McKinsey on government relations

In the latest edition of McKinsey Quarterly, published yesterday, the firm examines the nature of corporate relationships with government. As a follow-up to last year's McKinsey Global Survey, the firm again polled more than one 1,000 business leaders across the world in a bid to shed light on the trends that are shaping interactions between the private and public sectors. The results are interesting: despite clear paradigm shifts such as an "economic recovery in much of the world and elections that produced significant change," most respondents asserted that the nature of their relationship with government regulators hasn't changed much—for better or for worse.

As usual, the McKinsey report contains a wealth of data, diagrams (er..."Exhibits") and discourse that's more than a little overwhelming to the casual reader (don't think for a second that that isn't premeditated), so let's simplify a bit. In short, the report only lends more data to a notion as old as American capitalism itself: companies and governments don't get along. It's not that they hate each other or cannot work cooperatively; it's that their very natures dictate an opposing relationship in which each side keeps the other in check. So when McKinsey consultants express surprise that, despite all of the changes in world economics and politics in 2010, most business leaders remain as distrustful of government regulation as they did in 2009, my reaction amounts to little more than a so what?

Let's look at their findings more closely: most respondents think that government regulation will only increase in the foreseeable future (Exhibit 1); most business leaders worldwide see government regulation having a negative impact on their income growth over the next 3-5 years (Exhibit 2); and nearly twice as many business leaders think that their efforts to "influence policy decisions" are "rarely if ever successful" than those who cite frequent success (Exhibit 5), which has led to a decrease in companies' efforts to engage with governments and regulators (Exhibit 4). So, in sum: business leaders think that the government is encroaching on the private sector, which will result in lower profits and a breakdown in earnest communication.

This represents little more than the extension of a trend that began with the rallying cry "laissez-faire!" to the present; it has been at the heart of political discourse for centuries, and will likely persist for the duration of our love affair with capitalism.

There is some valuable data for business leaders tucked in the end of the report. Like all things McKinsey, the grand finale is actual advice (or, at least enough of a hint to convince you to hire McKinsey consultants); here, the firm examines the actions taken by those companies that have used their relationships with government regulators to positive economic effect. The authors identify five specific practices that these successful companies implement at far greater rates than their less successful counterparts (Exhibit 6); they're too long and detailed to list here, but McKinsey consultants suggest that they could be keys to improved performance relative to government regulation.

The report ends with a couple of takeaways. First, that there's great potential for companies to improve their relationships with government regulators, and that there are tangible economic incentives to do so. Second, that companies can achieve that improvement by "adopting the same practices used by those that already have good relationships with government." The real takeaway? Even though business leaders fear and distrust the government, they've got to work with 'em anyway.

For more information:
McKinsey Quarterly: Managing government relations for the future