Despite government’s increasing impact on corporate bottom lines, many companies have not yet adapted how they engage policy-makers in Washington. What frameworks should CEOs use to prioritize policy issues and determine where to dedicate advocacy resources? How and when should companies engage with policy-makers and regulators? And, how should companies gauge the impact of their Washington presence?
Baptiste: Tony and I are really happy to be here with you today to show our perspective on how Washington is changing and how companies should adjust their strategies and tactics to drive bottom line performance. Now, our perspective has been informed by quantitative research that we’ve conducted at Bloomberg Government, literally thousands of conversations that we’ve had with all sorts of governed affairs professionals over the past few years, and I think our outside experience. We came to Washington, I’m a former consultant and I’ve seen lots of my former colleagues at McKinsey here today presenting, and Tony’s a financial analyst by trade. And of course, throughout the conversation we’ll weave in how technology is enabling and facilitating many of these changes.
Costello: Thanks, Don. So Washington is changing, I think that’s a theme that you’ll hear throughout Don and I’s discussion today. And I bet that if we had a brainstorming exercise with how Washington is affecting you and those changes are affecting you, we could probably fill this room with whiteboards full of those examples. And I suppose that some of that change you could probably characterize as cyclical, right? So today’s environment of decreased legislation and increased regulation in terms of both quantity and complexity may eventually revert to some mean as there are changes in Congress or the Administration. But I think it’s also safe to say that a lot of the change we are experiencing is systemic and structural. So think about the idea of the proliferation of information resources and access to information, right? So established media isn’t necessarily the go-to source of information, and information doesn’t necessarily carry the same value that it once did.
In 1991, Bill Clinton announced that he was running for president by having a speech in Arkansas. Hillary Clinton, in April, announced her presidential campaign via YouTube and Twitter. If you want the latest news on technological innovation, you might open up the business section of the “Wall Street Journal,” but it’s probably equally as likely that you’ll be checking out some technology blog throughout the day.
Now, at the same time, you have this change in the way that Washington works occurring there’s another fundamental change that’s taking shape, and that’s how executives’ perception of what’s happening here in Washington is impacting their fundamental core business models. So at Bloomberg Government, we used companies’ 10k annual reports to study this phenomenon, and specifically we looked at 60 companies’ 10k annual reports over a period of seven years and we paid special attention to how much of those reports was dedicated to discussing government activity in terms of either a risk or an opportunity for those business models. And the results were simply astounding. You can see that some of the graphics on this slide capture some of those key takeaways.
So firstly, in 2012, for every industry, no single driver—not the macro economy, the prospects of leadership changes, or the reliance on a key supplier—drove more attention than government activity and government risk related to activity in those 10k reports across all industries.
Secondly, as we looked at sort of the size of the relationship between business and government—and, again, for all companies across several industries and different sizes of companies we saw the same trend: the size of the relationship grew significantly. Even in the technology sector, which has traditionally been a step or two ahead of government activity, we saw this same exponential type of growth over time with that relationship. I mean, take for example the subject of cybersecurity, something that’s fundamental to the technology industry and a policy area that of course is garnering tons of attention here in Washington today. In 2010, 19 companies used the word cybersecurity in their 10k report. Fast forward to 2014, over 800 companies discussed cybersecurity in-depth in terms of how policy around that issue was presenting either threats or opportunities to businesses. That’s incredible growth, and really the sign of that second fundamental change.
Baptiste: I think it’s clear that Washington is changing, and that there’s a disconnect between the home office and the Washington office. Now, many other functional areas of companies have gone through a similar transition, moving from qualitative and input-based metrics to quantitative results-based metrics that are tied to bottom line performance. And I think you’ll see that all of these different functions have gone through it and really talk about what the results are.
This is what executives care about, and we think, and we’re starting to see, more and more forward-looking companies, forward-looking government affairs shops of companies start to really quantify and take a systematic approach to how they engage Washington that is much more data-driven and fact-based.
So the data has been around, the relevant data has been around for a long time. Bloomberg Government is collecting more of it, connecting it together, cleaning it, adding adjacent content, and structuring it to make it more accessible and more actionable than ever. Benchmarking against your peers and your competitors is important. Understanding all aspects of the competitive landscape is important. Things like how much are my competitors investing in this particular issue? What’s their traditional strategy? Who should I use for an external lobbying firm? And by the way, am I getting a good deal when I pay them? How big of a client am I? How important am I to them? What’s my association doing? These are all important questions that up until now were very difficult to answer. Today, with tools like Bloomberg Government, these answers are literally at people’s fingertips and they can know these things in an instant and make better, more well informed decisions.
Now, to help folks make this transition and go from sort of an older way of doing things to a more data-driven, fact-based way, Tony and I have created a simple, straightforward framework, and like most business frameworks it tends to simplify things, but hopefully it gives folks a direction on how they should attack this.
First of all, it’s just identify and list all the government actions that could impact a company’s performance.
Second is to, for each one of them, determine the expected value: what’s the size of the impact and what’s the probability. And it’s important to note here, don’t let perfect be the enemy of good. Ranges are fine. Estimates are fine. You’re just trying to get a directional feel for it.
Third is to define on that list which ones do I want to engage on. Now, that’s, again, looking at the materiality of the potential impact, how big it is and the probability, what resources a company has available, and then of course the competitive dynamics.
Fourth is to understand and draw upon the full set of levers. And today I would argue there are more levers than ever available, mainly due to technology, for companies to influence government action.
And fifth is to evaluate and quantify the results. This is another really important point. We talked about that disconnect earlier between the home office and the Washington office. We strongly believe that Washington offices, government affairs offices can have a disproportionate impact on companies’ bottom line performance and we’re seeing more and more examples of firms doing this, but it’s critically important that Washington is communicating back to the home office in a way they understand so they know that they can use government affairs in a strategic way to drive that performance.
Costello: Now, if Don and I were sitting in a Fortune 500 CEO’s office and we were making the argument that she should spend significantly more time, thought, money for each business unit that spends, call it $1 to 15 million dollars a year, I’d suspect we would probably be kicked out of the office. So why is it that we’re advocating that this argument be made? And I think the answer goes back to that analysis that we did on those 10k annual reports. It’s because executives are caring more and more about what’s happening in Washington and they understand that what’s happening here can drive enormous impact on business results.
Let me give you an example from a Bloomberg Government analysis. So there’s a provision in the tax code that benefits television and film companies and it expires or sunsets every two years. It’s what we refer to as a tax extender. And so you can imagine that several of the large film and television companies, companies like Discovery, Walt Disney, Viacom and Fox are lobbying on this issue. And then let’s suppose that it’s 2008 and I had a dollar that I gave to each one of these CEOs, as well as a list of options that they could invest that dollar in. So one option might be that they could buy back their own stock. I don’t think I’ve ever run into a CEO that said that his stock is overvalued, right? This is why you’d see so many share buybacks. Or let’s say they could take that dollar and give it to Warren Buffet and he could invest it in Berkshire Hathaway. Or let’s say that I had the foresight to know that Netflix was going to be the best performing stock from 2008 to 2013 in the S&P 500 and they should buy shares of that. And you can see the returns on these investment options in the blue bars here. And the Netflix option is not a bad return on investment, $13 dollars in profit. However, that return on investment pales in comparison to if you’d taken that dollar and paid a lobbyist who had in turn gotten that tax extender renewed. It generated $44 dollars of profit on that one dollar of investment, over three times your next best alternative. That’s enormous impact.
And so our argument is that you should be having this conversation with the CEO. You should be investing in the tools and data-driven processes that help you quantify your impact and prove your value, because it’s those of you in this room that have the ability to drive unparalleled positive impact on your company and ultimately your shareholders’ results.