Paul Holmes 11 Jan 2010 // 12:00AM GMT
A variety of government actions in addition to laws and regulations powerfully affect companies’ finances, executives tell a survey by management consulting firm McKinsey & Company. But executives also indicate that companies’ processes to manage their relationships with government are generally less robust than are the ones used to manage relationships with other stakeholders.
Government is likelier to affect companies’ economic value than any other group of stakeholders except customers, executives say. The results also indicate that most executives expect government involvement in their industries—which in most cases has skyrocketed since the global economic crisis began—to continue increasing. The survey asked executives about their companies’ relationships with the government of the country or region that is their primary market: how government affects their companies’ economic value, how their companies interact with the government, how effective those activities are, and who spearheads the companies’ relationships with the government.
The results show that government actions have a significant effect on companies’ economic value: 34 percent of respondents say 10 percent or more of their operating income is at stake. Some government actions, such as providing infrastructure and access to capital, are likelier to have a positive than a negative effect on company finances. However, passing laws and setting policies—the actions executives say most often affect their companies’ economic value—have an overall negative effect.
A strong majority of executives say business must proactively and regularly engage with government, even though many find that dealing with government is often frustrating and consider government officials to be uninformed about the economics of their industries. Yet companies aren’t doing as much to counter those problems as they could; for example, only a third say their companies are “extremely” or “very effective” at building strong relationships with key government stakeholders.
At companies that try to quantify the potential impact of government actions on their companies’ economic value, majorities assess a mix of potential risks and opportunities, with 71 percent assessing the impact of regulations on costs, 70 percent the cost of complying with regulations, and 69 percent the opportunities created by regulations.
As a result, 71 percent of respondents say companies should proactively and regularly engage with government. But it’s less encouraging that only 43 percent say their companies actually do so.
Some of the reasons for the relative lack of engagement may be executives’ own views of government. More than three-quarters agree that business must be actively involved in shaping government policy to succeed and that it’s beneficial for companies to be as transparent as possible with government, but large numbers also express frustration with government along various dimensions.
When companies do engage with government, executives indicate they’re not particularly good at it. Engaging with the governments of their companies’ primary-market countries is a top-three priority for only a third of CEOs—although the figure rises to nearly 60 percent in China. More are involved in overseeing their companies’ efforts to engage: almost two-thirds of respondents say their CEOs either sponsor those efforts personally or oversee the group that does so.
Fewer than half say their companies are good at ensuring that government-related issues are on the agenda of the senior-management team, and effectiveness declines from there.