Use These Strategies and Tactics to Influence Development of the Law

Let’s now move to the law pillar of decision making and focus on how you can manage government regulatory risk. And there are three ways that I want to focus on, and the first one is shaping the law, developing what the law looks like. Do you think this is good news or bad news when it comes to shaping the law? McKinsey did a survey of over 3,500 executives worldwide and this was their conclusion. Less than 20 percent of the respondents reported having frequent success influencing government policy and the outcome of regulatory decisions. Good news or bad news that less than 20 percent of companies were successful in influencing government policy and regulatory decisions?

Please hit pause and write down your answer, good news or bad news.

I’m not sure whether you wrote down good news or bad news. My answer would’ve been good news or very good news. Because if fewer than 20% of your competitors are successful in influencing government policy and regulations that means that you have a fantastic opportunity for gaining competitive advantage. If the others are so unsuccessful, if you do it right and are successful, you can gain competitive advantage. Now, how do you go about this? What are the tactics and strategies you can use for influencing government regulations, and shaping the law, in other words? Well, here are some common examples, five common ways you can shape the law, influence legislators, influence lawmakers. The first one is to obtain stakeholder support.

Go to your shareholders, your employees, your suppliers, your creditors, your customers, the local community. And emphasize to them how important a regulation is, how important a proposed law is, and get their support. Now, question, let’s say that you’re going to your shareholders. What specific type of shareholder would you search for? What particular type of shareholder is going to have the greatest influence on, let’s say, Congress? Please hit pause and write down your answer.

The answer to that question goes to the heart of the interests of lawmakers. If you’re a lawmaker, what is your primary interest that’s more important than any other interest? Well, that interest is keeping your job, and how do you keep your job? Well, you need to be re-elected, and so as a lawmaker, you’re very interested in what people in your district have to say because they’re the ones who are going to be voting for you. And so when you obtain stakeholder support, for instance with shareholders, very important to go to shareholders in the district where the congressman is based because the people in Congress are going to listen most closely to those shareholders. Campaign contribution are of course important.

Advocacy advertising to influence public opinion. There’s different views on how effective advocacy advertising is, but it certainly is one way to influence the development of law. Coalition building, try to find other groups, other individuals who share your interests. And finally, and this is a big one, lobbying by company leaders or professional lobbyists is especially important. So let’s take a look at lobbying in a little more detail. This illustrates the importance of lobbying. We have Google, who a decade ago wasn’t interested in lobbying, didn’t realize how important it was. They opened a one man lobbying shop in Washington.

But by 2014 they’d moved to a new space on Capitol Hill, doubling the size of its space, of its previous space, to 55,000 square feet, roughly the size of the White House. And their presence matches its expanded needs and ambitions as it tries to fend off threats from executive and legislative branches to regulate its activities. So, important to Google, important to many other businesses. If you’re interested in a little more detail on what firms spend and what groups spend on lobbying, here’s a website that might be of interest, opensecrets.org. And let’s take a look at that website. I’ll try to show you here how to use it. Once you’re at this website, first click Influence and Lobbying, and then Lobbying.

And go to the lower left side if you want to find out who the big spenders are on lobbying. Click top spenders and you can see for instance in 2015 the US Chamber of Commerce was the top spender. They had over 64 million followed by the American Medical Association and the National Association of Realtors who are running neck and neck. Then Blue Cross Blue Shield, General Electric, Boeing, etc. So those are the people spending the most on lobbying on an annual basis. Now where do they spend their money? Well to find out click Agencies, and you’ll see that there’s a virtual tie between the US House of Representatives and the US Senate.

In other words, the legislative branch of government, as you might expect because they make laws, receive the highest amount. Then you have some administrative agencies, the Department of Health and Human Services, EPA, Department of Defense, Department of Transportation received a lot of lobbying influence based on number of reports filed. And then finally the executive branch of government, the White House, there were 1,785 lobbying reports relating to the White House. So this will give you a feel where the money goes. And then finally, if you’re interested in any specific company, you can go way down to the bottom left and type in the name of the company.

Let me just randomly pick an Indian company, Tata and it’ll show you these are the different Tata groups that are involved in lobbying. Let’s try one of them, Tata group and you’ll see the lobbying expenses for the last five years or so. So a very, very useful and interesting website, if you’re interested in tracking lobbying activity. Here’s some examples of executives who are involved in lobbying. I don’t know if you recognize these gentlemen, but here they are leaving the White House. On the left hand side side we have the head of J.P. Morgan Chase, Jamie Dimon. And on the right hand side we have Lloyd Blankfein, the CEO of Goldman Sachs.

And influence in government regulation is so important at J.P. Morgan Chase that they call it their seventh line of business. A newcomer to lobbying efforts, Mark Zuckerberg, Facebook CEO, he’s formed a group focused on immigration and education policy. And last year Facebook, Google, Amazon and Yahoo formed a trade association to make sure policymakers do nothing to hamstring the free flow of information or overly regulate technology firms. That year actually was 2012 when they formed the trade association. So this is an example of one of the tactics I mentioned earlier, building coalitions and here’s a picture of Mark Zuckerberg with the President.

Another example of a prominent business leader who has been actively involved in shaping government regulation is David Carson, the retired CEO of People’s Savings Bank in Connecticut. In many ways, David Carson epitomizes the role of a business leader in shaping regulation. Because in addition to lobbying on behalf of his bank and the banking industry, he testified in Congress for over four decades and he testified not only on business issues but on issues affecting society. For example, he’s been very passionate about early childhood education and has been very active in shaping regulations relating to that issue. And this is what he has to say about his work in government.

In my career, I’ve been involved in everything from neighborhood block watches to talking to chief of staff of the President of the United States about banking legislation. And everyone in between, state legislators, regulators, elected officials and bureaucrats, who can make the changes I thought would be good for our society. The people who end up with power in our society are those who get involved. This is from his biography called Bow Tie Banker. The people who end up with power in our society are those who get involved. And I think what’s interesting about this quote is that it illustrates the two hats that every business leader wears. On the one hand, you want to influence regulations that might affect your company.

You wear the hat of a corporate leader. But on the other hand, as a concerned citizen, you wear the hat of somebody who wants to influence regulation in a way that benefits society. And what David Carson is saying here is that people who wear both of those hats are the ones who end up with power in our society. That’s why Forbes magazine named David Carson one of the most powerful people in American business. And when you have that power, then you have the ability to do what you think is good for both your business and society. So, let’s move on, and take a look at one last strategy that you can use for shaping the law.

The first five strategies are from a great article by Keim and Zeithaml. But this is one strategy that I’ve added on my own and that is you can try to pit the branches of government against each other, in achieving new rules and new regulations. So let me give you two quick examples, one is from Wisconsin. They had a number of years of court decisions that people felt were anti-business. They related to product liability, a separate topic in this course. And so, the legislature passed a product liability reform act that overturned the court decisions.

So here we have a case of business interests going to one branch of the government, the legislature, to overturn decisions by another branch of government, the court system. Here’s another example. I don’t know if you recognize this product, an e-cigarette, but here’s an e-cigarette scenario that played out in the United States. Here’s a definition of e-cigarettes, battery-powered products that allow you to inhale nicotine vapor without fire, smoke, ash, or carbon monoxide. It’s estimated that in the United States by 2018 sales will reach $10 billion, so these are becoming a very popular product. So given this increased interest in e-cigarettes, we have a government agency stepping in, the FDA, and the FDA says, e-cigarettes are subject to tough drug regulations.

An organization called Smoking Everywhere which sells e-cigarettes, goes to the court system, sues the FDA claiming that e-cigarettes are subject to less-strict tobacco regulations. They obviously did not want the more severe type of regulation, and in 2010 the U.S Court of appeals agreed with Smoking Everywhere. So here’s an example of a business that goes to the court system to overrule a decision of an administrative agency. So if you want to shape rules and regulations, you can play off one branch of government against another. So that concludes our look at how you can shape government regulation.

And in the next segment, we’re going to take a look at compliance, and then move on to how you can use the law to attack competition.