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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