Political Risk

Being in front of political developments is the key to influencing public policy and managing any fallout for your organisation. By Ben Power.

Australia is in the middle of one of the more active political years in its history. Two state elections - in Tasmania and South Australia - have already been held. Later in the year a Federal election will be held and Victoria also goes to the polls.

Policy debates and outcomes have become volatile, too, with major decisions made on issues such as an emissions trading scheme, superannuation, tax reform and healthcare, all of which can have serious consequences for organisations.

The particularly high level of political and policy activity in 2010 has highlighted the importance of managing political risk, particularly in election years. Failure to manage, and prepare for, this risk can expose managers to negative consequences, as Australia's resource companies are finding out after the recent announcement by the Rudd Government of its resources super-profit tax.

The key to managing political and policy risk is to treat government relations as an integral and ongoing part of the management process.

"Companies are more aware that public policy and political risk is a bigger issue, particularly when we have got a reforming Federal Government," says Mark Sutton, the New South Wales director of The Agenda Group, a strategic communications and government relations advisory company.

"If you're in front of [political and policy developments] and carefully watching them, then you're in a better position to manage regulatory and political risk and changes than those who aren't keeping an eye on what's happening."

Clear rules

Pfizer, a provider of prescription medicine, operates in the highly regulated and government-funded health industry. At Pfizer, David Miles, Senior Manager Government Affairs, and Peter Poggioli, Head of Communications, help manage the company's relations with government. They, and other advisers, say there are rules for managers engaging with government.

The first rule is to be proactive and establish relationships with politicians and bureaucrats on a continuing basis. "The mistake that can be made is to not build the relationship," Miles says. "You can't just come in at the last minute and expect that you will have the ability to put your view across as effectively as you would have had if you had taken a longer-term approach."

"The top companies have established relationships that are not only about a business trying to get outcomes that benefit them," Sutton adds.

"The good operators participate in the public policy process. They play an active role in providing advice and taking time to respond to calls for submissions."

Paul Everingham, Managing Director of GRA Everingham, a Perth-based government-relations consultant, says ongoing relationships need to occur with both the government and opposition.

"We recommend to our clients that they always engage with both sides," he says. "The government is the one making the decisions, but, maybe through the course of a term, you might invest 65-70 per cent working with government, then 30-35 per cent engaging with the opposition. Then you're taking appropriate risk mitigation steps."

Be part of the solution

The second rule is not to turn up complaining to government about a policy decision without offering up an alternative.

"When you go to government with a problem, that's not sufficient," Poggioli says. "You need to go there with a potential solution. The worst thing a minister's office or bureaucrat can hear is, 'we have a problem, what are you going to do about it?'."

Sutton agrees this is a major mistake. He also says the solution offered should not only meet the objective of the business but also be palatable to the government and its strategy, and tick the boxes from a public policy and political view.

Some companies choose to engage external lobbyists, or government-relations advisers.

"If you know and understand government then you don't need one," Everingham says. "Most companies tend to focus on their core business, their core business isn't government; it is our core business."

Sutton says that a lobbyist aims to protect and promote the interests of clients to government. "They have got a better understanding of government, and perhaps working relationships, which can assist clients in generating better results," he says.

"The key to having a lobbyist is that you can get extra drive in implementing a government-relations campaign. The pressures on people in regulatory and policy positions in large companies can often divert them away from implementing a consistent play. They can often be caught up with dealing with day-to-day regulatory issues that come up."

Election management

Election years can be particularly overwhelming with significant policy announcements. Miles says that Pfizer doesn't differentiate between election years and any other year. "We monitor government policy very closely and are looking at the potential impact on both the company and environment we work in," he says.

"There's the potential for more policy emerging in an election year and we make an assessment of the potential impact if those policies are implemented."

Miles notes that election policies and post-election implementation are both important but separate processes. "Each is important in building relationships with government, and neither can be ignored," he says. Poggioli adds that policies are usually not things that suddenly appear in election years.

But Everingham says election years can provide opportunities. "The closer you get to an election the more leverage you can have, particularly if your company or product is electorally palatable," he says.

"If you want or need a political decision made by a government then the lead-up to the election is 99 times out of 100 the best time, because there is less chance of bureaucratic interference."