ceos’ washington imperative
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CEOs’ Washington imperativeTRANSCRIPT
CEOs’ Washington imperativePolitical engagement has never been more critical to companies. More CEOs need to make it a personal priority.
by Nels Olson
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
President’s 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. “I’ve focused on Washington because it’s essential to the
long-term health of Verizon, but also because I want to help develop
solutions to the nation’s 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.”
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.
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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 regulators—the 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.”
Why Washington engagement matters
The federal government’s dramatic interventions in the health care,
financial, and automotive industries in recent years renewed attention on
why business—and CEOs in particular—must be well versed in the ways of
Washington. Company leaders in each of these sectors were thrust into the
spotlight, which meant testifying before Congress, negotiating with federal
officials, and appearing in the media. Their successes and failures hinged on
their understanding of how to navigate Washington and communicate
directly with policymakers.
Engagement is also critical to help shape high-profile policy reforms. For
example, as proposals to reform the U.S. health care system were
contemplated in 2009-10, the CEO of Pfizer, Jeffrey Kindler, worked closely
with the pharmaceutical
industry’s trade association, which
he chaired. He also made a number
of visits to Capitol Hill and the
White House, which included two
meetings with the President. Kindler’s investment of time and energy paid
off. “Pharma came out of [health care reform] better than anyone else,” said
one Washington-based health policy analyst, echoing a widely held
sentiment. “I don’t see how they could have done much better.”
The need for CEOs to develop more comprehensive relationships in
Washington, and a more nuanced understanding of the policy process,
reaches beyond those industries—and will extend beyond the current
administration. The federal government and, to a lesser extent, state
government are deeply entwined in sectors throughout the U.S. economy.
Regulation, in particular, can affect companies significantly, and in
unexpected ways, given that statutes are regularly being modified in a
The need for CEOs to develop more comprehensive relationships in Washington will extend beyond the current administration.
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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 you’re not engaged, you can wake up one morning and find a big problem
on your hands,” says McNerney of Boeing. As the company’s 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 government’s 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 officials—or even lobbyists—
to get the provision amended. In the years since, Wal-Mart executives have
stepped up their involvement considerably. In January 2011, the company’s
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,
Microsoft’s current CEO, Steve Ballmer, has devoted significant energy to
federal policy issues, and the company has measurably increased its
Washington presence. Ballmer’s years of advocacy, focused on curtailing
software piracy, helped the issue become a centerpiece of the U.S.
government’s 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 Google’s Washington
office in 2007. “Washington and its policy debates are important. We can’t
ignore them.” Indeed, Google quickly established its presence in
Washington, and, importantly, the company’s 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 you’re not engaged, you can wake up one morning and find a big problem on your hands.”
Jim McNerney Chairman,PresidentandCEO,Boeing
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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 Washington—a 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 company’s $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.
ThereisagrowingtendencyforCEOstoinvolvethemselveswithpolicyissuesthatmaynotbetieddirectlytotheirlineofbusiness.HoneywellCEODavidCoteservesontheDeficitCommissioncreatedbyPresidentObama.TravelersCEOJayFishmanhasbeenoutspokenontheneedfortheUnitedStatestoreduceitslong-termdebt.PepsiCEOIndraNooyihashighlightedthevalueofsustainability,linkingthecompany’sfinancialsuccesstoitssocialandenvironmentalresponsibilities.StarbucksCEOHoward
Schultzhasbeenalong-timeadvocateforexpandingaccesstohealthcare.
“Weallhavearoleasbusinessleaders,tohelpnurtureanenvironmentthatisconductivetocompetitiveness,jobcreation,andrisingstandardsofliving,”saysAccenture’sBillGreen,whochairstheBusinessRoundtable’sEducation,Innovation&Workforceinitiative.
ACEO’sinvolvementin“bigpicture”public-policyissuescanhelptoreinforceto
policymakersthattheindividualhasvisionbeyondthatofthenextquarter’searningsstatement.Andthatwillgivethemaddedcredibilitywhenadvocatingonbehalfoftheircompany.SaysVerizon’sSeidenberg,“Themosteffectiveexecutivesarethosewhocanstraddlethelinebetweenwhattheircompanyorindustryneedswhilealsolookingatissuesfromtheothersideandseeingthebroaderpublicinterest.”
Opening the door for advocacy on other important issues
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Companies can mitigate this risk through regular communication with
federal officials, but such outreach will be most effective if it begins absent
any crisis.
How CEOs should engage
CEO engagement with Washington can take many forms. The traditional
steps of making campaign contributions, joining trade associations, and
hiring government relations staff remain important. But they’re no longer
sufficient.
Glenn Tilton, who was CEO and chairman of United Airlines and chairman
of ATA (and is now chairman of the Midwest Region for JPMorgan Chase),
recommends that CEOs cultivate relationships with decision-makers even if
there are no policy issues on the horizon.
The most important thing a CEO can do to better understand issues
in Washington, DC, is to be personally involved. Nothing I’ve
learned suggests that anything can be delegated. You need to be
here, personally involved, and must have personal relationships.
They must be sufficiently informal and personal, so you can have
candid, transparent conversations. Otherwise, you are relying on
many different filters. And by the time information gets to you, it
has been diluted.
Reinforcing the importance of CEO involvement is the proliferation of
advocacy efforts by those who aren’t CEOs. In 2010, there were nearly 13,000
registered lobbyists in Washington, DC. The large number of lobbyists
creates more competition for companies as they seek to deliver their
message to policymakers. CEOs can speak with greater authority than other
company officials or external lobbyists
about the intersection of public policy
and their company’s operations.
“You can’t outsource the Washington
knowledge to external lobbyists or
your in-house government relations
people,” says Bill Green, chairman and former CEO of Accenture. “As a CEO,
you have to have some level of depth on the issues of the day and the issues
that could affect your company in the future. Relying solely on the
government relations folks to raise the red flag is not sufficient and does not
serve your shareholders well. In today’s world, you have to be part of the
ongoing dialogue.”
CEOs can speak with greater authority than other company officials or external lobbyists about the intersection of public policy and their company’s operations.
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But even with their stature and mastery of issues, CEOs must be prepared
for challenges and frustrations, says David Cote, CEO of Honeywell.
There’s 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 that’s the way it works,
and you have to participate.
Indeed, CEOs must find a degree of humility in Washington, and play by the
city’s 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 officials—in 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
effectively. McNerney of
Boeing recommends that work
on public-policy issues become
one of the experiences
expected of executives as they rise through ranks toward the CEO’s 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.
Value of Washington experience among CEOs and directors
Another way to ensure a company does not take its eye off federal issues is
to hire CEOs and nominate directors who have high-level experience
working in Washington and/or working with policymakers.
Given the prominent role government plays in so many U.S. industries,
there is a need for more CEOs who possess a Washington pedigree. Research
Given the prominent role government plays in so many U.S. industries, there is a need for more CEOs who possess a Washington pedigree.
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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 position—a 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 they’re accustomed to. But they have to accept that, and play
within Washington’s rules—not 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
company’s 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.
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Nels Olson is a Vice Chairman and Co-Leader of Korn/Ferry International’s
Board & CEO Services Practice, based in the Firm’s Washington, D.C., and
New York offices.
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