Political risk can be devastating. Ask the mining companies in the Democratic Republic of Congo (DRC) that have been forced over the past two years to renegotiate their contracts. Ask HSBC, whose headquarters in Istanbul was wrecked by a terrorist attack in 2003. Ask the hedge funds that bet Brazilian stocks would tank after firebrand left-wing president Luiz In?cio Lula da Silva took office in 2003, then suffered heavy losses when the exact opposite happened.

Companies have always faced these kinds of risks: terrorism, civil unrest, regulatory change, the seizure of assets. But the exposure has never been as great as it is today, argues Christa Davies, CFO of Aon Corp., the global risk-management consultancy and insurance brokerage based in Chicago: "People are doing business in more countries–and a more diverse range of countries–than ever before. They might have operations on the ground, or they could be exposed through their supply chains, by sourcing product components or services in certain locations, or simply through the customer base. It absolutely has to be a core consideration in the way people run their business."

Unfortunately, in many cases, it isn't. Political risk analysts claim that while companies have a formal, rigorous approach to the management of other exposures, like currency risk or business continuity, they usually tackle political risk on an ad hoc basis. When the issue raises its head, they'll react by calling up a consultant, buying some insurance or engaging a lobbying firm-but it's rare to find a company that monitors the issue on an ongoing basis, says Corene Crossin, senior consultant with risk advisory firm Control Risks Group in London: "We know of few companies with a central, dedicated focus on political risk. It tends to fall between stools, and the companies who handle it best are those who have a joined-up approach to the issue. Often, the ones that fall victim to political risk are the ones that don't take it seriously, don't recognize it as an issue and therefore don't address it in their business at all or just file it away in one small area like community relations or government relations," she says.