For decades, Enterprise Risk Management (ERM) operated under the rule of law with a stable domestic sovereign and a judiciary that operated as a predictable referee. While geopolitical risk frameworks carefully mapped the predatory behaviors of foreign regimes, domestic stability was assumed. Today, that assumption is dead.
When government policy moves away from an objective of long-term national power toward transactional, short-term populist priorities, the state itself becomes a primary source of volatility. We are witnessing an environment where the largest corporate players increasingly pay tribute, engage in rent-seeking, and secure protections at the expense of free market competition. For the typical firm outside this circle of cronyism, the strategic landscape looks less like free-market capitalism and more like a survival game in a declining state.
Examples are everywhere. A few from this year are:
- Bespoke tariff carve-outs: Following the enactment of the Sections 301 and 122 tariffs, politically connected manufacturers successfully extracted “product exceptions” and reciprocal framework agreements from the executive branch. This elite lobbying insulated these firms from severe supply-chain costs while smaller competitors bore the full tariff burden.
- OBBBA tax shields: The passage of the One Big Beautiful Bill Act meant large-cap multinationals successfully engineered permanent corporate tax rollbacks. By locking in bonus depreciation advantages and Controlled Foreign Corporation rules, the largest firms protected their revenues. Smaller firms were left out.
- Private equity and crypto bailouts: Connected private equity firms and crypto-asset owners influenced a Department of Labor regulatory overhaul. The resulting rule establishes fiduciary safe harbors, funneling regular 401(k) retirement streams into illiquid private assets. Wall Street’s largest buy-side money managers captured the state.
New Sovereign Risks Must Be Navigated
When government policy promotes national power decline, individual firms cannot afford to be passive casualties. If the state fails to provide stable policy, the firm must go it alone. Survival means adopting corporate self-reliance, using the classic international relations doctrines of compellence and deterrence to both navigate the market and defend against the arbitrary overreach of the state.
Managing an organization in this predatory environment requires corporate leaders to preserve financial control and governance. Developing a credible potential to adapt and avert state encroachment means building a resilient organization able to dictate its own terms of survival rather than capitulate to predatory state demands.
Strategic Paradoxes of the Modern Organization
Brenda Boultwood
Navigating this distorted landscape requires risk officers to confront four profound paradoxes that turn traditional corporate strategy upside down:
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The Sovereignty Paradox: To protect domestic operations and secure long-term continuity, the firm must look outward. True domestic resilience now requires establishing excess capacity, capital reserves, and supply chains in foreign, yet more predictable, jurisdictions to escape arbitrary intervention by federal government.
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Resilience vs. Restraint: Excessive dependence on concentrated domestic suppliers creates vulnerability to state-directed pressure. On the other hand, fragmenting operations to avoid state capture destroys the immense economic benefits that flow from scale and cooperation. The firm must diversify enough to preserve autonomy without sacrificing the efficiency required to invest defensively.
- The Ethical Contradiction: Operating in an environment where market advantages are bought through political tribute forces an ethical corporate board into a corner. Maintaining strict, traditional governance standards can result in commercial exclusion, while capitulating to the regime’s transactional demands compromises the firm’s core integrity and exposes it to future blackmail and future legal battles.
- The Coercive Commercial Paradox: In a rule-of-law vacuum, the firm can no longer rely on standard contract enforcement to manage counterparty risk. To survive, the firm must selectively employ compellence tactics with its own suppliers and customers to demand strategic commitments, exclusive terms, and economic defense pacts that mirror political alliances.
Repurposing the Supply-Chain Risk Taxonomy
To systematically track these vulnerabilities, chief risk officers can adapt established risk frameworks. One example is the supply-chain risk category that may be called “Foreign Ownership, Control, or Influenc (FOCI). A predatory domestic state requires a radical reinterpretation of this risk. In today’s risk landscape, this must be reframed as Sovereign Control or Influence (SCI), in order to track the actions of our government.
Consider what could be some standard subcategories of FOCI, such as mergers and acquisitions, corporate ventures in offshore tax havens, economic espionage, and nationalization. When a domestic regime begins forcing friendly board appointments, weaponizing antitrust enforcement against non-aligned firms, or threatening the de facto nationalization of critical infrastructure under the guise of national security, the risks are identical.
When addressing these risks, corporate leaders must make tough tradeoffs. Any company must balance its need for operational speed with the cost of building political resilience.
Top ERM Actions for Corporate Survival
Organizations must fundamentally overhaul their ERM frameworks. The framework must shift from mitigation efforts to active operational deterrence of domestic sources.
1. Build Hard Deterrence Through Redundancy. In international relations, deterrence relies on a credible capability to either deny an adversary their objectives or impose unacceptable costs. For a corporation, operational deterrence is the credible potential to adapt instantly on its own terms.
Firms must make hard capital investments to create deliberate excess capacity in reliable and stable jurisdictions. This means building facilities with flexible capacity, maintaining supply chain redundancy, and ring-fencing intellectual property outside the immediate reach of the domestic regime. If the government attempts to exert predatory control, threaten regulatory powers, or demand political tribute, the firm must possess the ability to shift production or capital allocation overnight. To walk away is the ultimate corporate deterrent against state overreach.
2. Implement Contractual Compellence Across the Value Chain. Firms can no longer act as passive price-takers or vulnerable nodes in a fragile system. ERM frameworks must mandate the integration of compellence mechanisms into all major supplier and customer relationships.
This involves rewriting customer agreements to include aggressive sovereign interference clauses. These clauses should legally compel downstream customers to share the financial burdens of politically induced supply disruptions or arbitrary regulatory penalties. Firms must also demand long-term, non-cancelable volume commitments from key customers to bind the customer’s and firm’s survival. Overtly building defensive coalitions across its value chain enhances the firm’s ability to resist state disruption.
3. Establish Firewalled Governance and Capital Structures. When public company board governance and private firm control are targeted by a predatory political regime, minimizing costs and squeezing suppliers may not be an option. Firms may need to accept higher costs and durable contracts to insulate leadership from political coercion.
This is where the CRO can help the firm create resilient risk governance mechanisms. For example, board configurations should utilize dual-class voting structures where possible to prevent state-backed activist funds or politically favored entities from executing hostile takeovers. In addition, capital accounts should be managed through decentralized, multi-jurisdictional holding structures.
By legally separating the firm’s core assets from its immediate domestic operating entity, corporate governance ensures that even if domestic operations face severe regulatory or political sanctions, the underlying enterprise capital remains secure and out of reach.
Parting Thoughts
The gloves are off in corporate governance. When a nation’s policy architecture degenerates into a system of short-sighted rent-seeking and arbitrary state coercion, enterprise survival can no longer be managed in a business-as-usual approach.
Resilience matters, but so does strategic restraint. While excessive dependence on a corrupt domestic system is a fatal vulnerability, an overly fragmented, fearful retreat from the market will starve a company of the capital it needs to survive.
The ultimate goal for the modern CRO is to strike a balance through diversification of global operations to maintain leverage, cooperate with counterparties through ironclad contracts, and preserve the internal risk governance to make corporate power predictable, even when the state itself is anything but. Strong ERM can help a firm trump a short-sighted predatory regime.
Brenda Boultwood is the Distinguished Visiting Professor, Admiral Crowe Chair, in the Economics Department at the United States Naval Academy. The views expressed in this article are her own and should not be attributed to the United States Naval Academy or the U.S. Department of Defense.
She is the former Director of the Office of Risk Management at the International Monetary Fund. She has previously served as a board member at both the Committee of Chief Risk Officers (CCRO) and GARP, and is also the former senior vice president and chief risk officer at Constellation Energy. She held a variety of business, risk management, and compliance roles at JPMorgan Chase and Bank One.
Topics: Enterprise, Geopolitical