ThinkTWENTY20

Management accountants need to identify and prepare for a wide range of risks as the Ukraine crisis continues, says By Ross Archer in the March 16, 2022 issue of FM Financial Management. “Geopolitical risks can be challenging to mitigate in our highly interconnected global ecosystems,” Archer writes. The Russian military invasion of Ukraine already has had multiple consequences for businesses everywhere.

He then points out that there are a number of risks that business leaders and finance professionals need to be aware of with the current crisis. “Some of these may not happen, some are not exclusive, and the following list is not exhaustive. Different businesses and sectors will have different risks and exposures.”

The events in Ukraine will have consequences on supply chains for a number of reasons, and it will take time for global supply chains to readjust. Many businesses will have rethought their supply chains during the pandemic and should apply the same mindset to the current crisis. And, he notes, “issues with global supply chains are only likely to worsen. According to research by Dun and Bradstreet, at least 374,000 businesses worldwide rely on Russian suppliers and at least 241,000 rely on Ukrainian suppliers.”

The supply chain impact doesn't stop there, Archer says. “Ukraine and Russia are significant exporters of a number of key global products, including wheat, gas, oil, and steel. Russian and Ukrainian sailors also make up 14.5% of global shipping crews.”

According to Archer, secondary sanctions are not unthinkable. These could be imposed directly from Russia or Belarus or by countries sympathetic to them. Supply chains include not just immediate suppliers and immediate customers but cascade all the way to your supplier's suppliers and customers' customers. ”Even if not affected by sanctions now, businesses will benefit from being able to make an early assessment of the financial, operational, and reputational risks arising from any future sanctions.”

Archer advises that the key questions your finance team should be thinking of now are:

• What new sanctions are governments discussing, and how might they affect my business's supply chain?

• What other geopolitical risks could happen, and how could these affect my business's supply chain?

• What actions should I be taking now to improve the resilience of my business's supply chain in the event of other geopolitical risk events?

• What checks have I conducted to understand the ownership of my business supply chain and any sanctions risks?

• Have I analyzed our extended supply chains and considered regulatory and reputational risks?

• Have I discussed risk related to secondary sanctions, reputation, and geopolitical exposure?

For more of Archer’s thoughts and advice, check out Navigating the Ukraine conflict - FM (fm-magazine.com).