Host
Philippa Lamb
Guests
- Peter van Veen, Director, Corporate Governance and Stewardship, ICAEW
- Charles Hecker, author and risk analyst
Producer
Natalie Chisholm
Transcript:
Philippa Lamb: Hello. Welcome to Behind the Numbers. We all know we’re living in geopolitically uncertain times. Donald Trump, the wars in Ukraine and the Middle East, and the shifting balance of power in the West all add unpredictability for investor decision makers.
Charles Hecker: The moment that there was a suggestion of a ceasefire, the American business community lit itself on fire with excitement to go back.
Peter van Veen: I think one of the things that businesses do need to accept when they are operating in a market that they see high-growth potential in, is that market is high risk, almost without fail.
PL: So how should businesses assess global investment risks right now? Well, perhaps a look at not-very-distant history is a good place to start. Charles Hecker lived and worked in Soviet and post-Soviet Russia as a risk consultant for inward investors. His new book, ‘Zero Sum’, charts the rise and fall of western investment in Russia post-91. I’m delighted to say he’s here in the studio. Also with us, Peter van Veen, ICAEW’s Director of Corporate Governance and Stewardship. He brings his experience of navigating overseas investment and the institute’s view on good governance for companies eyeing opportunities abroad.
Charles, Peter, thanks for being with us.
PV: Great to be here.
CH: Philippa, thanks very much for having me.
PL: Charles, as I said, you were in Russia, you know, as the Soviet Union collapsed. It was a transformative time. How did you see the investment landscape at that moment?
CH: Yeah, that’s a really interesting question. At the very beginning of the 1990s, we faced perhaps one of the very first paradoxes in the way we make decisions about investments. So, in the 1990s, we were essentially beginning the second decade of globalisation, where companies were doing business in places that previously seemed too risky, or too distant or too opaque, and Russia, at the time, was labelled an emerging market. An emerging market sounds like something very investable. On the ground in Russia, following the collapse of the Soviet Union, we had a country that was politically rudderless, in a state of deep economic collapse and rampantly criminalised. And everyone went. You know, the decision was: let’s get on a plane, let’s get a heavy winter coat and let’s go to Russia because globalisation and the emerging market label were attractive enough for companies to think: “Look, it looks risky, but it smells like opportunity.”
PL: So how prepared were they?
CH: Variously. I would say that, largely, most companies were taken by surprise at the level of economic, political and operational risk that they encountered in Russia. But, with time, companies began to get the hang of it. And the other thing that we have to remember is that the emerging market label was essentially right, and that is that Russia was starved for western goods, for western investment and for western expertise. In spite of how rocky the times were, it was almost like plant any seed and it would grow. And, you know, it did present enormous opportunity.
PL: Obviously, the first Ukraine war basically killed that market. Did businesses see it coming? How prepared were they in that moment?
CH: You know, the number of companies that were prepared for and accurately anticipated a full-scale, engaged invasion of Ukraine – the number of companies that had that was vanishingly small. I mean, you could count on one or two hands. Most everyone – and I have to hold my hand up here, including the analytical community, the diplomatic community and the military community – most everyone, with a couple of very important exceptions, was taken completely by surprise.
PL: Why was that?
CH: Well, we made a series of assumptions that I don’t think we challenged frequently or robustly enough, up to and including at the time of the invasion. And I guess primary among those is that we assumed that President Putin was a rational actor, and that rational actors, according to political science theory, only and always act in the best interests of their country. And it was widely assumed that invading Ukraine was very much against Russia’s best interests because of what the international reaction would be. And then he went and did it.
PL: So Peter, my guess is that a lot of businesses didn’t want to believe it when it happened either. You’ve made the commitment, it’s hard to let it go, isn’t it?
PV: Well, that’s right. I mean, if you’re all in, you’re all in, and you have a lot of assets and a lot of investment and a lot of political capital that you’ve invested in being there. You know, some of these investments are in the billions, long-term investments over decades, especially if they’re in extractive industries like mining or oil and gas. These aren’t short-term investments, and they’re not easy to get in and out of. And so really, the challenge for these businesses was: how do you convince the board that you need to do something except maybe just sit it out? Right? That’s the real challenge. And as Charles mentioned, a very small number of companies were ready to do something, and that something for those companies was to exit, and to announce exit within a couple of days, if not a week or so. And they were very public announcements. And having spoken to some of their strategic planning people, they had prepared for this – not because they saw it coming, but because they modelled what would happen, and what would they do if something like that happened. And so they were ready to move.
PL: I mean, are we talking about oil and gas here because, obviously, they’ve seen this elsewhere?
PV: That’s right. In this case, the oil and gas companies, in particular, were well prepared. And you see, the consumer goods companies were not. They had not prepared for this. They thought the last company that’s going to be in difficulty is one selling, let’s say, yoghurt or hamburgers or beer, because we’re not in the political sphere, right?
PL: And yet…
PV: … and they were wrong.
PL: So how did the oil and gas companies prepare them? What do they do? What’s their process?
CH: So, you have to think, Philippa, that these are companies that are accustomed to operating almost always in high-risk environments. And so these are companies that, first of all, have bottomless appetites for risk. And, you know, just to carry on the metaphor, have cast-iron stomachs when it comes to where they do business – they’ve got to go where the resources are, no matter what the political or economic climate. And so they also have correspondingly robust crisis management and risk assessment infrastructure inside their organisations. And so, whether they saw this coming or not, I think most of the big resources companies, the energy companies, the extractives, they knew how this was going to unfold because they’ve seen this before everywhere else in the world that they do business.
PL: And as you say, it’s what they do, and it’s very different to hamburgers or whatever else anyone else was selling. But are there lessons we can take from how they actually prepared and what they actually did that could be drawn to mainstream business?
PV: Well, yes. And one of the tools they use, and I speak from personal experience as well because I started my career as an economist in the planning office of one of these large oil companies, is a tool called scenario planning. And they use this tool because the investment, the payback, on large oil fields or refineries is 25, 30 years. And you can’t use traditional planning methodology. You can’t use a forecast because, I mean, it’s anyone’s guess what’s going to happen in 25 to 30 years. So what they do is they create these very realistic scenarios of how the world could unfold, not how it will, but how it could. Equally plausible. And they rehearse: what would the board do if these things unfold? And they work with the senior management of all the business units and the board on working through the various options, various strategies; if things were to unfold, then this is what they’d do. And they use code names. They’ll have, for simplicity I’ll use a colour, but they’ll have scenario blue versus scenario red. So if the CEO or the CFO says to the board, “I think we’re in an evolving scenario blue”, everyone knows what you’re talking about. And they know what to do because they’ve rehearsed it. And I think the challenge most boards will find, if you haven’t done that, no matter what you come to the board with, these people, if they’re doing their job properly, will want to see evidence. They’ll want to see multiple points of data to help them make an informed decision. And if you’re waiting for that, it’s already too late. You’re already behind the facts. And I think that’s the challenge.
PL: So presumably, Charles, this is the sort of stuff you advised on, is it?
CH: Yeah, Peter’s hit on a very, very important point, and that is that there is more than a linguistic difference between forecasting and scenario planning. And, you know, among the dozens and dozens of executives that I interviewed for the book, a number of them told me that they were forecasting what they thought might happen on the ground with Ukraine and, inevitably, almost down to the very last one of them, the most likely outcome for this event was, you know, it’ll blow over or nothing will happen. And you know, everyone attached more than a 50% likelihood to the conflict never materialising.
PL: I mean, was that slightly about confirmation bias about their own investment decisions? They just didn’t want to imagine that would have been a bad idea?
CH: So there is a tiny bit of drinking your own Kool-Aid on this without question, and sort of seeing what you want to see and forecasting, you know, trying to sort of materialise your own future. Yes, there is a little bit of that. And the other thing underlying this is that we’re just not challenging our assumptions enough about the future, and that’s why scenario planning is such a more useful tool than forecasting because the point of scenarios is not necessarily to be right or wrong, but to stress-test your organisation against a series of potential futures. And for the big energy companies, for the big metals and mining and mineral companies, this was on their bingo card and they were able to test it.
PL: From great to cataclysmic outcomes, presumably?
CH: Yeah, I mean, you have best-case scenarios, you have worst-case scenarios, and they help to dictate your behaviour when they materialise. But, you know, they were there. In the first 24 to 48 hours in the first week, there was something that they could pull out of their top desk drawer that told them what to do.
PL: So what happened then, when the investment picture stabilised? Because, obviously, as we say, the opportunity was there. It hadn’t gone away. It temporarily paused. How quickly did investors come back into the market or venture back in?
CH: Well, so there are a couple of different periods that we could look at in the way companies went into and out of Russia. You know, companies went in during the 1990s, some left in the 1998 government default and the debt crisis in Russia. Then they went back in the early 2000s and they left in the global financial crisis in 2008, and then they slowly went back into Russia. As, you know, investment sentiment sort of squared itself, I guess you could say. So when it comes to the vast exodus of companies from Russia in the aftermath, and in the wake of the invasion, we have to admit that, you know, a number of companies stayed. There were companies that left. You know, hundreds and hundreds of companies left Russia, hundreds and hundreds of companies stayed. They are doing business now in the world’s most sanctioned country. They’re facing enormous challenges in their financial and banking arrangements. There’s a labour shortage in Russia, inflation is hovering just below 10%, the central bank rate just went from 21% to 20% interest rate. So they’re working in one of the world’s most difficult business environments. The moment that there was a suggestion of a ceasefire, when President Trump and President Putin started talking again just a little bit earlier this year, the American business community lit itself on fire with excitement to go back.
PV: And I think one of the interesting things, I mean, Charles, you mentioned it, is also, of course, you cannot get your money out of the market. And so there’s one particular branded company. And I looked at various countries and in some countries, there is silence on the domestic consumer brand. Consumer branded companies are always going to be in the forefront and get the most attention. But there was a particular company in the Netherlands who had promised to pull out but hadn’t, because they couldn’t and hadn’t figured out how to do that, but were making a lot of money because everyone else had pulled out – they were providing food and beverage in the market. And so what happens with that money? And they invested and bought other businesses. So instead of pulling out, they were growing, and they’re growing quite rapidly and quite publicly, and so they had this issue where they’re being under a lot of pressure domestically to pull out, and getting a lot of attack about their business integrity, their reputational risk. And the local management are doing what they can to keep the thing afloat, but they’re actually buying assets and actually growing the business.
PL: So it’s an intensely pragmatic response?
PV: Very pragmatic, but from a PR and managing a reputation point of view, an absolute disaster.
CH: I think this speaks very directly and very loudly towards how companies make decisions about risk and how risk appetite varies even within a sector. I mean, we talked about the energy sector having to have a strong appetite for risk because that’s where they do business. But even within the consumer segment or within the pharmaceutical segment or within the automotive segment, different companies and companies from different countries have different appetites for risk and that, I think, also played a very strong role in the decision about staying or going. Strangely, perhaps, or counterintuitively, some of the companies, particularly in the consumer sector, that stayed report that they’re making more money than ever before.
PL: I’m wondering, because, obviously, we’ve talked about wars, we’ve talked about political unrest – we haven’t talked about the pandemic. I’m wondering, because obviously the outcome for many organisations was pretty much the same, wasn’t it? Were useful lessons learned from that?
PV: Well, again, I think we come back to how do you manage risk and how do you deal with setbacks, and how flexible are you and able to react quickly? And again, part of that’s scenario planning and part of it is about an approach to planning and decision making, and a culture of: are you able to shift course quickly or not? And I think, as the pandemic showed, companies that were not able to change course – a lot of them went out of business. A lot of them went out of business. They could no longer sell the goods that they were selling. How many top restaurants in London shut down because they just could not pay the expensive, very highly skilled front-of-office staff and kitchen staff through this long lay down? And they weren’t prepared to do takeaways because that was not the brand, and so they had no choice but to shut down. Now that’s a very specific example, but there are lots of other businesses that are reliant on that customer interaction, that in-person type of work, that really struggled.
PL: Well, yeah, and it’s interesting, isn’t it? Because the pandemic – it’s not as if it hadn’t been predicted. It had been widely predicted that there would be a pandemic. But I mean, Charles, did people and organisations not prepare for that?
CH: Surprisingly few companies, and I don’t mean to sound negative as far as companies in their crisis management capacity, but you’re right. We had SARS, we had MERS, we had H5N1, we had a series of regional pandemics in the run-up to the global pandemic. But again, it was a minority of companies, I would say, that had global pandemic – a deep, widespread and enduring illness and pandemic – at the very top of their risk register.
PV: And interestingly enough, I think it’s actually the companies that do operate in high-risk environments who are better prepared because they’re operating in environments where there have been pandemics and where they have had all sorts of setbacks, and so they’ve had the battle scars. And so there is a benefit to working in high-risk jurisdictions because you’re forced to think through scenarios, and you’re forced to deal with things that do not happen in London or in Amsterdam or in Paris, at least not on a regular basis. And they were ready.
PL: We’ve talked about big, big risks – I’m wondering if there are smaller, perhaps harder to quantify, less talked about risks that businesses should be thinking about if they’re looking overseas?
PV: I think one of the things that businesses do need to accept when they are operating in a market that they see high-growth potential is that market is high risk, almost without fail, it is a high risk.
PL: That’s why it’s high return.
PV: That’s why it’s high return. And that comes with a whole host of issues. It comes with political issues, it comes with rule of law issues, it comes with corruption issues – almost all of them have a shadow economy and a shadow way of doing business that is not the official way of doing business, and you have to navigate that, because you can end up in court in your home country if you don’t, but also you won’t last very long if you don’t understand how to manage that system and not fall foul of things. But then, of course, you have the other aspects of risk that are to do with personal and staff risk. What’s the healthcare like? What’s the infrastructure like? Are you safely able to travel between sites? And we’ve seen this, especially in mining, again, in oil and gas, it is actually in a lot of locations very hard to travel safely between the head office and the capital, and wherever your site is. And that then requires you to think through quite complex security arrangements that most companies would step back and say, “Do we really want to do this? Because we’re now actually effectively almost hiring a private army to make sure our staff can operate safely in these locations.” And you need to have the stomach for what that entails and the budget, and, of course, manage all the risks that brings as well, because that comes with its own risks and issues.
PL: And it’s fresh turf for most organisations, as you say.
PV: Yeah, absolutely.
PL: So once you’ve made that decision, you’ve gone, you’re there, it’s happening. What’s the best advice on monitoring your investment, the wisdom of your investment, over time?
CH: Yeah, so, a few things: one of the things that I learned over 25 years of consulting and then also in writing and reporting the book was that companies tend to look at countries as markets, and they tend to overlook the fact that they’re investing in and living and working in places that carry political and geopolitical risks. And so I think that once you’re in and once you’ve made your initial risk assessments, your initial sets of assumptions, your initial forecasts or, better yet, scenarios, companies need to regularly, formally and holistically challenge the assumptions that they’ve made. And whether it’s once every six months, once a quarter, once a year, bring everybody in the business together, from compliance, from sales and marketing, from business development, from legal, from HR, from your security department, and get everyone together and say, “Is our thinking about this place still on point? Is it still relevant? Is it still accurate?” And make changes as you go.
PL: This is your area, Peter, governance.
PV: Yeah, well, absolutely. And I think there’s a real thing boards and companies need to think through about entering such a market in the first place. There are effectively three things that I would say companies need to look at. One is, who is there already? Because if none of your competitors are there, there’s often a reason for that, and you’ll find that there are companies out there but they are often small companies that are willing to take the highest risk because they don’t have a brand to protect. And, actually, some industries have become very good at utilising smaller companies to enter markets, create the market, and then they’ll go in later and either buy them out or coinvest.
PL: Canaries in the mine?
PV: Yeah, mining, oil and gas, they’re all doing that. None of them want to go in first because it is just too risky. So they use that. Secondly, is there a chamber of commerce? Is there some kind of local entity that can help you understand what it’s really like to do business there.
PL: Okay, and they are useful on the ground?
PV: They are absolutely useful on the ground because you’ll need all the other, you know, CFOs, CEOs, who’ve got all the battle scars and can tell you all about the challenges of operating there. And I think, finally, as the ICAEW, if we have members there, then we’d be happy to connect you to members, to connect with each other and to kind of compare notes, obviously not in a way that would fall foul of cartels and that kind of agreement, but a useful networking in terms of understanding what some of the issues are on the ground. And there are lots of industries that have also created industry organisations to deal with very specific issues on the ground. So if you’re in mining and you go to Congo, there is, you know, responsible coltan, there are all sorts of initiatives out there that are trying to manage those risks as an industry together and again, there are unbelievably good sources of information about the issues on the ground. So don’t just dive in there by yourself and hope for the best because it’s going to go horribly wrong if you do that.
PL: So most of the work is up front?
CH: Philippa, can I pick up on just one thing that Peter said that’s really, really interesting about the competitive landscape? And it is surprising, or perhaps maybe it shouldn’t be so surprising, but to me, it was initially surprising to learn the distorting effect that competitive pressures have on the way companies make decisions. And Peter’s absolutely right. I mean, friends of mine who work in the financial services sector have said, “We really want to go back to Russia, but we’re going to let somebody else do it first.” And you’re right. There’s a message: if none of your competitors are in a market, that’s telling you something. But once somebody goes, everything changes. And companies that were once resolute in their position against market entry sort of find themselves doing a 180 and going in and thinking, “Well, you know, this is what we thought on Monday but now it’s Tuesday, and we think something different.” The role of competition is just fascinating, and I think distortive to the way companies make plans.
PL: So really something to watch out for?
CH: Absolutely.
PL: You talked about smaller players there. Presumably there are pros and cons to being small? I mean, more agile, as you’ve said? Fewer resources on the other side, presumably?
CH: Emerging markets are tough for SMEs, but they’re not impossible. And I do get asked this question a lot, you know, “We’re a small company, we’re a medium-sized company, we’re a start-up. How do we get into a market as fast as Russia or China or India?” And I think that, you know, there is number one: safety in numbers, and that is they think that companies that can, to the extent that competition allows, sort of band together, whether it’s with their chamber or with their associations, or with fellow travellers in their sector, and can examine a market and enter a market in a cooperative fashion, at least in the way that they do risk assessments. That’s interesting. There is also, you know, the hive mind of the world of risk is there to support smaller players. And, you know, there is now more information than ever available about risk around the world. Not all of it is relevant, but there is a certain amount of leverage that smaller companies can find in the collective wisdom of people who have already been there, or people who are thinking about going there, and people who analyse markets for a living. So it’s not impossible. It’s hard but it’s not impossible for smaller businesses to get into places like this.
PV: Yeah, I would just add to that I think there’s a balancing act here. One is, as Charles said, there’s plenty of information out there. So if you’re going in there, what is your USP? What have you got? What knowledge have you got that anyone else can’t find out through a Google search because in the past, you’d go into a market because you had connections and you had knowledge that actually wasn’t common currency, and that would be your entry point, and now that barrier is lowered, and let’s not forget, there is an entrepreneurial local environment that isn’t necessarily waiting for an SME from abroad to enter the market. They’re not saying, you know, “Thank you for coming.”
I would also say the other aspect, of course, is that larger companies have deeper pockets. They can ride out issues and crises, and they can say to their staff, “This is how we do business and we’re prepared to forgo deals, and we’re prepared to forgo certain things, and we will look after you and we’ll make sure that we do not do things that we’re uncomfortable doing because we can ride it out, we can invest; we’re in there for the long run and we’re happy to put the money in” and that’s part of the decision making. SMEs don’t have that luxury. And so there is a challenge with SMEs that if you’ve got the right connections, if you’ve got the right business model, it can be very profitable, but it can be an all or nothing strategy. You could go in there, make a lot of money, but you could also lose your shirts and that’s the end of your business, if you haven’t done your homework, if you don’t have that edge that will put you ahead of everyone else.
CH: One last quick thing on that is that there’s market entry, and there’s market entry. If you’re a big company, you have the resources and the infrastructure to jump in with both feet and to set up an elaborate in-country presence, with assets on the ground. For SMEs or for startups, there is market entry, but you can do it from a safer distance, in a more modest fashion.
PL: Digital, remote – these things must have created a whole other landscape?
CH: Precisely right.
PV: Yeah, and what I would just say, I fully agree. But you have to do your homework. Homework, homework, homework, do your prep. Make sure you have your local connections, make sure that you understand the risks and then go in with both eyes open. If you can’t go in with both feet, at least go in with both eyes open.
PL: But I guess at least that way, you’re insulated from the physical risks, you know, of actually being in country, aren’t you? In the way, you know, back in ’91 if you were in Russia, you were in Russia.
CH: That’s right. If you look at the evolution of most risky markets, companies’ initial entry model was quite different from the presence that they have now. And so, you know, back to the body parts analogies, but you know, feet in the water, toes in the water. You know, most companies made a tentative initial move before doubling down and growing their presence in country.
PV: I also would just say that, just thinking it through, it also very much depends on what it is that you’re there to do. I mean, if you’re in mining, if you’re in oil and gas, the risks are very different than if you’re providing accountancy services and you want to set up a practice, a law practice or an accountancy practice. And you know, if there’s a shortage or you’re providing specific help, let’s say, on trade law, or you’re helping companies establish themselves and you have that expertise, it’s a very different risk profile than, you know, setting up yoghurt factories or opening a mine.
PL: Thinking about attitude to risk is kind of where we came in at the beginning, isn’t it? And we had the chief economist in Santander UK on the podcast recently, and she said an interesting thing about uncertainty because there’s a lot of talk about it being the new normal. Her take on this was that it is to misunderstand history and uncertainty isn’t novel. Uncertainty is the norm.
CH: So there’s a lot to unpack in that statement, and I have things that I agree with and things that I disagree with, and, actually, I’ll try to close on a positive note since we’ve been talking a lot about risk. So the past – what is it 50, 60, 70 or so years – of growth and prosperity and relative peace that we have all been living through is, broadly speaking, the exception, and that across the great sweep of history, this period that we’ve been living in is the outlier. So a pessimist might say that this is the point where we will return to the sort of nasty, brutish and short sort of climate that preceded this period of prosperity. And I suppose at the end of the day, this depends on whether you think history is cyclical or history is linear. I think what your previous podcast guest got right is that we are now in a period of staggering disruption. And, I say this quite frequently, we are either in this period of disruption because we’re on our way to a new status quo and you know, let’s get there quickly please, or this is the new normal. This is the status quo.
PL: I think her feeling was that business has become deskilled because we’ve had a lot of stability in the span of many people’s careers, and they have not had to contend with the sort of uncertainty that we might have considered to be more commonplace before.
CH: I agree with that statement. And here’s the positive bit: that in this atmosphere, companies that can grasp and manage, you know, identify and mitigate risk – and let’s remind ourselves that the opposite of risk is opportunity – and companies that are able to grapple with all of the issues that we’ve been discussing are the ones who will be able to gain competitive advantage versus the companies that can’t. And so as we reskill, we have to remind ourselves that maintaining and growing a robust risk skill set, in addition to everything else that we have to do in our daily business lives, is a source of major competitive advantage.
PV: I agree with that and I do think when we talked about scenario planning earlier on, about managing these uncertainties and modelling and preparing for them, the flip side of that is exactly that as well. You know, you also use scenarios or work with boards and management on seizing opportunities quickly, ahead of your competitors, using the exact same tools in the exact same conversations. And I think the key thing for boards, and this is very intuitive, of course, is that you have the experience and depth of experience on your boards that you don’t necessarily need someone who’s seen it all before, but you do want people who have sufficient experience that they say, “Well, let’s not lose our heads here, right? I’ve seen this before somewhere else. Or I know we can manage this situation.” I think that is part of the risk you get if you have everyone on the board who is of the same background, the same education, the same life experience. That’s great if normal is business, but if you have things changing quickly, you also might want some people on your board who have living experience of more volatile markets and dealing with uncertainty.
PL: Well, you’ve had the perfect opportunity to put Charles on the spot just to close the podcast. I was thinking, Charles, if you were still with control risk now, what would you be saying to clients about future opportunities in Eastern Europe and Russia when the Ukraine conflict is resolved?
CH: Oh, that really is on the spot. And, you know, well, a couple of things: as I left the consulting business, companies were asking me and lots of other consultants in the risk business, they were asking us to predict the future. And you know, when you say, “Well, no, we really can’t”, companies and clients don’t like to hear that. They want answers. And so I think I might try to predict the future a lot more carefully. But you know, Philippa, over the course of this podcast, we’ve been using the expression ‘lessons and lessons learned, lessons not learned’ for going back to Eastern Europe, whether it’s re-entry into Russia or rebuilding in Ukraine, or, you know, whether it’s your ongoing presence in China, or whether it’s your presence in the Middle East or in any other volatile region, but specifically in Eastern Europe. We’re not going back to the Eastern Europe of the 1990s. We’re not going back to the Eastern Europe of the 2000s. We’re going back to a completely different Eastern Europe with a new set of opportunities, to be sure, but with an expanded set of risks. And so, you know, make sure that you have learned these lessons. And if you’re going to move into Eastern Europe, the last thing you want to have happen is to have to turn around and leave six months later. And so really be cognisant of opportunity, but against a dramatically different backdrop. I read a really interesting article about risk and scenarios and forecasting not too long ago, and one of the authors of the article said, “We always assume that tomorrow’s problems are going to look like yesterday’s problems, and they won’t.” And I think we have to be ready for that.
PL: What exactly is different about the risks then this time?
CH: Well, I mean, first of all, the region is drowning in weapons right now. I mean it is the largest military conflict in Europe since World War Two. And the place is just covered in weaponry. Secondly, it is now seen as one of the primary fault lines for a potential global conflagration because Russia I think has the world’s largest nuclear arsenal among several large nuclear arsenals. And then we don’t anymore have a country – it might have been the United States – we no longer have a country that’s playing the role of global sheriff. And so in this militarised, unstable, fluctuating environment, we’ve become a little bit unmoored from our comfort zone and from an area where there was somebody who usually, you know, put their foot down. That’s not happening anymore, and that leads to a newer set of risks going forward.
PL: Charles, Peter, thank you very much. You have given us all a lot to think about.
PV: Thank you.
CH: It’s been a pleasure.
PL: Behind the Numbers will be back in July to mark a year of the Labour government. What has gone well? What hasn’t? What might year two look like? These podcasts count towards your CPD, so listen out for Accountancy Insights before then. Do not miss the latest episode from our sister podcast, The Tax Track, covering the end of the non-dom regime and what will replace it. Thanks for listening.
