What price a lack of engagement?

This week, I’ve been reading McKinsey’s report on ‘How to reinvent the external affairs function’, in which the consultancy quantifies the value of external engagement to business and looks at the impact it has on the bottom line.

In that report, more than 40% of CEOs said that they believed that the actions of governments and regulators would hurt their companies’ future operating income. Yet only 11% of CEOs said that they frequently succeed in shaping government policy. Staggeringly, according to McKinsey, ‘there are no regions or industries where more than 1 in 5 respondents report success’.

The issue might come from the fact that just 23% of CEOs say that they are good at aligning the external affairs agenda with company strategy, and only 17% claim to be good at quantifying the potential impact of external issues on their business.

What we know about the businesses which achieve real, measurable results in public affairs and external relations (via McKinsey and my own experience over nearly 30 years in the public affairs industry) is that:-

• Organisations which succeed at external engagement succeed because of the way they organise their external affairs, pushing the strategy behind it to the top of the business. 57% of those who succeed in shaping the agenda engage their CEOs in the strategy and agenda – compared with just 31% of all others.
• The companies which achieve most impact in external affairs have a ‘glocal’ approach – balancing local needs with corporate-level priorities.
• They track and prioritise their stakeholders, mapping the quality of the relationships with them and nurturing those relationships to create political capital for when the big issues hit. Crucially, they build ‘fact-based narratives to support positions’.

That the value of proactive engagement is not clear at the top of many of the biggest household names is partly the fault of my own profession. We, in public affairs, can and should do a better job of demonstrating and measuring the impact and economic value of what we do. We, in the consultancy side of the industry, should be delivering narratives, tools and tactics which will help our in-house colleagues to convince CEOs and Boards of the value of proactive engagement.

We can, and do, work together to create an open dialogue with stakeholders where business is part of the discussion around shaping the policy landscape and where business sees its external relations as just as critical to its future as its marketing, which after all, is also external relations.

It's sobering to see what business actually spends on managing political and regulatory risk. An analysis based on the EU’s transparency register and the work of Transparency International shows that the top 5 companies with the highest EU lobbying budgets spent 0.003% of their combined total annual revenue on lobbying in Brussels – or a total of €21 million.

Frankly, that’s a drop in the ocean compared to the budgets of most other corporate functions. And when over regulation is perceived as the top threat to business, one might realistically think that more resources should be devoted to addressing that threat.

So what’s the secret to building strong engagement strategies? For me, it’s a four-step approach:-

Step 1: Quantify the potential impact of external issues on your company strategy

Step 2: Involve your head of public affairs at the highest level in building your company strategy around those issues.

Step 3: Take a proactive approach to building your relations with stakeholders and work with them to shape your operating environment, rather than letting them shape it for you

Step 4: Measure the impact in terms of less defensive spend and more opportunistic spend on driving the agenda.

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