Navigating legal risks in geopolitics for boards

In an era marked by accelerating geopolitical instability, boards face a growing imperative to integrate geopolitical awareness into their strategic oversight. Our recent webinar co-organised with VBO-FEB explored the multifaceted implications of geopolitical developments for directors, focusing on economic security, legal liability, and proactive governance. 

The Expanding Role of Boards in a Geopolitical Context 

The session opened with a reflection on the evolving responsibilities of corporate boards. In today’s fast-changing geopolitical landscape, directors are expected to go beyond traditional oversight and embrace a forward-looking approach that incorporates both general and specific legal obligations. This includes adherence to principles of due diligence and good governance, especially as geopolitical developments increasingly influence corporate operations. 

Boards must now consider how international tensions, trade barriers, and regulatory shifts affect their strategic decisions. The webinar emphasized that directors must not only mitigate legal risks but also seize strategic opportunities arising from these geopolitical shifts. 

 

Geopolitics and Economic Security: A Strategic Perspective 

The economic dimension of geopolitics was presented as a central theme. The rivalry between major global powers, particularly between the United States and China, was identified as a dominant force shaping the international order. China’s ambitions to control strategic value chains, set global technology standards, and challenge the dollar-based financial system were highlighted as key drivers of instability. 

Europe, and by extension its corporations, finds itself boxed in between these global powers, facing diminishing relevance across political, military, and economic domains. This has led to an increased exposure for companies, particularly through national and EU-level economic security policies. These include trade controls, sanctions, foreign direct investment screening, and cybersecurity regulations. 

Corporations must navigate this complex environment where the boundaries between economics, technology, and geopolitics are increasingly blurred. The challenge lies not only in managing risks but in leveraging them to build a competitive advantage. 

 

Legal Implications and Director Liability 

The “common law” legal framework of director liability was examined in this context. Under Belgian law, boards are responsible for defining company strategy, overseeing risk frameworks, and supervising management. Directors must act in the corporate interest, which has been interpreted as a dynamic and future-oriented concept encompassing both current and future shareholder profit interests, and giving room to also consider broader stakeholder interests. 

Liability arises from management errors and torts. The duty of care of the board members includes being up to date on the new legal requirements and market changes. Directors are contractually liable to the company for failing to act as prudent and careful board members placed in the same factual circumstances. They may also be held liable to third parties for damages resulting from statutory violations or breaches of general prudence. Board members are liable to both the company and third parties for all damages resulting from violations of the provisions of the Code of Companies and Associations or of the articles of association. Liability is typically joint and several, meaning each director can be held responsible for the full extent of damages. 

A monetary cap on liability exists, ranging from €125,000 to €12 million, depending on criteria like turnover. However, exceptions apply, particularly in cases of fraud or gross negligence. The technique of marginal review also offers protection, ensuring directors are only liable for decisions, acts or conduct that fall manifestly outside the bounds of reasonable discretion. 

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Emerging Legal Risks in the Digital Era 

The digital transformation of business has introduced new legal risks for directors. Three major regulatory frameworks were discussed as redefining executive responsibilities. 

  • NIS 2 Directive: Effective since October 2024, this regulation imposes personal liability for implementing cybersecurity measures to ensure cyber resilience. It mandates risk management policies, incident reporting, and cybersecurity training for board members. 

  • GDPR: Since 2018, executives have been responsible for ensuring lawful and secure handling of personal data. Non-compliance can result in fines up to 4% of global turnover. The role of the Data Protection Officer is supportive but does not acquit directors of responsibility. 

  • Trade Secrets Directive: This framework requires companies to implement measures to protect confidential business information. Failure to do so may result in civil liability for executives. 

Sanctions under these regulations are not limited to financial penalties. Directors may face disciplinary, civil, or criminal consequences, highlighting the need for proactive compliance and strategic integration of legal obligations. These penalties can include disqualification from holding a management position. 

 

Proactive Governance: Steps Boards Can Take 

Our webinar continued with a discussion on proactive measures boards can adopt: 

  • Board Composition and Responsibility: A diverse board with complementary expertise enhances decision-making, especially in today’s turbulent times. But be mindful, diversity does not dilute individual accountability. Governance is a collective duty requiring transparency, collaboration, and commitment. 

  • Strategic Foresight and Risk Management: Boards must adopt a proactive mindset, continuously explore their environment and ask critical questions. Strategic foresight and operational intelligence are essential tools for resilience and agility in a world that is faced with geopolitical instability. 

  • Legal Vigilance: Directors should monitor geopolitical risks, assess their impact, and implement policies to address them. The double materiality standard, considering both the impact of risks on the business and the business’s influence on those risks, was recommended as a useful framework. 

  • Policy Implementation: Once a policy is established, it must be followed consistently. Directors should avoid reactive decision-making and ensure compliance with specific legislation, which may carry severe sanctions. 

Future Outlook: Trends and Evolutions 

Looking ahead, geopolitical instability is expected to intensify across multiple regions, including the US-China axis, Europe-Russia, and parts of Asia. The search for a new geopolitical balance may span decades, with increasing government intervention in strategic sectors. 

Economic security policies are tightening, with the EU set to renew its doctrine and national governments focusing on strategic sectors, supply chains, and innovation. Corporations will be expected to play a more active role in safeguarding economic interests. 

Technological advancements offer new tools for risk management. Open-source intelligence, cybersecurity signals, and strategic foresight enable companies to map exposures and improve operational responses. Governance at the strategic level is key to leveraging these capabilities effectively. 

The webinar closed with a number of key takeaways emphasizing the strategic importance of geopolitical awareness. Director liability, while capped, remains complex and requires vigilance. Proactivity at the board level is essential, not only for risk mitigation but also for seizing strategic opportunities. 

Boards must evolve to meet the demands of a changing world. By integrating geopolitical insights, legal compliance, and technological tools into their governance practices, they can build trust, enhance resilience, and contribute to sustainable value creation.