive within them. After all, political uncertainty remains inevitable, but leaders who build true organizational resilience discover something powerful: these challenges become their greatest strategic advantages.
Understand the Nature and Impact of Political Risk
Political risk isn’t just about government instability – it’s the probability that political decisions, events, or conditions will slam into your organization balance sheet and fiscal capacity. This complex force hits multiple parts of your organization simultaneously: your people, assets, contracts, operations, and financial transfers all feel the impact.
Political risk operates on two distinct levels. Macro-level risks sweep through entire regions, affecting every foreign business operating there. Micro-level risks target specific sectors, companies, or individual projects. When central banks shift monetary policy, that’s macro risk reshaping entire industries. When labor strikes erupt over cultural tensions, that’s micro risk hitting your company directly.
Your exposure depends on several critical factors – investment type, financing methods, location, and timing all determine how vulnerable you are. Here’s a striking reality: 91.7% of political risk impacts hit individual firms, while only 7.5% affect entire sectors and a mere 0.8% shake whole markets. That means your specific circumstances matter more than broad economic trends.
Political risk attacks through multiple channels. Asset expropriation can strip away everything you’ve built. Transfer restrictions can trap your money overseas. Operational disruptions can halt your City overnight. Reputational damage can destroy relationships that took years to establish. These threats come from legitimate government actions like price controls and currency restrictions, or from events beyond government control – terrorism, strikes, and revolution.
Effective assessment demands both art and science. You need qualitative approaches that capture expert opinions and real-world case studies. You also need quantitative techniques using risk indices and statistical modeling to measure what others might miss. Smart organizations don’t choose between these approaches – they master both to protect what matters most.
Design a System for Political Risk Management
Hoping political risks will resolve themselves isn’t a strategy – it’s a recipe for disaster. Smart organizations don’t wait for threats to materialize. They build early warning systems that spot trouble before it arrives at their doorstep.
Your political risk management system isn’t just another business process – it’s your organizational radar. Regular political risk assessments become your lifeline here, keeping you informed, helping you adjust operations, and identifying emerging risks that could blindside your business.
A solid political risk management framework needs these four essential pillars:
- Risk identification: Spotting potential political threats that could impact your operations
- Risk assessment: Measuring both likelihood and potential damage
- Regular monitoring: Running ongoing assessments to catch new risks early
- Risk register maintenance: Documenting and tracking identified risks systematically
But here’s what many organizations miss: stakeholder relationships matter as much as spreadsheets. Engaging with local communities, governments, and NGOs helps you understand their concerns and build protective relationships that can deflect potential risks. Remember that crucial statistic – 91.7% of political risk impacts target specific firms rather than entire sectors or markets.
Technology changes the game completely. Real-time geopolitical monitoring tools alert you to terrorist attacks, conflicts, and public safety incidents so you can inform employees immediately. Many organizations now deploy AI-driven platforms that systematically assess governance, social, and security conditions, creating transparent and validated risk data.
The beauty of political risk? It never stands still. Your system must evolve with changing conditions, adapting as quickly as the threats themselves shift and morph. Static systems fail. Dynamic ones thrive.
Build Organizational Resilience for the Long Term
Organizational resilience doesn’t happen overnight – it requires the patience of an architect designing structures that withstand decades of storms. Companies that treat political risk management as a series of panicked reactions never build true strength. Those that develop systematic approaches remain standing when others crumble.
Most organizations remain dangerously unprepared. Only 49% of US companies maintain formal crisis communication plans. That means more than half are essentially gambling with their future, hoping political disruption won’t find them unprepared.
Your resilience starts with comprehensive contingency planning that anticipates disruption before it arrives. These aren’t generic templates gathering dust in filing cabinets – they’re living documents that outline specific responses to various scenarios, from regulatory changes to global conflicts, updated regularly to stay relevant.
Think of early warning systems as your organizational radar – they detect emerging political risks while you still have time to respond. But detection means nothing without action. Build feedback mechanisms that capture stakeholder concerns and allow you to adjust your messaging accordingly. Your ability to listen often matters more than your ability to speak.
The strongest organizations don’t just plan for disruption – they build cultures that thrive within it. Encourage innovation, foster open communication, and empower your people to respond effectively when unexpected political challenges arise. Establish cross-functional teams dedicated to monitoring and responding to political threats. When everyone understands their role in managing risk, your entire organization becomes a sensing network.
Here’s where many companies stumble: they treat political risk management as a separate function instead of weaving it into their enterprise DNA. True resilience comes from aligning risk management with your core objectives – this improves decision-making, enhances resource allocation efficiency, and ultimately drives you toward strategic goals. Your organization won’t just survive political turbulence – it will discover competitive advantages that others miss entirely.
The foundation you build today determines whether tomorrow’s uncertainty becomes your downfall or your launching pad.
Your Path Forward
Political risk management stands as the dividing line between organizations that crumble under pressure and those that emerge stronger. The constant disruption can feel overwhelming, but your response determines everything – whether uncertainty becomes your downfall or your greatest competitive edge.
Political risks don’t strike in isolation – they hit your personnel, assets, contracts, and operations simultaneously. This reality makes structured approaches non-negotiable, not optional. Here’s an empowering fact: nearly 92% of political risk impacts target specific firms rather than entire sectors . This means you can build precise, targeted defenses for your unique situation.
Building true resilience demands more than reactive scrambling when crises hit. It requires comprehensive planning, early warning systems, and a culture that doesn’t just survive change – it thrives on it. While uncertainty remains constant in our interconnected world, systematic risk management approaches hand you the competitive advantage others lack.
Remember that political turbulence creates the greatest opportunities for prepared organizations. The strategies we’ve explored – understanding political risk’s true nature, designing management systems that actually work, and building organizational resilience that lasts – provide your roadmap from chaos to competitive advantage.
Political uncertainty will never disappear. Your response to it remains firmly within your control. The organizations that master this truth don’t just survive the storm – they use it to soar above their unprepared competitors.
Alongside the key strategies we’ve shared in this article, John Herrera, CPA, President and CEO of MuniTemps, encourages every government employee to embrace political risk management as a core leadership competency. Doing so equips your organization to not only respond to instability, but to thrive despite it.
Contact our team at jobs@munitemps.com or visit www.munitemps.com to find out how we can support your staffing and consulting needs.
Remember, MuniTemps is your go-to expert in all things municipal, from staffing and recruitment to creating meaningful career paths for job seekers who are passionate about public service.
Want more insights like these? Head over to the MuniTemps CitySpeak YouTube channel, where you’ll find timeless video blogs, including one from five years ago about the power of conservative, long-term financial planning. You may even want to check out “What Recession Feels Like at City Hall.” for down-to-earth guidance on navigating economic turbulence in local government.
Thank you for joining us today. Stay prepared, stay resilient, and keep leading forward.