Building Government Trust
The business-government relationship is in a moment of high anxiety. And it’s not just the Brexit-to-Trump rise in protectionism; it’s the recent bout of corporate scandal, from Wells Fargo and its Cross-Selling Practices to Deutsche Bank and Mirror Trading, among other examples. This backdrop makes it difficult for business leaders to establish long-term, trustful relationships with government. But, the effort is important and now more so than ever before.
Why? As Chris Caine of the Center for Global Enterprise puts it, governments today are a market like no other. Collectively, they account for approximately $17 trillion in revenue and employ more than 100 million people. As such, the world’s governments are giant customers — and also competitors, regulators, standard-setters and enforcers. Bottom line: the relationship between a global firm and the governments where it operates is vital to any modern business.
With this point in mind, it should come as no surprise that business leaders have for centuries sought to influence the direction of public policy. What’s different today is the scope, complexity and speed of the business-government relationship.
The challenges this creates are especially acute for new companies in new industries. Take the sharing or gig economy, for instance: app-based companies can go from a whiteboard sketch to a global enterprise in a matter of years, if not months. These companies are tailor-made to put government leaders — not to mention incumbent industry sectors — in a defensive posture. And, this resistance to change is intensified by a general lack of trust in business. As a segment of civil society, the business sector is experiencing record low levels of public trust.
So what can global business leaders do to engage in strategic and productive ways with government? Grounding a company’s business strategy in the following realities will lead to a constructive relationship with government.
- The regulatory state has increased dramatically in size, scope and effect in virtually every region and almost all governments.
- Nearly every industry — and not just heavily regulated ones — has faced in the last decade a direction-changing challenge or crisis resulting from the interaction between business and government. Preemptive, constructive engagement before such a crisis is essential to building trust.
- The integration of the strategic goals of the firm, coupled with ethics and values, will encourage trust from government and civil society. To remain authentic and ensure effective execution, this integration should originate with the top of an organization.
- There are significant market opportunities for securing competitive advantage through effective public policy engagement.
We hope these points resonate, but we understand government trust is fundamentally an abstract concept. That’s why we spent some time defining the concept — unpacking and analyzing its principal components.
So what is trust? A good working definition comes from scholar Russell Hardin, for whom trust is a three-part relationship in which one party can count upon another party to complete a particular behavior.
Simple enough. Building on Hardin’s definition, we think about trust in at least two dimensions. The first dimension is competence and the second is intention. We rarely trust others whom we don’t believe are competent to do what they say, even if they have good intentions. Similarly, we rarely trust others who are competent but who may not have good intentions toward us.
When it comes to business, trust is an expression of a company’s values and ethics. Much more than a corporate mission statement or pledge, trust involves acting on these five values in a consistent manner. In our view, trust is built on the following five values:
- Respect for others
- Commitment to the larger community
These values are important for companies regardless of scale. Leaders of local firms — which we define as operating within a single geopolitical jurisdiction — can, in many cases, communicate with their customers, suppliers, employees and shareholders, often in direct and personal ways. These companies are well-positioned to engage in a genuine manner with governments and non-governmental organizations. For leaders of global firms; however, the task is more challenging. Once the scale of an enterprise exceeds a certain geography and size, communicating these values consistently becomes substantially more difficult.
What does it take to create trust? For any business leader, trust begins with an acute understanding of her firm’s value proposition and its role in the economy and the lives of its customers. Establishing trust is in many ways easiest for companies with a mission to deliver on basic needs such as food, housing or health. People understand intuitively how these companies contribute to society.
But, for most companies the value proposition is less intuitive. Which makes it all the more important for a company to take a proactive approach, affirming its commitment to quality products or services and positioning its value proposition as a meaningful addition to civil society. These are the vital first steps towards securing trust from stakeholders.
The same thinking applies to the business-government relationship. Making sure government representatives understand the firm’s role in the larger economic and social ecosystem is among the most difficult communication challenges a business leader faces. If policymakers do not understand how a company contributes to the economy or advances a larger social goal, the company’s efforts risk seeming contrived, and it becomes more difficult to foster a trusting relationship and environment in which business and government collaborate on policymaking.
Meaningful engagement with governments is a crucial element of the trust equation. Governments whose leaders view global enterprises as partners in policy development or problem solving can advance their interests from such engagement.
Reaping the benefits of trust
In the context of democratic governments, trust is a condition to obtaining the freedom to operate. These governments require regulatory compliance in order to protect the public from potential harm. For governments not democratically elected, the underlying rationale is similar, if not formalized through the electoral process: those governments operate for the people. In each case, trust is a prerequisite to securing permission to operate in a country.
With this in mind, the most concrete benefit to building trust with government is the opportunity to open new markets. As we point out in our introduction, governments are important customers, and, as with any customer, they need to trust the firms with whom they do business. The same values — transparency, honesty, consistency, respect and commitment to the larger community — are the qualities governments are looking for in suppliers or business partners.
Similarly, when the government is acting as a regulator, standard-setter, or enforcer, it will implicitly make decisions about how much trust it extends to a firm. While sometimes an industry sector will be the target of a regulation or enforcement model paradigm, it is often the case that distinctions will be made between firms in a given sector based on the nature and degree of trust of the global firm.
That’s a critical point, and it suggests that engaging with government to build trust can create new markets for a firm’s products or services. Recent examples include spectrum allocations in telecommunications, intellectual property rules in multilateral trade agreements and their value to pharmaceutical firms, and the new rules for disruptive technologies like Uber, Airbnb, and Tesla. These are instances where public policy creates new market opportunities for firms. And these instances have something in common — speed. Companies which enter the legislative or regulatory game early with facts and a point of view can prevail. Put another way: the early bird gets the worm.
The case for business leadership on public policy
Leadership on matters of public policy believes business should be treated as an opportunity to build trust. Global firms will experience advances in revenue and profit if they take the time and effort to develop a coherent approach to public policy.
What do we mean by business leadership? As a first point we view leadership as far more than a summary of the company’s or the industry’s point of view. Leadership means taking a step back to take into account a broader set of perspectives, including the perspectives of public officials or organizations with a stake in the policy matter at hand. Using this broader framework, global business leaders can position themselves as independent or objective observers who can guide the discussion in a way that achieves a range of objectives — including their own.
There may be no more important moment for business leadership than in the case of a new industry. Any time a new industry emerges, so do tensions with government over the nature, extent, and structure of new regulations. Incumbent industries and firms tend to defend the regulatory status quo, for obvious reasons. The new entrants — including established firms entering new markets — tend to call for a new or different regulatory approach. Ultimately, the companies which preemptively and persuasively offer a compelling vision of the future state of affairs or their role in it are likeliest to prevail. Examples of this debate include the nature and extent of internet regulation in the 1990s, the terms and conditions of “net neutrality,” and how best to manage privacy rules for data transmission or interception.
In each case, industries and firms clash loudly and publicly over the nature, extent and structure of new regulations. But, what is not always evident to the general public is that long before these debates emerge in the media, smart firms have already been engaging with government leaders and the people who influence them. Demonstrating business leadership, these firms work with the relevant government officials, offer a set of facts, provide a context or framework for decision-making, and enlist experts to aid government in making choices.
The outcome of this effort is a relationship founded in trust. It’s not easy work, but firms which engage with government in trustful and constructive ways will distinguish themselves from the competition and position themselves for long-term success.
This work is derived, in part, from a white paper — Building Government Trust — commissioned by the Center for Global Enterprise, and co-authored by two distinguished colleagues — Professor Ed Freeman and Dean Krehmeyer at the University of Virginia, Darden School of Business.
For additional media treatment of this topic readers are referred to a YouTube interview on this topic by Mr. Beier and Dean Krehmeyer that has used for an audience of scholars at universities associated with CGE from up to 60 nations.
Mr. Beier is a Fellow at the Center for Global Enterprise, a non-profit think tank established by Sam Palmisano, former CEO of IBM. The CGE is designed to be a forum for, and provide advice to, CEOs of companies in the US, Europe, Middle East, India, China and the rest of the world. CGE offers participants access to original research on how to be genuinely global. To date participants have including iconic global firms to large multinationals who want to know best practices in sales, marketing, branding, supply chain, IP and building trust with governments.