of new reputation risks.
The public launch of ChatGPT thrust generative AI into public consciousness. In reality, AI has been an integral part of technology for the past decade, bringing new and profound threads.
The media have been quick to highlight AI risks. Mass unemployment. Industries mothballed. Terminator-style Armageddon.
Despite the noise, a more prosaic risk has emerged. Generative AI – and its capability of synthesising big data – creates very real risks in its outputs. These can breach laws and social norms – privacy, mimicry, larceny, bigotry – at a previously unimagined scale.
This creates new reputational threats that organizations must manage.
Digital “black gold”
Critical risks relate to privacy. Generative AI’s technology is based on large scale datasets. Any data input into generative AI may be reproduced in outputs.
Readily available public information is rarely a concern. Private information is a different matter. In analysis of 106 AI reputation issues, 50% were caused by privacy breaches1
For listed companies, inadvertent disclosure of non-public, material information may breach market abuse and disclosure rules.
The regulatory and legal consequences of breaches are severe.
Mining private information on employees and customers could breach data privacy laws such as GDPR in the EU or the California Consumer Privacy Act in the U.S.. This may even be the case where data has been
obtained with consent, but not specifically for use with AI. In 2017, the Royal Free Hospital in England breached data protection rules when it gave out “consensual” data to train Google’s DeepMind AI tool.
The regulatory and legal consequences of privacy breaches are severe, and managing reputation risk around these is challenging for communicators. Data, and use of it, is a key flashpoint.
In June 2024, Adobe faced outcry when it changed its terms and conditions. Users believed this would allow Firefly AI to train itself using image/video data on Adobe’s Creative Cloud software. The company rushed to issue a clarification as opprobrium mushroomed.
Deepfakes and synthetic media
While phishing emails and fake websites have been around for decades, AI has added new dimensions of sophistication to mimicry.
Estimates suggest 3.23% of votes for Trump in 2016 and 1.76% of votes for Brexit were influenced by fake bots2. These votes were potentially crucial in close elections.
The role of deepfakes and synthetic media is considered a critical risk by the U.S. government3. Encoder and deep neural network technology allows the user to swap people’s face and bodies. Apps such as FaceShifter, FaceSwap and even TikTok and Snapchat provide real time manipulations. These allow bad actors to create synthetic content for financial, political or strategic gain.
Technology such as Wav2Lip creates lip syncing videos. These are already in use in election campaigns to create fake politician
statements. Puppet deepfakes use Generative Adversarial Networks (GAN)4 to create videos that make targets move in ways they didn’t. This technique has been popular for portraying President Joe Biden as senile.
There is evidence deepfake personas are used by nation states. In 2020/2021 GAN – generated social media personas criticised Belgium’s stance on adopting Chinese 5G technology. In 2021 synthetic accounts criticised the Russian opposition leader, Alexei Navalny.
AI technology radically reduces the cost of creating deepfakes. This magnifies threats and governments are taking note.
AI technology radically reduces the COSTS OF deepfakes.
The U.S. Department of Homeland Security has identified multiple scenarios. These include inciting hatred/violence through deep-faked racial incidents; producing videos on climate change that show fake “increased” ice growth; and creating false evidence in criminal trials.
For corporates, scenarios include sabotage, stock market manipulation and social engineering attacks for invoice fraud and accessing bank accounts.
Communicators need to prepare for the malign influence of deepfakes. Educating stakeholders on identifying deepfakes/ responsible sharing is key (see Laura Hartmann’s excellent article on cyber risks – page 30 ). Threats can be managed by marking media as genuine and deepfake identification technology. Companies should remove and label deepfakes too.
Most importantly, communicators can establish channels (and brands/reputation) that stakeholders trust and rely on.
Digital rights
Generative AI’s synthesis of data sets creates a unique threat; outputs may generate content that breaches patent, copyright and other IP protections such as trademark. These may infringe third-party rights.
There is legal confusion whether AI generated content should itself accrue IP rights.
In April 2023, China’s cyber administration released draft measures for the administration of generative AI. These included measures to comply with Government rules and protect IP. The UK is consulting on whether computer
generated content should have copyright protection.
The European Commission’s Artificial Intelligence Act does not cover IP at all.
This lack of clarity on IP law may lead to legal claims and reputation damage.
Rightsholders are already taking action on AI. In October 2023, Hollywood writers won concessions from the Alliance of Motion Picture and Television Producers to protect against AI replicating or substituting their content.
Hollywood actors5 concurrent strikes ended December last year after studios agreed to pre-consent for AI created digital replicas. Synthetic performers6 were not included in the deal; this means studios can train synthetic actors using real actors’ work.
The lack of clarity on IP law may lead to legal claims and reputation damage.
There is likely to be further legal action to clarify positions. AI platforms may use defences such as incidental temporary reproductions (Australia), incidental temporary copies (EU/UK) or fair use (U.S.). Given the “black box” nature of AI, it may be difficult for rightsholders to enforce rights.
Open-source data to train AI may be “copyleft”, meaning that the original source of derivative data is subject to IP rules. In the EU, Australia and the UK, courts have stressed the importance of protecting human creativity in copyright cases.
Simultaneously, AI developers and platforms are battling over copyright and patent.
Though regulation is embryonic, fines and sanctions may increase as AI expands.
Together these provide significant reputation risks to communicators who must model new scenarios and playbooks. These may be particularly challenging where IP disputes involve famous or renowned figures, who command large social me followings and influence.
AI bigotry
AI bias has already become a flashpoint in the culture wars (see Charles Ansdell’s article on culture wars – page 24).
Concerns centre about AI’s algorithmic bias or bigotry. On one side, detractors argue AI is biased against minority groups – it trains on data sets created in Europe and North America. Large language models skew towards English language data sources. They may learn inherent bias from real world data.
On the other side, people claim that generative AI is “woke” and gives dangerous ideological answers and solutions.
Algorithmic bias creates the greatest reputation risks around institutional “decision making” (for example, credit applications in finance). There are risks that AI systematically excludes a particular group based on characteristics such as age, race and gender.
This risk is compounded by AI’s “black box” process; people do not understand how it makes decisions. Combined with perceived bias, this creates a potent reputation risk.
Managing dimensions of AI risk
In the “Reputational Risks of AI”, its authors7 posit two dimensions of reputational risk relating to AI – capability and character. Capability refers to the efficacy of the AI. Character refers to the intention behind AI.
According to the paper, stakeholders view AI failures as revealing of the purpose and values of an organizations – their character. Capability refers to how competent they see an organization in developing and managing AI.
Their studies show that, for example, AI issues linked to privacy are seen as failures of character, while algorithmic bias reflects poor AI capability (or competence).
Organizations can manage capability risks by explaining how they are fixing issues. They can apologise and articulate how they learn from errors.
With character, organizations need to show how they have changed their culture or governance. The consequences of “character” AI breaches can be severe. Facebook’s stock fell 24% following the Cambridge Analytica scandal; it was fined $5 billion by the Federal Trade Commission, $100m by the SEC and $725m to a class action lawsuit. Arguably its reputation has never recovered.
Super-intelligence – the ultimate risk Today’s AI doesn’t match human intelligence. Experts think that by 2045 we will see superintelligent AI (Artificial General Intelligence) that supersedes human intelligence .
This intelligence may create risks that we can’t imagine. Throughout history, higher intelligences have manipulated and controlled lower intelligences.
In this scenario, there may be dimensions of communication and reputation risk that we cannot conceive nor model.
AI will transform reputation risks and the way we manage them
What is certain is that AI will transform reputation risks and the way we manage them.
This article is based on our current understanding of the law relating to AI in various jurisdictions as at July 2024.
Tom Coombes is CEO and founder of Cognito. He leads projects to deliver valuable AI solutions to Cognito and its clients.
World interrupted –how 2024’s year of elections transforms geopolitics.
How will Labour govern?
What Labour’s manifesto tells us about how they will manage the economy.
Three weeks before the nation went to the polls, the Labour Party unveiled its manifesto in Manchester. Long at 125 pages, the Party presented a wide range of policies, from votes for 16-year-olds to a state-owned energy company.
It also promised a very different form of economic government for Britain. Not just different to the last 14 years of Conservativedominated government, but subtly different to the last 50 or so years of economic orthodoxy. The idea of a planned economy had all but disappeared from the public discourse, but, whisper it, it’s back in a new and interesting way.
Rachel Reeves set out the vision in her recent Mais Lecture (Available on YouTube) and it reappeared in black and white in the Party’s Manifesto.
“Labour will introduce a new industrial strategy. Our approach will be missiondriven and focused on the future. We will work in partnership with industry to seize opportunities and remove barriers to growth. Critically, we will end short-term economic policy making with the establishment of an Industrial Strategy Council, on a statutory footing, to provide expert advice. We will ensure representation on the Council from all nations and regions, business and trade unions, to drive economic growth in all parts of the country”. Labour Election Manifesto 2024
Labour’s manifesto repeatedly highlighted what the Party called ‘Conservative chaos’, promising, in contrast, stability and calm for not just one Parliament but two. Most commentators appear to interpret this as being an attack on the post-2016, May/Johnson/
Truss/Sunak period of political instability (ignoring the effects of the referendum, the pandemic and the Russian invasion of Ukraine). Reading the manifesto, however, it is clear that there is much more to it more to it than the last eight years. In their manifesto Labour set out a course for a quite different way of running Britain’s economy.
At the heart of this are the commitment to a decade-long industrial strategy. It’s resonant of those plans the Labour administrations of the 1960s and 1970s were so committed to. Drawn up on the basis of a Whitehall-led analysis of what the country, and specific selected sectors, need to thrive, a grand strategy that will be agreed jointly by government, the private sector and the workforce, represented by their trades unions, and delivered as a joint effort over a decade. This is very different from the market-led, consumer-driven hurley-burley we’ve become used to from the 1980s, and is in many ways is a greater change than anything tried by the Blair administration.
The Thatcherite free-market economy replaced by a planned, calm and ordered economy, one that the new government believes will be more predictable, resilient and greener. And one they hope will create a climate in which investors will have confidence to restore growth to an economy that has flatlined.
“Labour will end the chaos by developing a ten-year infrastructure strategy, aligned with our industrial strategy and regional development priorities”. Labour Election Manifesto 2024
Rachel Reeves, the Chancellor, has already constituted a “British Infrastructure Council” made up of the CEOs of some of the country’s biggest financial players including Lloyd’s, M&G, Santander, Blackrock and others to advise on the strategy. A Bill to make the Council a statutory body is likely to be included in the new Government’s first King’s Speech, expected on 17 July.
Labour expect that following the election, the Council will be working with HM Treasury and Business and Trade officials to identify those sectors where Britain is currently, or has the potential, to be globally competitive. These will be prioritised for investment in supporting infrastructure to ensure they are able to thrive.
The Party is also planning a Global Investment Summit within three months of taking power to try to drum up investment from investors abroad, most likely sovereign wealth funds.
“Labour’s National Wealth Fund will directly invest in ports, hydrogen and industrial clusters in every corner of the country. We will also secure the future of Britain’s automotive and steel industries”. Labour Election Manifesto 2024
The proposed UK National Wealth Fund, backed with £7.8 billion and, Labour hope, augmented by money from the private sector and Britain’s £2.5 trillion national pension pot, will provide the initial investment to jumpstart the infrastructure investment the priority sectors identified by the Infrastructure Council. Ports and supply-chains, gigafactories to supply batteries to the automotive sector, the steel industry, carbon capture and green hydrogen have already been identified as investment priorities.
“A new statutory requirement for Local Growth Plans that cover towns and cities across the country. Local leaders will work with major employers, universities, colleges, and industry bodies to produce long-term plans that identify growth sectors and put in place the programmes and infrastructure they need to thrive. These will align with our national industrial strategy.” Labour Election Manifesto 2024
In parallel, local authorities will be required to develop their own industrial strategies which while supportive of the national strategy, will
help businesses specifically in their own areas. In return these, local authorities will receive more financial support from the government.
Back to the future?
As in the 1960s and 70s Britain, and the world’s economies, are in a time of transition as the digital revolution makes ever deeper changes to the way we live and work. As was the case 50 years ago, governments respond by seeking ways of providing reassurance and security to populations bewildered by the speed of change.
The risk to the Labour government - and eventually the country - is that governments have historically had a poor track record when it comes to predicting the nature of the future economy. And big businesses of the type that will dominate the councils and committees that will be set up to advise the new government have fared little better.
The ideological pendulum has swung once again and the great British public appears to want government to play a more powerful role in the economy. To a Party that has been waiting 14 years for this opportunity, it really is the chance of a lifetime.
Simon Gentry is a leading UK and European policy advisor. He advises bluechip organizations on critical challenges at the intersection of politics, business and finance, including VISA, Microsoft, SAP, GSK, AstraZeneca, Danone, the ATM Industry Association, Bank Machine and Cardtronics Inc.
U.S:
Navigating
the
eye of the storm. U.S. Political Risks in the Summer of 2024.
The political risks emanating from the United States are significant – given deep polarization and rising geopolitical tensions. A contentious political election, a persistent and visible border crisis and accelerating economic “decoupling” from China is generating anxiety across the U.S. populace.
As we head into the Summer campaign season, the nature of these risks – from a policy perspective – is becoming more defined and easier to analyze. And yet an unprecedented pre-Convention debate has upended the race – with many Democrats now calling for President Biden to give up the nomination to a younger candidate (at the time of publishing).
For the Democrats, public concerns over President Biden’s age and soft approval numbers had become more prominent even before the debate, particularly as party
As the two candidates prepare for an unprecedented preConvention debate, the polls show a dead heat.
divisions over Gaza and climate policies threaten to dampen enthusiasm and voter engagement. Despite record job growth and all-time stock market highs, antipathy over inflation and housing costs have created a negative domestic narrative about the U.S.’s economic strength.
Now concerns over the President’s cognitive abilities are dominating headlines – with the 2024 Democratic Convention in Chicago now becoming a major source of Summer drama.
For the GOP, former President Donald Trump returned in June to Capitol Hill for the first time since the events of January 6th, 2021. The moment was a watershed – for obvious symbolic reasons – but also for the policy wish lists that were discussed between legislators and their party leader. Despite his recent felony conviction, the GOP is committed to the former President, and appears to be warming to his stated priorities of significantly increasing tariffs and deporting up to 20 million “undocumented migrants” from the United States, while downplaying Federal legislation on abortion.
And still – considering the past 5 years – this is a moment of relative calm in a stormy U.S. political season. Clouds are gathering over warm waters – and storms with hurricane potential are visible just over the horizon. While issues like the culture war and the ensuing polarization are always a source of uncertainty, several knowable risks have emerged for global businesses –particularly this Summer. These include:
A rapid acceleration of U.S. – China Cold War Bipartisan sentiment against China is firming, as the Biden administration has signed a potential TikTok ban, and unleashed major tariffs against the Chinese Electric Vehicle industry. A future Trump administration is promising even more radical trade policy – with allies of the former President suggesting to Semafor that he would go beyond tariffs with “more stringent export controls of key US technologies, aimed at hampering Chinese industry, and restrictions on US investments in China”
While a potential Trump administration might be more “hard core” on China, most Democrats have enthusiastically supported President Biden’s TikTok legislation, as well as his EV tariffs. Despite recent overtures like the return of “panda diplomacy” and the allowance of Disney’s latest blockbuster to open in Chinese theaters – there is little appetite in the United States for economic normalization.
To the contrary – incentives are lining up for the candidates to become ever more hawkish on China.
US regulatory uncertainty
The Supreme Court has ruled on landmark cases (Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce) that promise to upend the way federal agencies interpret and enforce regulations. The “Chevron doctrine” has been a cornerstone of U.S. administrative law for decades, giving agencies broad discretion to interpret ambiguous statutes. But now, the Court has wholly eliminated this doctrine, while leaving in place past cases decided under its precedence.
The Court’s hacksaw of Chevron, promises to unleash a tsunami of legal challenges to agency actions, from environmental regulations to labor laws. Businesses that have long chafed under the yoke of federal oversight suddenly have a powerful new weapon in their arsenal, and agencies could find themselves paralyzed by the threat of litigation.
The stakes are high, and the uncertainty is already rippling through the business world.
The regulatory landscape is about to get a whole lot more treacherous.
With the 2024 elections looming and partisan tensions at a fever pitch, businesses will need to navigate this new reality with caution and agility.
Conclusion
As the United States enters a critical phase in its political cycle, global businesses must remain vigilant and adaptable to the rapidly evolving landscape. The escalating tensions with China and the potential upheaval in the regulatory environment pose significant challenges that require careful planning and strategic decision-making.
Companies that can effectively navigate these turbulent waters will be well-positioned to weather the storm and emerge stronger on the other side. This may involve diversifying supply chains, reassessing compliance strategies, and staying attuned to the shifting political winds.
Ultimately, the key to success in this uncertain environment will be the ability to anticipate and respond to change quickly. By staying informed, agile, and proactive, businesses can mitigate the risks and seize the opportunities that arise in the eye of the storm. The winners will be those who can chart a steady course through the choppy seas ahead, while the losers may find themselves lost in the tempest.
Companies are scrambling to assess their compliance strategies and brace for the potential fallout. Some are even considering preemptive legal action, hoping to capitalize on the chaos.
One thing is clear: the regulatory landscape is about to get a whole lot more treacherous.
Doug Hesney is Senior Vice President in Cognito’s New York office. An attorney by training, Doug advises U.S. and international clients on their business critical issues. Doug has provided counsel on crisis and high-profile situations and transactions, including litigation support for cases before the U.S Supreme Court and IPOs, spinoffs, and M&A deals.
EU: Populism on the rise. The changing face of EU politics.
Never have EU elections had such an impact on national politics. After years of political stability and incremental changes, several elections are taking place in the European Union. Across Europe as a whole, the Christian Democrats (EPP) are set to remain the biggest group, with the social democrats (S&D) in second place, and The Liberals (Renew) and Greens both losing heavily.
At a glance
• Europe has struggled economically for years on surging prices and the fallout from Russia’s war in Ukraine, fueling populist sentiment that has lifted the far right in European parliamentary elections.
• Far-right anti-immigration parties dominated the results in the European Parliament election, triggering a snap election and a political crisis in Paris, and unrest in Berlin, where the ruling coalition was defeated.
• Europe must foster greater political stability, cut red tape and reduce energy price volatility to reverse falling foreign direct investment, EY said after a survey of business leaders1
France
France has entered a period of political turmoil. In a shock move, Emmanuel Macron dissolved the French parliament, with fresh national elections held on June 30 and July 7. Following the first voting round on 30 June, the far right Rassemblement National (RN) of Marine Le Pen and Jordan Bardella was expected to head towards a landslide victory and a majority in parliament. Quite unexpectedly, it was not the RN who claimed victory after the Sunday 7 July elections. Jean-Luc Mélenchon’s far-left New Popular Front and his alliance with France Unbowed, Greens, Socialists, Communists and Trotskyists, emerged as victors, although their “victoire” is not big enough to govern.
In the week preceding the 7 July election, President Macron worked with the left to stop Le Pen’s RN from winning. His efforts have now handed the initiative to Mélenchon’s left-wing alliance that won 188 seats in France’s 577seat National Assembly — a gain of almost 60, ahead of President Macron’s liberal party (161 seats) and the RN (142 seats).
With no party reaching an absolute majority, a hung parliament is projected, being uncharted territory for modern France. President Macron’s office says he will “wait for the new National Assembly to organize itself” before taking steps on a new government (at the time of publishing).
Since 2022, Macron and his prime ministers have governed without an absolute majority, finding ad hoc majorities on a case-by-case basis or using constitutional mechanisms to bypass votes in parliament. He has three years remaining on his presidential term.
A strong government in Paris is considered an essential pillar for EU stability. The political uncertainty in France, therefore, being the EU’s second-largest economy and its biggest military power, could have wider impacts across the EU. Polish Prime Minister Donald Tusk was the first of the EU’s 27 leaders to respond to the French exit poll: “In Paris enthusiasm, in Moscow disappointment, in Kyiv relief,” he said on X (Twitter), “Enough to be happy in Warsaw.”
Possible implications for the EU:
• Mélenchon has in the past been accused of adopting a sympathetic stance towards Russia and has consistently opposed sending sophisticated weaponry to Kyiv. Support for Ukraine is one of the issues that could split the unity of the New Popular Front, which harbours many types of socialism.
• Supporters of the European Green Deal have greeted the National Rally’s defeat with joy. Earlier, the RN’s Jordan Bardella declared to
“renounce” the Green Deal. Conversely, the left-wing alliance has demanded a climate plan with the goal of reaching carbon neutrality by 2050 and wants to see France emerge as a leader in renewable energy, including hydroelectric power and offshore wind.
• “This French election is a wake-up call for European leaders. It’s time to take action to tackle deindustrialisation, under-investment and households’ energy bills, which have risen due to a costly dependence on imports of gas, oil and coal,” said Neil Makaroff, director of the European think-tank Strategic Perspectives. Source: ‘What does the French left-wing alliance’s shock election win mean for Europe?’ Euronews, 8 July 2024)
• Multiple EU programmes and frameworks, including the NGEU and the EU fiscal rules, were born thanks to a significant contribution from the EC but ultimately depended on an agreement among member states. The NGEU is a European programme radically changing the way the European Union interacts with financial markets with its ambitious and groundbreaking new public debt programme.
• A change in the economic outlook for France can have implications at the EU level. France’s weight in eurozone GDP is around 20% and has the potential to affect EU dynamics. Heightened business uncertainty might present downside risk for the eurozone recovery. Source: BNP Paribas Wealth Management.
Sources: Politico, Euronews
Germany
Following the EU elections, in Germany, where the Greens are in a coalition government, the Green Party election losses were met with disappointment from the party and climate activists.
In contrast with the trajectories of other European right-wing parties like France’s RN, the Sweden Democrats, or Giorgia Meloni’s Fratelli d’Italia, the German far-right AfD has become increasingly alienated from the political centre. Yet, the AfD maintained considerable support, consistently polling in double digits.
Despite the apparent robustness of its constitutional order, Germany faces mounting challenges and a growing crisis of confidence in state authority and political governance. This crisis spans various sectors, including domestic and national security, unmanaged migration, energy provision and deteriorating infrastructure - notably the declining efficiency of the Deutsche Bahn rail system, once a proud symbol of German dependability.
Spain
In Spain, while the “Popular Party” (PP) won the elections, the socialist government has not collapsed.
Spain’s political system is multi-party, but since the 1990s two parties have dominated, the Spanish Socialist Workers’ Party (PSOE) and the PP. The schism between left and right is wide and will not be any closer soon. Spanish media play an important role here as they are quite outspoken: they have alliances with political parties and use platforms to peddle negative stories about political opponents, whether true or false.
The President of the Government of Spain, Pedro Sánchez, announced that he will take a package of democratic quality to the Spanish parliament before the end of the summer.
With a turbulent domestic political situation, it is unlikely Spain will play a part in the wider international debates.
Italy
Fairly quickly, the Italian Prime Minister, Giorgia Meloni, has built a rock-solid position, both domestically and internationally. Despite a historically low turnout of 49.6%, Meloni emerged stronger in both Rome and Brussels at the end of the EU elections, winning 28.9% of the vote, exceeding her score from the 2022 legislative elections. She intends to pursue dialogue with the French far-right party, RN, and to form majorities in the European Parliament on certain texts. They had hoped for a far-right victory in Paris after the French elections.
Meloni has asserted herself as the head of the most stable government among major European countries, following the fall of the majorities in power in Paris and Berlin. Meloni handled the G7 summit as host very well, showing Italy is still a force to reckon with.
Belgium
Belgium shifted to the right in June’s European election, but an expected extremist landslide didn’t happen. The Flemish right-wing New Flemish Alliance (N-VA) and Francophone liberal Reformist Movement (MR) were the two victors of the “triple election”, when voters elected new national, regional and European members of parliament. Both N-VA and MR campaigned on platforms advocating a center-right economic reform to cut back the country’s spiraling government deficit.
EU elections have resulted in the resignation of the Belgian Prime Minister. For outgoing Prime Minister Alexander De Croo, the election was a disaster. The “Vivaldi” coalition was heavily penalised, losing 11 seats. It is a setback for the PS (French-speaking socialists, S&D), but especially for Ecolo and Groen (both French and Dutch-speaking, Greens/EFA) and Prime Minister De Croo’s Open VLD (Dutch-speaking liberals, Renew) which received severe blows.
Prime Minister De Croo is not going to return for a second term, but he will remain Prime Minister until the next government is in place. Ahead of the election, N-VA leader Bart De Wever ruled out governing with the far-right Vlaams Belang; he will now have to find allies among center-
right, centrist and center-left parties to form a majority in the country’s federal parliament.
The Netherlands
The Netherlands might be a small country, but it has always punched above its weight. The last elections in November ended up with a win for conservative parties. After months of coalition negotiations there is now a business focused government with a very experienced former top-civil servant as Prima Minister, Dick Schoof, likely to prove to be a stable and reliable partner to international partners.
During the EU elections, the socialist/green GroenLinks-PvdA alliance was confirmed as the biggest Dutch contingent with 8 seats in the European Parliament, followed by the far-right PVV, headed by Geert Wilders, polling in second place with 6 seats, and the conservative/center VVD Liberal Party with 4 seats.
The new kid on the block, the pro-countryside BBB, managed to increase their share of the vote marginally compared to last year and will debut in Brussels with two MPs. The results for Pieter Omtzigt’s NSC were particularly poor. Although the NSC won almost 13% of the vote in November in the Netherlands, it plunged to 3.8%, giving it just one seat in the European Parliament.
The former Dutch PM, Mark Rutte, is likely to become the next NATO Secretary General and he will harness the influence of the Netherlands in the international arena.
Jan Jaap Omvlee is Strategy Director in Cognito’s Amsterdam office. He has more than 20 years’ experience advising banks, insurance firms, pension funds, asset managers, private banks, PE, VC and FinTechs on their critical matters. Jan Jaap is a contributing writer/editorial board member for Financial Investigator Magazine.
Emerging risks: communicating in culture wars.
An exceptional year for elections raises political risk and cultural discord. Charles Ansdell, Chief Strategy Officer of Cognito, examines how companies should navigate divisive positions and polarized agendas.
January 6, 2020. The U.S. Capitol Building attack. The zenith of culture wars, riots in the world’s greatest democracy.
It felt a watershed moment. “Never again,” the world said.
Four years on, the largest voting year in history – with more than two billion people going to the polls – has resurrected the spectre of culture wars.
The intervening years have heralded remarkable change. Covid, war in Ukraine/ Israel and spiraling inflation have created a febrile and volatile environment. ESG – once the north star of asset management – is under attack in U.S. courtrooms. Key movements –#metoo, Black Lives Matters – have slipped from the agenda.
Across the world governments have lurched from left to right and back. While right-leaning populists Boris Johnson and Jair Bolsonaro disappeared, Javier Milei emerged. The portended return of Donald Trump looms over the U.S.
Against this background, organizations have their work cut out. They must engage stakeholders with diverse and opposing agendas, remain true to their purpose and navigate political and social sensibilities. Never in history has so much been expected of companies and their leaders.
Culture wars: a genesis of discontent
Culture wars are conflicts between opposing groups who wish to impose their ideology, values or beliefs. Its etymology dates to Kulturkampf – the 19th century Prussian-
Catholic Church conflict. It entered modern consciousness with James Davison Hunter’s 1991 treatise, “Culture Wars: the struggle to define America.”
This definition – opposition between liberal and conservatives – characterizes culture wars today. “Woke”, LGBTQ+ rights, antidiscrimination, identity vs. religion, family values, immigration.
But why are culture wars dominating the headlines? Evidence does not back the oft cited reasons – inequality, internet-use, social media, happiness.
Global inequality peaked in 2000 and has fallen since.1 In the U.S., inequality levels are back to pre-financial crisis levels.
Global social media use has fallen in the past six years. Internet search for culture war terms such as trans have risen, while others, such as immigration, have fallen.2
Studies show people are genuinely happy. In the UK, life satisfaction and happiness are remarkably consistent.3 In the U.S., there’s a significant generational divide, with high life satisfaction in the over-sixties compared to the under-30s, but levels are well above world averages.4
So, what is really driving culture wars?
Surveys offer a clue. The public believes politicians and media are the culprits.5 There’s evidence for this. Media analysis alone shows a marked increase in articles covering culture war topics in the period up to and after 2020.
Of course, Covid happened. A world starved of social contact may be more receptive to doomscrolling or the emotive messages of culture wars.
Collision course: when businesses meet culture wars.
Curiously, the public don’t hold businesses responsible for the culture wars. Why then, have they become such victims of them?
McDonald’s bought its Israel franchise in April after an anti-war boycott in the Middle East; other regional franchises needed to protect revenue after sales had fallen 90%6.
In 2023, conservative consumers snubbed Bud lite, the top selling U.S. beer brand of the last 20 Years, following an online promotion featuring trans actor Dylan Mulvaney. Bud Lite’s sales fell 15%. Its parent AB InBeve’s stock fell 20%. By May 2023, it lost its spot as the bestselling U.S. beer.
In the UK, the CEO of Natwest bank, Alison Rose, resigned following a spat with politician and coutts customer Nigel Farage (coutts is owned by Natwest). He claimed the bank had closed his account for political reasons.
Fund behemoth Vanguard faced environmental protests throughout 2023 after pulling out of NZAM, an initiative to reach Net Zero carbon investments by 2050.7
The return to stakeholder capitalism
To get to the root of this, we must look at changing society and what it expects of organizations. The key concept is stakeholder capitalism – that organizations should serve the interests of a diverse range of audiences (“stakeholders”).
This is not a new concept. Its genesis is the seminal 1932 work “The Modern Corporation and Private Property”. This advocates organization’s responsibility to
wider stakeholders. Its thinking prevailed until legendary neoliberal Milton Friedman, in 1970, published “The Social Responsibility of Business is to Increase its Profits.”
This doctrine – the driving force of Reaganism and Thatcherism – defined the 1980s, when Wall Street’s Gordon Gekko’s “Greed is Good” mantra was revered not reviled.
Following the collapse of communism and the 1989 crash, stakeholder capitalism returned. The triple bottom line, coined by writer John Elkington in 1994, covered people, planet and profit (which was first adopted by oil major Shell in 1997).
Creating Shared Value by Harvard’s Michael Porter (he of ‘five forces’ fame) and Mark Kramer (he of ‘balanced scorecard’ fame) has become a key business concept; this argues that organizations can gain competitive advantage through delivering value to society as well as shareholders.
Purpose and reputation in a stakeholder world
In response, companies have moved towards “purpose” driven models to ensure that they deliver value (and values) to wide groups of stakeholders, society and the environment.
This is reflected by the greater role that stakeholders expect organizations to take. In detailed studies8, they feel that organizations are not taking an active enough role on a diverse range of social or environmental issues.
This mismatch creates risk; organizations are compelled to take an active role on issues by their stakeholders, which puts them into the crosshairs of culture warriors with opposing views.
Compounding this, business leaders focus on the wrong issues. In the U.S. leaders think trans rights, DEI and climate change are key, while their customers worry about elections, mental health, gun rights and immigration9
Proportion of stakeholders who believe that big business has a responsibility to play a positive role in society versus proportion of stakeholders that believe big business is playing a positive role in society.
Taking a stance on issues also has an asymmetric risk-reward profile for companies. 24% of consumers are more likely to buy from a company taking a stance they agree with. 48% will boycott a company taking a stance they disagree with.
Retrenchment or temporary retreat?
Business leaders would be forgiven for thinking they’re damned if they do or don’t. Stakeholders want them to take a stance, but disproportionately punish them when they don’t agree with that stance.
There’s evidence that companies are quietly retreating.
BlackRock’s Larry Fink’s feted annual letter has been conspicuous for evangelizing ESG. In 2024, ESG was barely mentioned.
Vanguard only voted for 2% of ESG proposals brought by investors in 2023. The investment giant made a point of calling out proposals that were in effect already or ineffectual.
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Greenhushing, not greenwashing, prevails. Organizations have mothballed commitments and scaled back campaigns.
In a caustic election year, they are staying silent.
A framework for success
Silence is not a long-term option. The growth of regulation and measurement of multiple issues – from climate change to DEI to governance –means organizations are compelled to engage.10
There may also be times when an organization actively wants to engage. Issues may be fundamental to their purpose. A Palestinian charity should have a view on the Israel-Gaza conflict. A solar panel manufacturer is a credible commentator on renewable energy and carbon emissions.
It is imperative that organizations map the stakeholders and issues they engage.
You should evaluate whether stakeholders are critical to your business/reputation, and
Woke: (worldwide) Racism: (worldwide) Slavery: (worldwide) Social class:
whether you can influence them. If they are important and you cannot influence them, you should partner with those who can. Likewise, issues should be mapped. If issues intersect with your corporate purpose, and if you can take an authentic and credible stance, you should consider whether to engage. You should weigh the reputational impact of making a stance with your ability to make a difference.
At Cognito we use a simple, robust decision framework for whether to engage on issues.
Avoiding culture wars pitfalls
Organizations should engage on issues where there is a compelling business case and they are credible, authentic and can make a difference.
In examples such as Bud Lite or Natwest, organizations moved outside areas where they could make credible stances. People don’t want banks to make moral judgements on the political views of clients. Choosing a trans influencer for Bud Lite was brave, but difficult for a brewer to square as credible and authentic to its core audience of 18 – 49-year-old men.
Organizations engaging in the stakeholder economy can never fully eliminate risk. However, by mapping stakeholders and agendas, by focusing on the issues that really matter (and are credible), they can navigate the febrile and complex world of culture wars.
Charles Ansdell is Chief Strategy Officer at Cognito and leads Cognito’s global crisis function. His experience includes corporate actions, litigation, data issues, operational issues, environmental issues, financial performance, misconduct and regulatory issues, amongst others. He has particular expertise in working together with multidisciplinary teams of professional advisers and specialists to solve critical business issues.
Understanding and mitigating cyber risks: Strategies for protecting your business and employees
Cybersecurity is the biggest business risk of our time – something of which we are regularly reminded. Earlier this year, the World Economic Forum named cyberattacks as one of the top five global risks, and the Allianz Risk Barometer also defines cyber incidents as the greatest business risk of our time. At least one in two organizations has been the victim of a successful cyber-attack in the last three years, and one in three more than once. What’s more, we should expect these numbers to be much higher because organizations either don’t notice successful cyber-attacks for a long time – or they try to hide them. We must all expect to face cyber-attacks – as organizations, as a society, and as individuals.
There are two things that people and organizations are still failing to do: Recognizing the special importance of the human aspect of cybersecurity and how to strengthen it and understanding the magnitude of the risk and the far-reaching consequences.
Technological protection is essential – but cybercriminals’ primary target remains people
The role of the human factor
“No problem, technology will protect us”. That’s certainly a thought that organizations have had at one time or another. Unfortunately, that’s not the case. Sure, technological protection is essential – but cybercriminals’ primary target remains people. Using social engineering tactics, they are constantly finding new ways to hack into our brains, bypassing technological barriers through emotional manipulation. In the U.S., for example, we are seeing an increase in cybercriminals targeting the children of top executives – family and friends are becoming a social engineering “supply chain.” But also, the
basics are still working; phishing campaigns that target our emotions. Willingness to help and donate money in the face of geopolitical tensions, following time-sensitive instructions to transfer money out of respect for our CEO, or other emotional triggers still lead to an automatic human response. A fact that cybercriminals continue to exploit with great success.
Currently, 74% of breaches involve the human element, and Forrester predicts this will rise to 90% by 2024. This underscores the critical role of employees in cybersecurity-not only in preventing breaches, but also in mitigating their impact. Leaders must empower their teams to effectively manage these threats.
Consequences of a successful cyberattack.
The second underestimated aspect of cyberattacks is the far-reaching impact of successful hacks: It can lead to the shutdown of critical systems and services, causing operational paralysis. The average time to contain a data breach is 73 days, which can halt business operations and disrupt the supply chain with wider financial implications. The average cost of a data breach is $4.35 million, with direct, indirect, and long-term financial losses.
Cybercriminals can steal money directly through fraudulent transactions, and organizations may be forced to pay ransoms to regain access to their systems. Organizations also face increased costs associated with forensic investigations, legal fees, public relations, investments in new security measures, system repairs, data recovery, and crisis management.
And, of course, business interruption and loss of customer confidence can lead to lost sales and contract cancellations. Publicly traded companies have experienced an average 7.5% drop in stock value following a data breach, with an average market capitalization loss of $5.4 billion.
In addition to financial loss, there is also the risk of intellectual property loss, which can undermine competitive advantage and innovation. Competitors may take advantage of the organization’s weakened state to gain market share.
Of course, there can also be legal and regulatory consequences, such as fines and penalties for failure to comply with data protection laws such as GDPR and NIS2. Executives can also be held personally liable for failing to ensure that the company complies with cybersecurity regulations, or for failing to protect the company from cybersecurity risks and financial loss. In certain jurisdictions, gross negligence in cybersecurity can lead to criminal charges against executives if they’re found to have willfully ignored their responsibilities.
Again, the impact on employees should not be underestimated. The stress and uncertainty caused by a cyberattack can negatively impact employee morale and productivity, as well as employee turnover and recruitment. The experience of a cyberattack can be so unsettling for employees that more than half of office workers say they would reconsider working for a company that has recently suffered an incident, while only a third say they would be unaffected.
Reputational consequences can be severe. However, the reputational consequences of all of this can be significant. In an era of globalization and digitization, our security is increasingly dependent on that of our partners. As a result, a breach can have far-reaching reputational consequences, particularly in terms of customer confidence and damage to business relationships. Exposure of sensitive customer data can undermine trust, leading to customer churn and difficulty in attracting new customers. Negative publicity from media coverage of the attack can damage the organization’s public image and affect market perception. And the damage to brand reputation can result in reduced market value and competitive advantage.
But there is a truth to all of this: We need to get used to companies experiencing successful attacks. The real reputational damage starts when companies try to hide it and are not transparent about what happened and the extent of the damage. Because that’s when we really start to lose trust. On the other hand, communicating intelligently in a way that partners and customers understand the situation is under control, cybercriminals can’t profit from new information, and that other organizations can learn from the incident is something that will strengthen our industry - and could potentially even lead to positive reputational outcomes in a world of increasing cyber threats.
Don’t let cybercrime rise.
A breach can have far – reaching reputational CONSEQUENCES, PARTICULARLY in terms of customer confidence and damage to business relationships
The impact of cyber-attacks is far-reaching, and ad-hoc countermeasures are not enough. Organizations need a holistic risk management approach to cybersecurity, making it a priority for top management and board members. The good news is that this shift has already occurred: Cybersecurity is a top priority for executives, and they know they need to invest to secure the future of their organizations.
But what else can executives do to respond to these cyber risks? Push for holistic security strategies to mitigate risk in a sustainable way. And engage your employees as the most versatile part of your security strategies to prevent attacks and mitigate the potential consequences. Empower them to learn about security risks, their impact, and how to take responsibility for protecting their business and personal lives through security awareness training and a human risk management approach. Make cybersecurity a shared responsibility and part of your corporate culture to foster secure behavior. Because in this AI-powered, ever-changing threat landscape, it will be your employees who can make a difference in protecting your company. And for them, it’s not just about protecting their business, it’s about protecting their personal lives from cybercrime.
About SoSafe
SoSafe, founded by a team of behavioral scientists and technology experts, is the largest security awareness and human risk management vendor based in Europe. SoSafe is empowering over 4700 customers worldwide to effectively mitigate cyber risk. With a unique human-centric approach grounded in
behavioral science, SoSafe enhances secure behavior across organizations, making it intuitive and second nature. The platform is designed to strengthen digital self-defense by creating robust security cultures that actively involve employees in mitigating human risks. By leveraging psychology and advanced technology and AI, it enables security professionals to effectively identify, prioritize, manage, and reduce their human risk.
Laura Hartmann is the Head of Corporate Communications at SoSafe. With a background in digital marketing consulting and high-growth startups, she found her passion in cybersecurity, merging technology and psychology, and empowering people against digital threats. She also leads the Human Firewall Conference and the Human Firewall Podcast for SoSafe – two platforms that focus on the human factor in cybersecurity.
Modern organisations face complex, fast evolving risks and threats.
Preparing for, mitigating and managing these risks is critical for businesses and their leaders.
When the stakes are highest, you need a partner you can trust. For twenty years, our global network of advisors has faced challenges ranging from market crashes to boardroom battles, from environmental disasters to data leaks.
Drawing on backgrounds in media, corporations, law and government, our multi-disciplinary teams advise organisations on their most important issues.
We believe that strong leadership and culture, coupled with robust preparation, is key to not just managing, but emerging stronger from a crisis.
Our crisis philosophy is designed in line with ISO 22361 crisis management guidelines and reflects the multi-faceted dimensions that organisations must contemplate in crisis response.
Contact our global reputation and issues experts
Doug Hesney
New York
Tel: +1 (0) 718 915 5546
Email: doug.hesney@cognitomedia.com
Scott Schuberg
Sydney
Tel: +61 (0)2 7252 7725
Email: scott.schuberg@cognitomedia.com
Emma Arora
Singapore
Tel: +65 (0) 9012 3584
Email: emma.arora@cognitomedia.com
Felice Tobin
Hong Kong
Tel: +852 (0) 6234 7194
Email: felice.tobin@cognitomedia.com
Kai Kluemper
Dusseldorf
Tel: + 49 (0) 211 1752 0850
Email: kai.kluemper@cognitomedia.de
Richard Neve
Amsterdam
Tel: +31 (0) 6 22 48 37 66
Email: richard.neve@cognitomedia.com
Charles Ansdell
London
Tel: +44 (0) 7467 443 131
Email: charles.ansdell@cognitomedia.com
