Winning the Influence Game: What Every Business Leader Should Know About Government

Every business has a not-so-silent partner that must be managed: the government.

Articles about major companies often have little to do with products and services, and much more to do with government red tape. Yet when Michael Watkins began searching for information on how companies should work with government, he turned up empty-handed. This prompted Watkins to co-author "Winning the Influence Game: What Every Business Leader Should Know About Government". ADVISOR asked Watkins how today's business leaders can build a beneficial relationship with government.

"It was so interesting to me -- out of all the work on business process, there's nothing that deals with government," explains Watkins.

Watkins and co-authors Mickey Edwards, a 16-year veteran of Congress and professor at the Kennedy School of Government, and Usha Thakrar, a research associate at Harvard Business School, wrote the book to provide a framework for analyzing the impact of government on business strategy, as well as tools and techniques for organizing to influence government.

Consider the book's opening sentence: "Managers who ignore the actions of government do so at great risk." New technologies and globalization are increasingly challenging established rules about business.

ADVISOR senior editor Jane Falla: You started on the path for this book by surveying Fortune 100 companies to find out how they influence government. What you discovered -- which confirmed your hunch -- was that most senior managers are ignorant about how the government works and the importance of organizing to influence. They view the government as a nuisance or irrelevant. Please review a few of the key reasons for this.

Watkins: One of the big reasons is that business people are very much focused on a defined set of objectives. To them, established government just looks like a mess -- it looks ugly. It's political in every sense of the word. ... People in business don't understand how government works. They also see -- and this is particularly true for people in smaller businesses -- government bureaucrats as inappropriately privileged. It's the notion that "Here I am working so hard, and the [bureaucrats] just take a cut off the top." And that holds true for many larger businesses, which start out with entrepreneurial mindsets. The poster child for this is Microsoft.

ADVISOR: You also mention in the book that most business schools do little to teach business leaders about government.

Watkins: Business schools are just not doing a good job (except for Harvard, of course). From the perspective of business academics, you have to ask yourself what's sexy to study. Government is hard to study. It's complicated. It's harder to apply nice economic frameworks to it, and if you're trying to do empirical work, it becomes very difficult. It's something that's really mostly of interest to more senior people in companies.

ADVISOR: What about smaller companies -- do they think governmental influence is completely out of their realm?

Watkins: If they do they're making a huge mistake. What I say is that government can both help and hurt smaller companies much more than larger companies. You can't find a smaller company that hasn't been helped (international trade, tax breaks, etc.) But at the same time, small businesses are far more susceptible to being damaged than larger businesses. Municipal taxes can hurt, and small businesses have fewer resources with which to protect themselves.

What I tell small-business people is to start where you're big. Get to know your local congress people. Get to know their staffs. For example, state representatives may well want to come to an awards ceremony you conduct. These people live and die by getting out to meeting constituents.

You have to start to build a coalition. For example, suppose you own a dry cleaner and every day you try to win business locally. When it comes to emissions standards, suddenly you are the best friend with your competitor. You have to ban together.

Beyond that, you have to be good at connecting with and leveraging your concerns through national organizations -- with those who represent small business interests. The problem there is that they address the lowest common denominator. But those organizations can have an impact on such issues as health care, federal and state taxes, and finding qualified workers.

ADVISOR: And environmental issues?

Watkins: Environmental issues tend to pertain more to industries instead of small businesses. For example, suppose you're a small manufacturer of paint. With regard to volatile emissions, you want to get involved with other paint companies.

So you have to start with "What are the critical issues?" Where is it that government can impinge on your strategy. For example, the large paint manufacturers are trying to do negotiated rule making in the industry. [They could press for more regulations because it would squash smaller competitors.] Your interests as a small business sometimes aren't aligned with the large enterprises. In that case, you must reach out beyond the industry. It's your job as a manager in these companies to be keeping an eye out for the stampeding elephant that could run you down.

ADVISOR: I would assume most companies are reactive more than proactive.

Watkins: Many are reactive more than proactive. The perfect example of this is Intel and Microsoft. Intel had been involved in government since the 1970s. They set up an office in Washington ... Microsoft hadn't. They had one person in D.C., and along comes this case -- and wham! They're a far more capable organization today than they were years ago along these lines. They learned to play the PR game better.

ADVISOR: How does the transformation to e-business escalate companies' need to influence and understand the government's role in business?

Watkins: The distinction that's helpful -- we talk in the book about the difference between rule making and refereeing. For many industries the government serves in a referee role. But when you have a seismic shift in technology, such as is occurring with e-business, and telecom more generally, you get pushed into a rule-making mode.

ADVISOR: There's no precedent ...

Watkins: Right. For example, the Internet raises profound questions about who owns what. Intellectual property used to be pretty well established. Today, intellectual property and privacy are probably the number one and two issues. The competition for influence shifts to the legislature, and you see enormous battles. For example, should we self-regulate?

ADVISOR: Internet taxation is a big issue.

Watkins: Among other things, how in the world do you enforce it? How do you regulate it? There are lots of small firms that want to see Internet firms taxed, but on the other hand, it raises jurisdictional questions.

In the end, one of the most important things a government does is provide a consistent set of rules.

ADVISOR: What about globalization, and global companies influencing and keeping track of different government regulations and standards?

Watkins: There are companies leading the charge in pushing government together. With the GE-Honeywell aftermath, business are pushing governments to harmonize these kinds of standards. An example is mutual recognition agreements. ... Companies that are operating internationally are definitely leading the charge on influencing major governments to come up with more consistent standards. The next wave we'll see is increasing pressure to see United States/European Union standards.

ADVISOR: Can you point to some established companies that have been successful in the "rule-making" game and why (e.g., in the book you mention Merck, General Motors, General Electric, and Boeing)?

Watkins: Another example that I've been looking at is Enron. Boy, these people are good at what they do in terms of working with government. They're working very successfully on an international level. This starts at the top. The CEO knows this has strategic import for the company. They have super government relations. [EDITOR'S NOTE: The interview was just before Enron collapsed in scandal; until that point it appeared to be a leading company.]

People and integration are key to the companies that do this well. GE was a big surprise to me, since GE is really sophisticated at this [referring to the proposed merger of GE and Honeywell that was shot down in June 2001]. So what happened here?

When they did the deal, there wasn't time for GE to consult with their European antitrust people. They didn't get a chance to vet it with regulators, and they had a couple of opponents that were tremendously well organized. ... Even the best organization can be caught if they don't make use of capabilities.

ADVISOR: Do you recommend that every organization has a person (or several people) who serves in a government relations function?

Watkins: It depends on the size of the company. But every company should have leaders that still think of this. As soon as you reach even a modest size, it's worth having someone. For small to medium businesses, it could be a general counsel.

ADVISOR: Are there experts available?

Watkins: Yes. The question is whether you will do this internally or subcontract. Putting consultants and lobbyists on retainer -- there's sort of good news and bad news. The bad news is that there's no substitute to having someone that's focused on your issues from your own company. It's more credible than having a paid lobbyist.

My view is that the contacts with politicians and regulators should be handled by your people, but advising should be handled by lobbyists. Organizations that do this best have strong internal operations and work with consultants and lobbyists for specific projects.

Less effective is the retainer -- having at a minimum someone out there monitoring what's going on so you're not blindsided.

ADVISOR: What are some recommendations you offer to help companies keep up with the myriad local, state, federal, and international governmental regulations and policies that affect or can potentially affect their business?

Watkins: The Web is making it easier to do this. There are good services now to help you monitor and these can be strongly tailored to your needs and interests. I think there's a caveat: Knowing what is going on is not the same as knowing why it's happening. And knowing what is going on is not the same as knowing what is going to happen. The Web can't provide you with human intelligence.

ADVISOR: Describe the three steps you recommend to companies for crafting winning strategies.

Watkins: The number one thing to do is to be sure you understand how government can influence your strategy. That's what is going to provide you with insight to know where you need to invest your resources.

Second, you have to map out what kind of organization you need. Who will represent you? Who will they report to? How will they be integrated into the decision-making process so as not to have some be the third wheel (that's a big mistake I see organizations make)?

Third, you don't want to be meeting your neighbors for the first time in the middle of the night when you're house is burning down. You have to strategically build a base of relationships. That involves cultivating the people, getting to know them, contributing to help them get elected.

ADVISOR: Do companies typically get their money's worth on lobbying? In some cases, could lobbying adversely affect them?

Watkins: It's rare that it adversely affects them. It's more common that they don't get what they pay for, and that's because they allow the lobbyist to organize meetings to get access. But getting a hearing isn't the same as having any impact. That's why I'm a big believer in having a lobbyist as an adviser for a specific project, because sometimes lobbyists sort of trade on their access and not on their influence.

You must understand: Are these people helping me advance my goals? And your measurement has to involve a different timeframe than quarterly. For example, are you making progress and changing the language of a bill?

I'm a big believer in pushing government relations to be accountable and that means setting goals. And that takes longer.

ADVISOR: If you could point to one thing, what are companies risking by not organizing to influence?

Watkins: They're getting hurt when they don't need to, and they're missing opportunities to leverage themselves. Imagine how costly the failed merger has been to Honeywell, or imagine the lost goodwill for Microsoft.

My top two recommendations:

1. Think about government as an integral part of your strategy process.

2. Integrate your government relations function into your decision-making process.

As standard practice, this interview was edited for clarity, length, and organization. While some speaking style was altered to be more readable, every effort was taken to preserve the meaning.