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by Nels Olson
Political engagement has never been more critical to companies. More CEOs need to make it a personal priority.
September 2011 Politics and policy need to be higher on the agenda of American CEOs. The ramifications of trade, taxation, and regulation are too great to be neglected, or even delegated. As notable cases show, companies are far better off working to influence the process than responding to the result. This calls for more direct effort on the part of CEOs, and for companies to recruit and develop leaders with deep policy experience.
American CEOs fall into two camps: those who relish opportunities to engage with Washington and, at the other extreme, those who engage only when threatened with a subpoena.
Ivan Seidenberg, chairman and recently retired CEO of Verizon, fits the archetype of the corporate leader who sees the long-term benefit of having a presence in the capital. As CEO, he frequently met with regulators, members of Congress, and White House officials (including invitations to speak with the President with other CEOs). President Obama named him to the Presidents Export Council in July 2010, and he served three years as chairman of the Business Roundtable, the Washington-based group that advocates for pro-business policies. Among the senior executives working at Verizon are a former congressman, a former general counsel for the U.S. Trade Representative, and, until 2008, a former attorney general of the United States. Ive focused on Washington because its essential to the long-term health of Verizon, but also because I want to help develop solutions to the nations pressing problems, says Seidenberg. Engaging Washington is critical for a CEO, given the ramifications of regulation, taxation, global trade, and more. While this is well understood by top executives such as Seidenberg, Jim McNerney of Boeing, David Cote of Honeywell, Glenn Tilton formerly of United, and Bill Green of Accenture, there is a clear need for more Fortune 500 CEOs to similarly ratchet up their efforts to address what Seidenberg has characterized as a growing disconnect between Washington and the business community.
There is some evidence that companies recognize the likelihood of public policy impacting their operations, based on the findings of a January 2011 McKinsey global survey of business executives. Among survey respondents from companies in North America, 71 percent said they expect increased involvement from both government and regulatorsthe highest percentage of any region in the world. Another indicator is that membership in the Business Roundtable, which represents chief executive officers of leading U.S. companies, increased from 143 to over 200 during the past 12 months. As a Washington-based lobbyist has succinctly explained, The policy process is an extension of the market battlefield.
range of areas, including environmental protection, consumer privacy, and workplace conditions. It is far preferable to try to influence the process than be stuck responding to the result. If youre not engaged, you can wake up one morning and find a big problem on your hands, says McNerney of Boeing. As the companys chairman, president, and CEO, he is acutely aware of the need to develop relationships in Washington, given that the company is consistently the second-largest recipient of U.S. government contracts. And a recent dispute between Boeing and the federal governments National Labor Relations Board has underscored how Washington can impact companies. Wal-Mart learned the importance of executive engagement with Washington the hard way. In the late 1990s, a key trade agreement involving China contained a provision Wal-Mart opposed, but the company did not have the relationships with government officialsor even lobbyists to get the provision amended. In the years since, Wal-Mart executives have stepped up their involvement considerably. In January 2011, the companys head of U.S. operations joined with First Lady Michelle Obama to publicly announce a new campaign focused on healthy foods. When I see a company like Wal-Mart launch an initiative like this, I feel more hopeful than ever before, said Ms. Obama. Microsoft is another company that was slow to engage with Washington as it expanded. When the U.S. Justice Department filed an anti-trust suit against the company in 1998, it was largely bereft of valuable, long-term relationships throughout the executive branch and Congress. Since then, Microsofts current CEO, Steve Ballmer, has devoted significant energy to federal policy issues, and the company has measurably increased its Washington presence. Ballmers years of advocacy, focused on curtailing software piracy, helped the issue become a centerpiece of the U.S. governments negotiations with Chinese officials as part of the Joint Commission on Commerce and Trade. Microsoft provided an object lesson for other companies. The entire tech industry has learned from Microsoft, said the head of Googles Washington office in 2007. Washington and its policy debates are important. We cant ignore them. Indeed, Google quickly established its presence in Washington, and, importantly, the companys leaders have become personally engaged with policymakers. More recently, Facebook raised its Washington profile, hiring a number of notable Democrats and Republicans. According to The Wall Street Journal, the company has learned quickly that demands for regulation would pile up, not just from users and advocacy groups, but also from competitors.
If youre not engaged, you can wake up one morning and find a big problem on your hands.
Jim McNerney
Chairman, President and CEO, Boeing
For companies across a number of industries, recent policy developments underscore the importance of engagement. The financial sector, for example, is focused on a range of provisions in the landmark Dodd-Frank law that was enacted in July 2010. One such provision vests the federal government with the authority to take control of a bank that is judged to be on the brink of failure. With the precise criteria for a takeover uncertain, some fear political considerations might influence how this authority is exercised. Companies that are connected to Washington, that curry political favor, will be favored at the expense of companies that do not have their business model revolve around appeasing politicians and making campaign contributions, according to Ken Griffin, founder of the $15 billion hedge fund Citadel Investment Group. CEOs also need to weigh the potential personal consequences of failing to develop relationships in Washingtona risk crystallized in a recent ruling by the U.S. Department of Health and Human Services (HHS). In April 2011, the department informed the U.S. pharmaceutical company Forest Laboratories that it would be prohibited from doing business with the federal government as long as it retained its CEO. The threatened prohibition followed from the companys $313 million settlement of misconduct charges related to drug marketing. While there was no allegation of CEO misconduct, HHS cited the Social Security Act to justify its action. Other federal agencies are vested with similar authority, including the Environmental Protection Agency and the Department of Defense. The specifics of every case will differ, of course. But being forced to choose between its CEO and its federal contracts is a scenario no company wants to face.
Companies can mitigate this risk through regular communication with federal officials, but such outreach will be most effective if it begins absent any crisis.
than other about the intersection of public policy and their companys operations.
But even with their stature and mastery of issues, CEOs must be prepared for challenges and frustrations, says David Cote, CEO of Honeywell. Theres generally no one person you can talk to who can make the decision. Because Washington has 536 independent subcontractors [total number of House and Senate members, plus the President], you have to do a lot of talking and a lot of participating to get buy in. That can be frustrating for us who are used to talking to one person and getting a problem solved. But thats the way it works, and you have to participate. Indeed, CEOs must find a degree of humility in Washington, and play by the citys rules. Arrogance can trigger a desire by policymakers to put a CEO in his (or her) place. When Google co-founder Sergey Brin came to Washington to lobby members of Congress in June 2006, The Washington Post noted that he wore blue jeans, silver mesh sneakers and a black T-shirt. And even with his stature, Brin was unable to secure all of his hoped-for meetings, having requested them only days earlier. Public-policy issues change frequently, and this change is mirrored by rapid turnover among key policy officialsin Congress and across the executive branch. Companies, in fact, have some advantage here if they can stay atop the issues, and transfer knowledge and relationships Given the prominent role government plays in so many effectively. McNerney of U.S. industries, there is a need for more CEOs who Boeing recommends that work possess a Washington pedigree. on public-policy issues become one of the experiences expected of executives as they rise through ranks toward the CEOs office. It is more important than ever to have experience with Washington built into the background of people who run companies, says McNerney, who became chairman of the Business Roundtable in June.
conducted for Korn/Ferry International reveals that just 89 of the Fortune 1000 CEOs possess government experience of any kind. In many cases, the experience consists of service on a commission or an advisory board. While this service can provide valuable experience, it is not equivalent to full-time employment in an important policy positiona role that just a handful of the CEOs are known to have held. Those few who have it, however, recognize and appreciate the distinctive ways in which public policy is shaped as it moves through the executive and legislative branches. For executives who have not worked in or around Washington, policy and politics can be mysterious, particularly when compared to the more concrete metrics used in the private sector. Says McNerney, Some CEOs will get frustrated because Washington plays by different rules, and can seem like a totally different world than what theyre accustomed to. But they have to accept that, and play within Washingtons rulesnot rail against them. Board members with high-level government experience can also help companies navigate Washington by providing guidance on how to handle a range of public-policy concerns. For instance, when Judd Gregg was nominated to the board of Honeywell in March 2011, Cote observed that, As a former governor, and senator, he knows how to lead a complex agenda across a range of constituencies, manage a budget, and hold his team accountable for delivering real results. . . . The company will benefit from his first-hand knowledge of foreign affairs, commitment to math and science education, and public experience, at both the state and national levels.
Conclusion
Washington engagement is undeniably a form of risk management developing the relationships with officials that can help the CEO to resolve differences (policy or otherwise) before they strike at the heart of the companys brand or balance sheet. But engagement should not be viewed entirely as a defense mechanism. Being positioned to shape policies as they develop, and to seize opportunities emanating from policy changes, can also be a catalyst for corporate growth. And a healthy, vibrant relationship between Fortune 500 CEOs and Washington, resting on communication and cooperation, will ultimately translate to a stronger, more dynamic economy that can deliver higher levels of job creation and greater prosperity for the American people.
Nels Olson is a Vice Chairman and Co-Leader of Korn/Ferry Internationals Board & CEO Services Practice, based in the Firms Washington, D.C., and New York offices.