Business and the Public Policy Process:Introduction and Course Overview

Public Policy, Politics, and Business Strategy

Dr. Michael D. Lord

Babcock Graduate School of Management

Wake Forest University

The Washington Campus

Washington, D.C.© 2010, M.D. Lord

TWC: Course Objectives

Understand how and why D.C. matters Directly: Government action and inaction Indirectly: Holistically and strategically

Understand how it all works (or not) The key arenas, players, tactics, dynamics Putting the pieces together strategically

Be able to manage it all better Minimize risks, threats, create opportunities Improve organizational, national performance

© 2010, M.D. Lord

TWC: Course Objectives

Understand the playing grounds Legislative, executive, regulatory, judicial Outside D.C., from local to global

Understand the stakeholders, key players Elected officials, regulators, judges, staff, etc. Lobbyists, constituents, media, etc.

Be able to manage tactics and strategy Information tactics vs. persuasion tactics Specific issues, events vs. overall strategy

© 2010, M.D. Lord

Why, How Does it All Matter?Changing Times & Paradigms

‘The business of business is business’? Simplistic economic ideology (Friedman) Robert Reich, Supercapitalism Peter Drucker, Jack Welch, et al.

Critical need for rethinking, reframing Jeff Immelt, Lee Scott, Rick Wagoner, et al. Environment, health care, immigration, etc.

Harry & Louise: 1993 vs. 2008

© 2010, M.D. Lord

The Business of Politics Growing government-business interaction

Old Economy: Defense, trade, environment, etc. New Economy: Health care, biotech, pharma, software,

wireless, anti-terror, IP, standards, etc. Global Economy: Increasing blurring of domestic and

international business-political issues, arenas But executives and entrepreneurs alike often do

not well understand, manage, and integrate Politics Public policy

Big direct and indirect bottom-line impacts

© 2010, M.D. Lord

Politics + Policy = Performance

Shape industry economics & firms’ performance Competition (e.g., tariffs, quotas, antitrust) Entry threats (e.g., banks, credit unions, realtors) Supplier power (e.g., antitrust, commodities) Customer power (e.g., pharma, Internet) Substitutes (e.g., ethanol, pharma)

Shape individual firms’ competitive advantages Setting the rules of the game She who sets the rules wins?

Stakeholder &Public Affairs

StrategyIntegrated,Holistic,Effective

POLITICALSTRATEGY

Integrated,Supportive,

EffectivePOLICY

STRATEGY

Integrated,Profitable,

SustainableBUSINESSSTRATEGY

‘Three legs

of a stool…’Eith

er a

virt

uous,

or a v

icio

us,

cycl

e…

© 2010, M.D. Lord

Linking Politics, Policy, and Business Strategy

Larger business and political concerns need to be linked with policy initiatives The most clever political tactics cannot influence

policy if you have radioactive PR, public image The most clever political tactics cannot influence

policy if your policy message is DOA Avoid omnipresent tactical temptations

Avoid short-term clever, but long-term foolish, business, political, and policy choices

They often backfire and cause lasting, systemic political and policy damage, poor performance

© 2010, M.D. Lord

vs.

Key Sources of Business Risks and Poor Performance

By simply ignoring politics and public policy By pushing strategies and policies…

With little regard for larger public affairs and political – as well as business – realities Too narrowly and too short-term focused Simplistic economic, technical, and financial thinking Overly-formalized, aggressive legal tactics Quick-fix PR, lobbying, and marketing approaches

That look like wins from a narrow, short-term view, but instead are predictable debacles in terms of public affairs, politics, and ultimate performance

© 2010, M.D. Lord

Bad Policy Bad Business?

Market Cap

Toyota$140 b.

GM$6 b.

2007 loss = -$39 b.

2007 profit = +$17 b.

andBad

Politics,too?

http://www.youtube.com/watch?v=SD6c-C0Z5r4

Policy Meets Political Reality:Enron Revolutionizes Energy?

Enron pioneers electricity deregulation policy California and elsewhere Quick, transformative public policy victories Aggressive, innovative deals and strategies Quick ‘successes’ and rich ‘profits’

But failed public affairs and political strategies Multi-fold price spikes, massive public protests Investigations, bankruptcies, jail time Collapse and bankruptcy of the entire company

Bad policy Bad politics Bad business© 2010, M.D. Lord

Good Policy?Bad Politics

Bad Business

‘MonSatan’ & ‘Frankenfood’

“We saw our products as great boons both to farmers and to the environment. I guess we naively thought that the rest of the world would look at the information and come to the same conclusion.”

-$10 billion

The Playing Field: Levels & Arenas of Analysis & Action

Levels of analysis and action International National (U.S.) State Local

Focus on the federal level – the trump card

Arenas of analysis and action Executive Regulatory Judicial Legislative

Focus on the legislative arena – the trump card

Playing the Game:The Tools of the Trade

Informational and influence tactics Political contributions Advocacy marketing Professional lobbying Executive lobbying Constituency building

All are part of the political mix and policy process

Why focus on stakeholders and constituency building? Holistic & strategic Effective & ethical Links and enhances

all other tactics

Ultimately, the trump card and the goal

© 2010, M.D. Lord

The Currency of Politics:Power, Influence, Money

Power Influence* Money

$ ≠ votes $ ≠ policy $ often necessary $ rarely sufficient

All part of the mix, but not the same

Are politics crazy? Economics vs.

emotion Reality vs.

perception Rationality vs.

irrationality

The logic of politics The bottom line

© 2010, M.D. Lord

Proactive Political Strategy vs. Reactive, Defensive Tactics

Most efforts still defensive, tactical reactions Reactive, not proactive Driven by tactics, not strategy Immediate & short-term, not ongoing & long-term

The result is limited effectiveness Cannot build an effective ‘brand’ and base of

political capital overnight Ad hoc, reactive tactics = costly, uphill battles Reactive tactics not only ineffective, but often

actually damage public ‘brand’, political capital Negative performance implications

© 2010, M.D. Lord

Perception is Reality:Emotion Trumps Economics

Global is local,local is global

Traditional, Tactical ‘Fixes’ Festering Problems

Reactive, functional, short-term responses Financial: Protect our investment in R&D! Legal: Protect our patents!

Complex economic & legal arguments vs. Stories of mass human suffering: “millions dying” Charges of profiteering: “$10 for pills costing pennies”

Problems abroad come home to roost Feed negative perceptions of U.S. public, politics New patient population at home more like abroad

© 2010, M.D. Lord

Perception is Reality:Global Comes Home

Wall Street JournalApril 23, 2001, p. A1

Adverse Reaction:AIDS Gaffes in AfricaCome Back to HauntDrug Industry at Home

Price Cuts Abroad DeepenDomestic Trouble as FirmsReveal ‘True’ Cost of Pills-- John le Carre’s New Villain

Business Week, May 28, 2001, p. 40Costly Drugs:An Even Bloodier Backlash Ahead

Wall Street Journal

August 23, 2001, p. A3

Brazil to Break Roche

Patent on AIDS Drug

Business Week, October 9, 2000, p. 130

Medicines Without Borders:

The move is on to reimport foreign drugs

© 2003, Michael D. Lord

Abbott faces more litigation over AIDS drug in U.S.By PAUL ELIAS – August 4, 2008 (AP)

When Abbott Laboratories Inc. hiked up the price of a popular AIDS drugby 400 percent in 2003, executives prepared for the inevitable public

relations hit, but assured themselves the backlash would be brief.Nearly five years later, the accusations against Abbott are still flying.

The North Chicago, Ill., drug company stands to lose hundreds of millionsof dollars in several pending antitrust lawsuits. It settled only its first —

and likely its cheapest one — last week.

Brazil may reject Gilead's AIDS drug patent 10 Apr 2008 Reuters By Maria Pia Palermo

Brazil has decreed U.S. pharma firm Gilead's AIDS drug Tenofovir "in the public interest", signaling it may reject a patent request due to

its high price and import a generic. The Health Ministry said in a decree

published on Wednesday that patenting the drug in Brazil would generate "expectations of monopoly rights with an impact on the price.

Latin America's largest country has an internationally-lauded AIDStreatment program, in which patients get free antiretroviral treatment.

-$50 billion market cap

CEO Exit & Firm Crisis

Politics & Public Policy:Leadership & Execution

Need to link politics and public policy with business strategy and performance The CEO as Chief Public Affairs Officer Internally & externally

Public affairs & government relations function ‘Locals’ (D.C.) vs. ‘expats’ (business managers) Mix it up. It’s a team effort.

Outsourcing and vendors Think strategically, not tactically. Buyer beware…

© 2010, M.D. Lord

Strategic Management of Politics and Public Policy

Stakeholder management is not just politics – it’s a core part of larger public affairs and business strategy, both domestic and global

Pursue longer-term, more holistic integration of stakeholder concerns, especially politics and public policy, with business strategy At top levels… Before, rather than after, the fact… Integrated into formulation and implementation

© 2010, M.D. Lord

Wal-Mart to Sell

$4 Prescriptions

Associated Press

September 21, 2006

The New Model: Before & After

Stakeholder &Public Affairs

StrategyIntegrated,Holistic,Effective

POLITICALSTRATEGY

Integrated,Supportive,

EffectivePOLICY

STRATEGY

Integrated,Profitable,

SustainableBUSINESSSTRATEGY

‘Three legs

of a stool…’Eith

er a

virt

uous,

or a v

icio

us,

cycl

e…

© 2010, M.D. Lord

Business and the Public Policy Process:Introduction and Course Overview

Public Policy, Politics,and Business Strategy

Q&A?

© 2010, M.D. Lord