Organizing the Government-Affairs Function for Impact

In our third survey on managing external affairs, executives affirm that governments and regulators will play an increasing and consistent role in how companies create value over the next few years.

January 2014 | by Robert Emmerich

Larger shares of executives than last year say governments and regulators will affect their companies’ economic value, according to results from our third survey on how companies manage their external affairs, yet few say their companies engage proactively with these stakeholders or are more effective at implementing external-affairs practices.  This survey asked executives about the ways their companies interact with a broad range of stakeholders, the tools they use to understand external opinions, and their effectiveness in managing those relationships.

According to the results, executives believe that government’s role in business remains important: most expect increased involvement in their industries and nearly three-quarters say external-affairs issues will impact (either positively or negatively) their companies’ operating income. Yet when we grouped respondents based on their attitudes toward government, we found higher shares than last year saying they don’t understand the business opportunities and risks associated with government involvement. Only nineteen percent say their companies frequently succeed at influencing either government policy or regulatory decisions and few report the use of formal mechanisms (including social media) to track opinion.

What Companies Expect from Governments and Regulators

When rating the impact of various stakeholders, executives continue to expect that customers will have the greatest effect on their companies’ economic value. What has changed is that higher shares say the same about governments and regulators. In certain industries, governments and regulators are cited most often: more executives in energy, financial, health care and social services, and pharmaceuticals say governments and regulators will have the greatest effect on value, surpassing even customers.

Similar to results from previous surveys, most respondents still expect governments (58 percent) and regulators (64 percent) to become more involved in their industries over the next three to five years; more executives in financial services, energy, and health care expect the increased involvement of both. While nearly half say external-affairs issues will decrease their companies’ operating income over the same time period, those in energy are the most optimistic: forty percent of these respondents expect increased income, though another thirty percent expect income to decrease.

Overall, opportunists6 still make up the largest share, but those identified as adversaries and avoiders have grown—to 17 percent and 20 percent of executives, respectively, up from 14 percent and 16 percent in 2011. The distribution this year echoes the results from our first survey, when respondents’ attitudes were split more evenly among the five groups. Last year, growing shares of opportunists and partners indicated that companies were more willing and able to work actively with government; this year, respondents have reverted to previous attitudes, which seem to reflect the skepticism or indifference toward government’s role in business that other results suggest.

Linking Practices and Impact

Most executives report that companies aren’t any more effective at implementing external-affairs practices than they were last year. The largest share (37 percent) say their companies are very or extremely effective at identifying external issues, and the smallestshare (19 percent) still say the same about measuring the financial impact of external-affairs activities. Across industries, respondents in energy report notable progress since 2011 in how effectively their companies have implemented these practices; they also say their companies are more effective at a variety of practices than the total average and their peers in other sectors. These executives are also likeliest to report frequent success in influencing government policy.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan