Managing Government Relations for the Future

Companies aren’t much more effective at managing their ties with governments than they were in late 2009, though more are engaging in collaboration instead of conflict.

November 2007 | Ms. Anna Sullivan

Governments and regulators are second only to customers in their ability to affect companies’ economic value, according to the results of a recent Burk survey, though respondents are 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 our last survey on these topics, 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 ten percent of all respondents say their companies are frequently able to influence governments or that those groups seek out and value the companies’ opinions.

This survey asked executives a series of questions about the overall impact of governments and regulators, the ways companies manage those relationships and external affairs in general, and their effectiveness at doing so. Notably, since our last survey on these topics, a time that has included economic recovery in much of the world and elections that produced significant change in several countries, executives report that these issues are as important as ever: close to half of all respondents say managing external affairs ranks as one of the top-three priorities on their CEOs’ agendas.

Where Government Matters Most

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. These results are consistent with those in the previous survey, in which 52 percent of respondents said governments would have the greatest effect on their companies’ value, and 63 percent expected increased government involvement. This consistency surfaced in spite of recent events—such as the 2010 electoral success of the Republican Party in the United States and the Conservative Party in the United Kingdom—that might have caused business leaders to expect less government activity. Executives in developing markets are the likeliest to say governments will have an effect on economic value, with two-thirds of them saying so.

When we asked about the impact of governmental and regulatory actions and other external-affairs issues on operating income, we saw responses that were similar to, but more pronounced than, responses to our last survey, which asked about government actions alone. Forty-seven 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. This year, 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.

Consistent with past results (and with the overall conditions in these industries), 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 it’s also worth noting that more than 80 percent of financial-services and health care executives expect greater regulatory involvement—a signal that these industries recognize that government is here to stay.

 

Executive Editor

 Ms Anna Sullivan

Ms Anna Sullivan