Geopolitics biggest business risk of 2019, says BCG CEO Rich Lesser

23 January 2019 6 min. read
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The current government shutdown in the United States is an issue, Rich Lesser, CEO of the Boston Consulting Group, said in an interview on CNBC’s “Squawk Box.” But when looking ahead at 2019, it’s far from the main concern. Instead, the shutdown is a small box that snugly fits into a more comprehensive, and almost certainly more complex, container.

“The broader theme is the challenge around the world: the geopolitical challenges that exist between governments, the trade issues, the negotiations, Brexit and so forth and within governments, and the challenges and many cases of coming together and aligning in ways that can support the growth of the economy’s longer term,” Lesser said in the interview.

Concerns vary by sector – the automotive industry will focus on different issues than a luxury goods company, for example. However, tenuous trade relations and an ongoing, fiercely competitive “tech race” between the US and China is one of the bigger geopolitical risk factors facing companies in the coming year, Lesser said. In June, for example, global consulting firm Booz Allen Hamilton said a national strategy was needed to prevent the US from falling behind China in the development innovative artificial intelligence. A KPMG survey, however, revealed global tech leaders considered the US the most likely market for disruptive technology – innovations that have the potential to shake up or create entirely new industries – to emerge, slightly edging out China.

When companies come to Lesser with worries or concerns about the coming year, he points to current macroeconomics. Unemployment is low, and a substantial amount of capital investments have been made in the recent past. “The underlying fundamental economics are pretty good in the world - certainly good in the US, and not so bad other places,” he said. “[But] the geopolitical risk factors are real, and you have to just do much more scenario planning than you are used to doing."

Geopolitics biggest business risk of 2019, says BCG CEO Rich Lesser

Overall, however, the outlook isn’t bleak – it simply requires that companies exercise due diligence, perhaps in dissimilar methods than those exercised in the relatively recent past. There has been a 180-degree turn in the obstacles faced by companies, from macroeconomic-related fears to those posed by a shifting, seemingly treacherous geopolitical landscape. 

“If you go back three years, we started with a world where the macroeconomic challenges were really uncertain,” Lesser said. “All we talked about were all the macroeconomic challenges here and around the world. We took to geopolitics as boring and inconsequential. Three years later, it’s flipped. The mood about the macroeconomy is for sure more concerned than it was four months ago, but still on balance more positive rather than more negative, certainly as it relates to the US.”

Winning the long-term game

Geopolitics or not, a great deal of focus has been placed on the coming decade, Lesser said. This will be a major talking point at this week’s World Economic Forum in Switzerland. BCG is one of WEF’s strategic partners, with Rich Lesser leading the firm’s delegation at Davos. “We’re so focused right now on the short-term and all the conversation, and a lot of what we’ve been talking about its what do you need to do to win the 2020s at a time not just of all the geopolitical tensions, but where technology is just affecting every sector of the economy so dramatically. Honestly, that’s a lot of what the companies want to engage with. They’re not ignoring the short-term. They need to think carefully about different scenarios for the short-term, but winning in the decade ahead is a huge challenge right now, and a great opportunity.” 

With opportunities for companies, come opportunities for management consulting firms – firms such as BCG, which has a presence in more than 45 countries. Here, questions of both geo- and sociopolitics arise. Firms must exercise caution when choosing to do business with certain countries, or else risk media and public backlash. The New York Times and several other high-profile publications have written numerous pieces on consulting firms, BCG and McKinsey included, on the firms' taking work in controversy-shrouded countries such as China, Saudi Arabia, and Turkey.  

“BCG has the desire to positively influence the world. We can be a positive impact to create jobs, support young people, create opportunities for women, and make business and society work better.”
– Rich Lesser, CEO of the Boston Consulting Group

“There are obviously countries where there are either sanctions in place or there are safety concerns, and we avoid those,” Lesser said. “In other places, we will consult and then we focus on the kinds of work we want to do.” 

Then there are the millennials, coming of age and playing an enormous part in sculpting how and why businesses do what they do. Often, millennials expect – if not outright demand – genuine efforts at corporate social responsibility.

Millennials want businesses to practice in ways that do good – for society, for the environment, for the world. They are a driving force behind the popularity of impact investing, which the Global Impact Investing Network defines as “investments made into companies, organizations, and funds with the intention to generate social and environmental impact alongside a financial return.” As a group, millennials want more than just a product – they want something created in a socially conscious manner by a socially conscious entity.  

“We talk purpose and values, and why we do what we do, and our desire to make a positive impact in the world. That is an ongoing discussion. It’s increased the importance of communicating the kinds of work we want to do and the kinds of work we don’t want to do,” Lesser said. “And I think that we can show them in countries, even harder places, that we can be a positive impact to create jobs, support young people, create opportunities for women, do things that they really care about to make business and society work better.”