Governments Second Only to Comsumers Among External Stakeholders
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Governments Second Only to Comsumers Among External Stakeholders

Governments and regulators are second only to customers in their ability to affect companies’ economic value, according to the results of a recent McKinsey survey, which found respondents divided on whether that effect will be positive or negative.

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Governments and regulators are second only to customers in their ability to affect companies’ economic value, according to the results of a recent McKinsey survey, which found respondents divided on whether that effect will be positive or negative. Most executives in developed economies expect external-affairs issues to decrease operating income; those in the developing world are more likely to expect a boost.

 

Compared with the last such survey, just over a year ago, greater shares of respondents report that their companies are willing to engage with governments and see the value of collaborating with them. Yet whether they hope to mitigate risk or create value, only some 10 percent of all respondents say their companies are frequently able to influence governments or regulators or that those groups seek out and value the companies’ opinions.

 

Close to half of all respondents say managing external affairs ranks as one of the top-three priorities on their CEOs’ agendas.

 

Just over half of respondents say governments and regulators will be among the stakeholders with the biggest economic impact on their companies over the next three to five years, and even larger shares expect governments’ and regulators’ involvement in their industries to increase in the same period.

 

Almost half (47 percent) of respondents to this survey say their companies’ operating incomes are likely to decrease because of external-affairs issues, while 34 percent said the same about government activity in 2009. About a quarter of respondents say these issues are likely to boost their companies’ operating incomes, compared with 38 percent who previously said the same. As in the prior survey, executives in developing economies such as China and India are more optimistic.

 

Executives in energy, financial services, and health care are the only ones to rank governments and regulators as the stakeholders most critical to their companies’ economic value, even more significant than customers. Most respondents from these three industries also say operating income is likely to decrease as a result of external-affairs issues. Around three-quarters of respondents in each of these industries expect greater government involvement, and more than 80 percent of financial-services and health care executives expect greater regulatory involvement.0

 

Two-thirds of executives say companies in their industries should engage with governments and regulators proactively and regularly, regardless of immediate interest, but less than half say their companies actually do.

 

Based on the survey, McKinsey defined five groups of respondents: opportunists, avoiders, partners, reluctant engagers, and adversaries.

 

Two of these groups are likelier than others to see more opportunities than difficulties in engaging with government: opportunists believe policy and regulation generate new business opportunities, while partners see those specific opportunities along with broader business benefits from transparency and involvement in shaping policy. A quarter of respondents to this survey fall into the opportunist group, and 23 percent are partners—slightly higher than their 20 and 21 percent shares in our earlier survey. Still, that leaves more than half of respondents who are more negative than positive about government’s role in their businesses.

 

Respondents classified as either partners or opportunists say their companies are more successful at influencing government policies and regulatory decisions to create value or mitigate risk than those in other groups.

 

Respondents in China, India, and the developing markets are likelier to be opportunists, while those in Europe and North America are likelier than their counterparts to be reluctant engagers, who see some benefits from engaging with government but also think government is unfair to businesses. Among industries, high-tech and telecom executives are likelier to be opportunists, financial-services executives are likelier to be adversaries, and those in health care, reluctant engagers.

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