Recognising the Value of External Affairs

Sound public affairs and well executed government relations can drive business outcomes and boost profits. But the practice still usually in not given a seat at board level, suggests Dr Mark Michelson


Public/external affairs remains an “under­performer” in the C-suite of many companies operating in this region and globally, according to the fifth McKinsey Global Survey on external affairs.[i] While the majority of the 1,300 executives generally seem to agree that public policy signifi­cantly and often crucially affect the environment in which their organisa­tions operate – and external stakeholder engagement is a rising priority for corporate leaders, these issues still tend to be on or near the back burner for too many companies.  And respondents report little progress and even declines in the strength of their companies’ capabilities since the last survey in 2012.

Engaging with government remains vital to op­erating effectively in almost all markets. Companies interact with governments in both developed and emerging economies in their various capacities: as regulators, competitors, partners or customers.

With the impor­tant role that government policies and regulations play for almost every organisation, public affairs is now even more essential part of an effective and successful business strategy. Effectively shaping the policy environment can determine a company’s ability to manage po­litical and regulatory risk or derive bottom-line benefit from a supportive regulatory environment.

The results of the McKinsey survey, representing a range of sec­tors, geographies and company sizes, reinforce the importance of govern­ment policy and policymakers to a company’s bottom line.  Even so, only 37% of the re­spondents report that managing external affairs ranks as one of the top-three priorities on the CEO’s agenda (31% for corporate boards).

Public affairs has long been at or near the top of priori­ties for regional and many corporate CEOs in highly regulated sectors like telecommunications, broadcasting, pharmaceuticals, tobacco and alcohol­ic beverages. In these industries, what a government does or does not do can often be decisive as to whether these companies are able even to do busi­ness in a national, regional or local market, let alone succeed.

Direct reporting

For many of these companies, the director of public/external affairs or government relations reports directly to the regional CEO and usually the global head of the function, who in turn reports to the corporate CEO. They also pay attention to managing public affairs, aligning the public affairs agenda with the com­pany’s overall strategy as an integral part of the planning process.

Companies tend to have more success when they effec­tively coordinate public affairs activi­ties among functions, business units and geographies. They also identify the most serious and urgent issues – which may be related to government policies and implementation, stake­holder relationships, reputation or other areas – and develop strategies and action plans for managing those issues, including crisis situations.

Senior executives of alcoholic bev­erage producers and importers have worked together both at the country and regional level on a variety of regulatory issues, including high or unequal taxation. One of their most notable achievements was the reduc­tion of the tax on wine and beer in Hong Kong from 80 per cent to zero in 2008. Yet, others have been slow to establish a substantive public affairs function, even as their industries face stronger regulatory challenges.

The McKinsey survey reports that, even those companies most successful at external affairs with stronger capabilities than their peers, are regarded by their senior staff as often not very effective in organising public affairs, engaging with stakeholders and setting an external affairs agenda.  Their capabilities have been seen as declining during the past four years in some key areas identified as driving a company’s success, including:  outlining stakeholders’ agenda and interests, priortising items on a public affairs agenda based on potential value to the organization, dedicating sufficient resources to these activities and building a fact-based narrative to support priority agenda items and tailoring the narrative to individual stakeholders.

A mixed bunch

The mixed and unequal status, au­thority and access to top management of directors of government relations/ public affairs/corporate affairs, at least in this region, often becomes more visible at professional conferences or business/industry association meet­ings. While their titles may be simi­lar, they may range from ex-govern­ment officials who are direct reports to at least the regional CEO and are management committee members to comparatively inexperienced mangers, often with some communications background and perhaps service at the lower levels of government as a legislative assistant.

In a region and world where governments, consumers and media increasingly expect companies to be part of finding solutions to wider eco­nomic and socio-political problems, constructive engagement with elect­ed leaders and officials has become ever more important for CEOs and their companies. Knowledge, experience and constant communication are key to achieve optimum results.

Smart businesses operating in Asia employ the tools of public af­fairs/government relations to open the right doors, say the right thing, earn the trust of diverse stakeholders and accomplish their goals in this re­gion. They will be more likely to achieve positive results if public af­fairs has a seat at the top table in the C-suite of their companies.

[i] “How to reinvent the external-affairs function,” McKinsey & Company, July 2016

Mark_MichelsonDr Mark Michelson is Chairman of the IMA Asia CEO Forum and a member of the PublicAffairsAsia Advisory Board