IFI Stakeholder Management in Business Registration Reforms

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STAKEHOLDER MANAGEMENT

IN BUSINESS REGISTRATION

REFORMSLESSONS FROM 10 COUNTRIES

World Bank Advisory Services

Investment Climate

Funded through FIAS, the multidonor investment climate advisory service


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Copyright 2009

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June 2009

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FIAS, the multi-donor investment climate advisory service managed by the International Finance Corporation (IFC) and

supported by the Multilateral Investment Guarantee Agency (MIGA) and the World Bank (IBRD), is an integrator of services to

improve the business-enabling environment of member countries. In particular, FIAS advises governments of developing and

transition countries on regulatory simplification, investment policy and promotion, and industry-specific investment climate

issues. In its more than 20 years as a donor-funded operation, FIAS has completed over 760 projects in all regions of the world.

For more information, visit www.fias.net.

The Organizations (IFC, MIGA, and IBRD), through FIAS, endeavor, using their best efforts in the time available, to provide

high quality services hereunder and have relied on information provided to them by a wide range of other sources. However,

they do not make any representations or warranties regarding the completeness or accuracy of the information included in this

publication. The findings, interpretations, and conclusions included in this report are those of the authors and do not necessarilyreflect the views of the Executive Directors of the World Bank or the governments they represent.

Cover photo credits: globePatricia Hord Design (also appears on chapter opening pages); photo inserts (left to right)Robert

Achinger; Neil Gould; David Lat; Bazil Raubach.


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IN BUSINESS REGISTRATION

REFORMS

LESSONS FROM 10 COUNTRIES

June 2009


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Foreword

This project aimed to contribute to the menu oftools available to policymakers and their advisersa practical set of approaches and strategies for

managing stakeholder outcomes to accelerateand sustain business registration reforms. Theproject, which augments ongoing work by theWorld Bank Groups Investment ClimateDepartment on the Business Registration Toolkit,was conceived and developed by CatherineMasinde (Foreign Investment Advisory Service,Africa). The report was researched and written byScott Jacobs of Jacobs and Associates, andCatherine Masinde co-authored the report.1

Why business registration? Rather thanrehearse generic ground covered in the litera-ture on stakeholder management, the projectaimed to focus on business registration as itoffered a conducive environment in which toexplore these issues for many reasons, key ofwhich was the ongoing work in the Small andMedium Enterprises (SME) department on abusiness registration technical toolkit subse-quently published. In addition, businessregistration: (1) was viewed as a mature area of

business enabling environment work, withdeveloped approaches and indicators; (2)reform had been applied in different countriesover the past decade with varying degrees ofsuccess, and therefore offered a good opportu-nity for a variety of case studies; (3) is oftenseen as an important barometer for ease ofdoing business in any country; and (4) lendsitself to cross-country benchmarking anddifferent levels of analysis on the key issues ofconcern in the reform processthat is, project

design, stakeholder management, involvementof multiple levels of administration, e-govern-ment, and so on. More importantly, however,the project team saw this as an area where

generic lessons could be extrapolated acrossdifferent areas of reform.

Stakeholder management and the reformprocess. This project identified the key

categories of stakeholders, their interests,and their positions with particular referenceto the business registration reform process.

i) Identifying potential opponents andsupporters of business registration reform.The key potential opponents to the busi-ness registration reform process typicallyinclude: the business registration adminis-tration, including registrars and relatedagencies; local governments; lawyers; the

judiciary; and notaries. The strongestpotential supporters typically include:informal businesses (including their busi-ness associations) who are informal becauseof the cumbersome, lengthy, expensiveprocedures; some political players who seean opportunity to influence a particularconstituency; and the general public.

ii) Identifying appropriate possible mobiliz-ing and neutralizing tactics for each

category of stakeholders. The key tactics,some used overtly while others are appliedcovertly, include: (1) persuasion, includingvarious forms of communication strategiesand public campaigns, challenging andrefuting the most typical arguments fromstrategic stakeholders (for example, why doyou need a single identification number forbusinesses?); (2) public pressure, namingand shaming, and public embarrassment ofpolicymakers, which may include public

campaigns; (3) vote in the parliament; (4)financial compensation for specific categoriesof opponentsfor example, in the case ofpublic officials, increase in salaries, voluntaryretirement schemes, displacement into othergovernment units; (5) in the case of localgovernments, additional fiscal transfers fromthe center; and (6) various private sector

1 Jacobs and Associates is an international consulting firmspecializing in regulatory reform.


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mobilization tactics (such as informal sectorassociations). These tactics were reviewed toexplore the extent to which they neutralizeopposition or support proponents of reform,and to what extent they determine the

outcome of the reform process.

Selecting case studies:This analysis was based on10 carefully selected case studies of successfulreformers covering different country environ-ments where business registration reforms hadbeen implemented in the recent pastthat is,level of development, legal origin, openness ofpolitical system, and level of governmentdecentralization with respect to business regis-tration. The program technical advisory team,

including Vincent Palmade, Andrei Mikhnevand Sylvia Solfto whom the project team isgratefuladvised on potential candidates,which included Australia, Bulgaria, Chile,Denmark, France, Italy, Jordan, Latvia, Mexico,Pakistan, Serbia, Slovakia, Tanzania, Tunisia,Turkey, and Vietnam. As expected, the questionarose of whether the review should work onlywith positive case studies, that is, successfulreformers. To avoid missing potentially impor-tant lessons from failed reforms, the consultants

were required to develop a considered decisionmatrix that provided the maximum learningopportunity for the project. (SeeAnnex 1).

Case study framework:The case studies wereprepared in line with a common framework, out-lining the dynamics of potential supporters andopponents of business registration reform, andvarious known techniques used to mobilize and/or neutralize such opponents. This frameworkwas reviewed internally by the technical advisory

team. This framework helped the case reviewersfocus on common issues of importance to thesynthesis report.

Fieldwork and case study preparation: The casematerials were then assembled by Jacobs andAssociates and a team of consultants as follows:Bulgaria: Ralista Petrova and Nikolay Yanev;

France: Marianne Villaret and Cesar Cordova;Indonesia: Andin Hadiyanto; Serbia: AndrejaMarusic; Turkey: Abdulrahman Ilhan; Mexico:Jorge Velazquez Roa; Tanzania: Bede Lyimo(BRU Tanzania); Ukraine: Andrey Astrakhan

and Alexander Shabalkov;Vietnam: NguyenDinh Cung (Ministry of Planning Vietnam,CIEM); andJordan: Shereen Al Abbadi andRiwa Saied. Clearly, many of these contributors,including Scott Jacobs and Associates, wereeither involved in, or directly implemented thereforms documented. To ensure objectivereporting of the case material, a common casestudy framework was used in addition tosubsequent peer reviews by World Bank Grouppeers working in the country at the time

of the reform. Several iterations of reviewsfrom this process have resulted in what theteam believes is a factual presentation of thecases.

Case study peer review:To ensure accuracy andintegrity of the case materials, the case studieswere then reviewed by World Bank Grouppeople who were involved in, or associated withthe reforms, for which the project team isgrateful. This process, although lengthy, pro-

vided extremely useful feedback for revision ofthe case studies. These included: Bulgaria:Sylvia Solf (Doing Business GIADB),Marialissa Motta (FIAS, DB Reform Unit CICRA), Irina Astrakhan (ECA ECSPF),Dobromir Christow (FIAS RegulatorySimplification CICRS); Indonesia: HansShrader (PENSA Jakharta CEAIJ), Greg Elms(PENSA Jakharta CEAIJ);Jordan: Frank Sader(FIAS/BEE MENA CMEPB); Serbia: MargoThomas (FIAS Regulatory Simplification

CICRS), Itzak Goldberg (ECA ECSPF);Mexico: Mierta Capaul (FIAS DBRU CICRA), Luke Haggarty (LAC CLALA),Edward Dohm (LAC CLALA); Tanzania:Michael Wong (SASFP), Andrei Mikhnev (IFCBEE CICBE);Vietnam: Quynh TrangNguyen (MPDF CEAMH), Lan Van Nguyen(MPDF CEAMH); Ukraine: Florentin Blanc


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(Trust Funds Ukraine CEUTU) and AndreiMikhnev (IFC BEE CICBE). Reviews werenot received for France and Turkey.

Brown-bag lunch review:The project output was

reviewed at a lunch meeting organized by theBusiness Enabling Environment department, atwhich Colleen Gorove (EXTCD) providedvaluable expert comments on the report. Theproject team is also grateful to Elvira Santayanaand Osongo Lenga for the organization of thismeeting.

Publication:Patricia Steele and John Willeprovided inputs in preparing the case studiesand synthesis report for publication. VandanaMathur edited the report and case studies.

Overall quality control was provided byVincent Palmade (AFTFP), Sunita Kikeri (IFCCorporate Governance GCMCG), and AndreiMikhnev (IFC BEE CICBE), for which theproject team is grateful.


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Table of Contents

Executive Summary .............................................................................1

I. Purpose, Method, and Scope of the Report ..................................... 6

I.A. Purpose of the Report 7

I.B. Scope of the Report 7

I.C. Methods used in this Report 8

II. Changing Concepts of Stakeholder Management .......................... 10

III. Content and Results of Business RegistrationReforms in 10 Countries ............................................................... 13

IV. The Dynamics of Stakeholder Involvement in 10 Countries ............ 18

IV.1. Who Were the Stakeholders in Business Registration Reform? 19

IV.2. Stakeholder Incentives, Opportunities, and Capacities inBusiness Registration Reform 22

IV.2.i. Stakeholder Incentives Opposing Reform 23

IV.2.ii. Stakeholder Incentives Supporting Reform 26

IV.3. Exogenous Factors Influencing Stakeholder Views 28

V. Designing the Stakeholder Management Strategy ......................... 31

V.1. Mapping Stakeholder Management Strategies Across Five Phases of Reform 31

V.2. Integrating the Five Phases 39

V.3. Strategies That Changed Stakeholder Views Toward More Pro-reform Stances 39

VI. Lessons Learned About Stakeholder Management Strategy:The Competition for Policy Outcomes ............................................ 45

VII. Stakeholder Management Strategy Recommendations ................. 48

VII.1. Recommendations on Principles and Strategy of Stakeholder Management 48

VII.2. Good Stakeholder Management Practices in Five Phases of Reform 59

Annex 1: Criteria for Choosing Case Studies in BusinessRegistration Reform ............................................................ 65

Annex 2: Actions Taken by Reformers That Positively InfluencedStakeholders (During the Five Phases of Reform) ...................67

Annex 3: Content of Business Registration Reforms Before and After ... 76

Annex 4: Map of Key Stakeholders in Business Registration Reforms .... 79

Annex 5: Pre-existing Factors Influencing Stakeholderstoward Reform ................................................................... 82


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Tables

1 Case Studies of Stakeholder Management in Business Registration ......................8

2 Summary of Reform Content and Design in 10 Countries Studied .....................13

3 Active Stakeholders in Business Registration Reform in 10 Countries ..................20

4 Summary of Stakeholders Over Five Phases of Reform .....................................215 Stakeholders Who Shifted to More Supportive or Less Opposing

Positions During the Reform ..........................................................................42

6 Bulgaria Messages and Strategies for Stakeholder Management ....................43

7 Linking Incentives With Stakeholder Management Strategies ............................44

Figures

1 Five Phases of Business Registration Reform ......................................................8

2 Risks of Reform Failure Due to Stakeholder Mixes ............................................46

3 Stakeholder Management Strategies Over Five Phases of Reform ......................60

Boxes

1 Summary of Business Registration Reforms in 10 Countries ...............................14

2 Principles of Reform Adopted by Serbia, June 2003 ........................................37

3 The Phased Strategy of Stakeholder Management in Ukraines Cities .................40

Acronyms/Abbreviations

CFE Centre de Formalits des Enterprises (France)

CIEM Central Institute for Economic Management (Vietnam)

CLRP Commercial Law Reform Program (Bulgaria)

COFEMER Federal Improvement Regulatory Reform Commission (Mexico)

EU European Union

FIAS Foreign Investment Advisory Service

IFC International Finance Corporation

IT Information Technology

NAFTA North American Free Trade Agreement

NGO Non-governmental organization

OECD Organisation for Economic Co-operation and DevelopmentOSS One-stop-shops

PPD Public-private dialogue

SARE Sistema de Apertura Rpida de Empresas (Mexico)

SCRPE The State Committee of Ukraine for Entrepreneurship Development

SIDA Swedish International Development Agency

SME Small and Medium Enterprises

USAID U.S. Agency for International Development


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(due to the high cost of the information tech-nology (IT) solutions passed on to registeringbusinesses).

However, key aspects of the reforms differed:

Some countries chose narrow reforms toregistration processes, while others chosebroader reforms to business licenses.Limiting the scope speeded reform byan average of two years. However, broaderreforms won better results in lower costs andtime. The question of whether a broaderscope and larger benefits justify delays in thereform is a strategic call for each reform. Butthe move from narrow to broad reforms is

probably unavoidable. Countries thatstarted with narrow registry reforms movedto broader reforms when unreformedlicensing activities threatened to undermineor reverse the benefits of registry reform.

Six out of 10 countries created wholly newregistration institutions to implement thenew system, while others improved theefficiency of existing systems. Countries thatimproved existing institutions had an

average 60 percent reduction in costs andtime, while countries that created newinstitutions reduced costs and time by76 percent. This is logical, since the scopefor re-engineering is greater when creatingnew institutions.

Results were not significantly differentbetween the countries that chose centralizedsolutions (registration controlled by a singlenational institution) and those that chose

decentralized solutions (multiple registries atdifferent levels of government).

Nine out of 10 countries put IT solutions atthe heart of their reforms. There is little signthat the use of IT strategies changed stake-holder dynamics, with one exception: ITsolutions seemed to generate conflict overcontrol of donor-provided IT financing.

build a winning coalition through the course ofa reform. In this positive view of change,stakeholder participation is endogenous toreform, rather than an exogenous constraint.

Who are the Stakeholders?Stakeholders in these reforms fell into sixcategories:

1. Political elites: Prime Ministers, Ministers,and Parliaments

2. Public administration: civil servants3. Regulated professionals: mostly notaries and

lawyers4. Private sector: a wide range of private

interests5. Civil society: non-governmental organizations

(NGOs) such as anti-corruption groups,and the independent media

6. International interests: donors, internationalinstitutions, and trade negotiators

No group of stakeholders held monolithic viewsof reform. Each category of active stakeholderscontained subgroups actively for and against thereform. This complex picture of stakeholders is

positive for reformers, because it illustrates thewide range of possible coalitions and commoninterests that can be influenced as part of thestakeholder management strategy. Competitionfor policy outcomes occurred among ministers,business interests, and even donors.

Linking the Design andResults of the Reforms

The goals and content of the reforms areremarkably similar among the 10 countries, atestament to an emerging consensus around theDoing Businessview of good business registra-tion. All 10 countries focused on reducing thecost, time, corruption, and discretion ofbusiness registration and licenses. Resultsranged from 95 percent reduction in time andcost to a 0.3 percent increase in one country


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4. Political Acceptance and Adoption.Atsome stage, the technocrat must enter thepolitical process to gain ministerial and/orparliamentary approval for the reform. Inthe countries where the political system was

carefully prepared by reformers, this phasewent smoothly. But in most countries therewas a heightened risk because opponentsattempted to use access to the politicalsphere to block reform. Early commitmentof political leadership to the reform seems tobe correlated with results. Countries thathad very early commitments from powerfulpolitical leaders had better results. Crediblepolitical backing intimidates potentialopponents, allowing reformers to go further

with reform solutions.

5. Implementation. The most risky phase wasimplementation, where stakeholders eitheropposed to reform or passive about it weresometimes able to control the reform, anddelay, undermine, or reverse the benefits.

Identifying the stakeholders and understandingtheir incentives are important in stakeholdermanagement, aspublic choicetheory states. But

the dynamics of reform did not always conformto public choice theories of regulation:

In only four of the 10 countries studied didthe private sector take an important role inadvocating for reform at early stages. Evenwhen the private sector had strong incentivesto support reform, its opportunitiesandcapacitiesfor participating were often weak.

In nine of the 10 countries, individuals

in the public sector itself were the leadersand main advocates of reform at the earlystages.

However, in every country, important privatesector interests became supportive of thereform as it proceeded. By the implementationphase of the reform, private sector interestswere strongly supportive in most countries.

Stakeholders and the Dynamicsof Reform

Stakeholders change over the reform path, andso must management strategies. To chart this

dynamism, the analysis deconstructs the reformprogress into five stages:

1. Idea Formulation and Reform Organiza-tion.In all 10 countries, information fromoutside the country in the form of reports,indicators, donor advice, and study tours wasa critical input that changed how stakeholdersviewed the benefits and costs of currentpractices. This information also empoweredthem to compete with prevailing ideas and

incentives. In the most successful countries,political leaders assigned responsibility for thereform to a reform-minded body indepen-dent of existing registration activities. Thisbody was thus able to take a longer-term andmore radical view of reform.

2. Solution Design.When reform began in the10 countries, there was no consensus or clearidea on the best solution. The solution designphase was the most structured of the five

reform phases. Stakeholders were carefullybrought into the process through a controlledstrategy of information disclosure, participa-tion, and consultation. The guiding principlefor designing stakeholder involvement waspracticality and control by reformers.

3. Broadening and Marketing of ReformIdeas.The keys to success are getting themessage right, targeting the right stakeholders,and choosing the right medium for communi-

cation. Stakeholders introduced to the reformin this stage are user groups and the generalpublic. Business associations are targeted inthis phase, since a rising tide of businessinterest and advocacy is a powerful forcesustaining reform. Stakeholders were reachedthrough structured communication, such asmedia campaigns and release of informationon the need for and benefits of reform.


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Recommendations

The report provides seven principal and manydetailed recommendations for managing stake-holder relations to improve results.

Successful countries increase:

incentives, by changing perceptions of thebenefits and costs of reform; by very selec-tive tactics of financing and reform design;and by using organized reform interests toincrease pressures on passive stakeholders.International comparisons and informationwere effective in all 10 countries in favorablychanging perceptions;

opportunities, by creating new, highly structuredmeans for stakeholders to participate in thereform process. The methods of participationchange through the reform process, dependingon the goals and institutions involved; and

capacities, by building analytical skills in thereform units and organization amongpreviously disorganized interests whoseincentives are pro-reform.

Recommendations are presented on successfulstrategies of stakeholder management in each ofthe five phases of reform. Each phase requires adifferent form of engagement with stakeholders information, access, influence, and organization because the conditions for entry into the policymarket are different in each phase.

The principal recommendations are:

1. Manage stakeholders by selectively andprogressively building pro-reformcoalitions. Consensus is not the rightprinciple for stakeholder management.

Most countries used the initial phases of thereform to build information and selectivelybuild pro-reform coalitions, before moving into

Donor pressures, such as program condi-tions, were important in a few cases whereinertia was high or specific political bottle-necks had to be overcome.

Conclusions: Build AlliesProgressively over Time

This analysis demonstrates how policy competi-tion for reform can be positively influenced bystrategies of stakeholder management. The toolsof stakeholder management are those thatpromote, for stakeholders who will benefit fromchange, easier entry and stronger position in themarket for public policy. In the most success-ful countries, the stakeholder management

strategy is based on the principle of acceleratingmomentum. This involves a small reform groupbuilding relationships with different allies overthe reform cycle to change incentives, opportu-nities, and capacities, progressively bringing inwider groups of stakeholders until a winningcoalition is created.

None of the 10 countries studied began with abroad strategy of consensus-building among allstakeholders. Rather, the pattern of successfulreformers is to build relationships with stake-holders in successive phases. Strategic choiceswere made about the timing and nature of theapproach to stakeholders, and broad consulta-tion occurred during the mid-point of thereform, if at all.

The risk of failure changes as the reform pro-gresses. The launch of the reform is low-riskbecause stakeholder involvement is small andtightly controlled. But as the reform progresses,more stakeholders become involved, and by theimplementation phase, the original reformers losemuch influence. This high-risk implementationphase is where several countries lost most of thebenefits of reform. Continued stakeholder man-agement through implementation is key tosuccess.


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implementation phase, particularly whenadministrative cultures and incentives arestrongly against achieving the purposes of thereform.

5. Help supportive stakeholders becomemore effective in advocating change.

Policy analysis capacities were built in reformunits and key ally groups to produce the infor-mation needed to drive the reform. Reformunits became more effective as they builtcapacities to collect and analyze information,and to communicate information to others.

6. Move as quickly as possible, balancing

the costs and benefits of expandingstakeholder participation in each phase.

The paradox inherent in the strategy is that,while stakeholder management takes time, delayis the enemy of reform. The primary power ofopponents of reform is to delay change, notblock it outright. Long delay underminesreformers and exhausts allies. Successful reform-ers sidestep and move past resistance by buildingcoalitions for change.

7. Change the reform scope, speed, contentand compensation as needed to assemblea winning coalition.

Right-sizing the reform is a key early decision.How much should reformers take on, given thelikely resistance and the time needed to delivergood results? Another determinant of successfulreform is the skill of reformers in knowing whenand how to accommodate concerns, without

sacrificing too many benefits. None of thecountries explicitly paid financial compensationfor losses due to the reform. But indirect formsof compensation softened opposition.

broader information dissemination. In the bestexamples, strategic expansion of successive layersof supportive stakeholders created a momentumof reform that became self-sustaining. Creating aconsensus for change is unrealistic, particularly

during the early stages. Successful reformersmove in deliberate phases to generate more alliesuntil a critical mass is reached.

2. Structure direct participation of keystakeholders to produce concrete,practical opportunities for dialogue.

Rather than mass communications emanatingfrom a distant reformer, successful reformersorganize a wide variety of concrete opportunities

where key stakeholders can sit down in smallergroups for more organized and practical dialogue.

3. Generate and communicate factual andcredible information about the costs ofthe status quo and the benefits of reform.

Information about the benefits and costs ofchange is the most powerful weapon for reform-ers seeking to build coalitions for change.Supporters were energized mostly by precise,

credible information explaining the new system,the rationale for change, and the experiences ofother countries by comparative indicators suchas the Doing Businessindicators. Before a reformis marketed beyond a small group of reformers,it is important to develop a clear solution thatpeople can easily understand to mobilize sup-porters and reduce unwarranted fears of change.

4. Create new institutions with incentivesto perform for clients, rather than

re-engineering existing institutions.

Creating new institutions to register businesseseffectively prevents capture of the reform in the


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I. PURPOSE, METHOD, AND SCOPE

OF THE REPORT

unleash reform energies amongallies, and reduce the influence ofgroups resisting change? How canthe paralyzing dynamics of interest-group politics2 become the en-abling dynamics of interest group

politics? This report was written asa guide for reformers in governments and donorinstitutions who wish to reduce the risks ofenabling environment reforms through morestrategic and precise stakeholder management.

The role of stakeholders in the economic policyof reform has become of greater interest in thepast few years. This is largely because so manyreforms to the business-enabling environmenthave produced disappointing results, stimulating

demands to do better and increasing researchinto the causes of reform failures. Yet questionsabout interest group dynamics are nothing new.The practical aspects of these questions are quite

Market-oriented reforms areaccelerating today in parts ofdomestic policy previously un-touched by liberalization. Reformis reaching into a wide range ofregulations, formalities, and

associated procedures that havelong been controlled by small groups that haveexploited fragmented governmental structures.Failures of accountability have created andsustained professional and informationmonopolies, or have used a myriad of otherstrategies to generate private benefits frompublic functions.

As market reform expands into new areas, theintense conflicts inherent in the reform process

are better recognized. Successful reformers arebecoming more capable of managing conflict toachieve their goals. Ideals and bland recommen-dations about achieving social consensus onreform are giving way to more realistic questionsabout how reformers can manage conflictinginterests to reduce the likelihood that reform willbe blocked. In particular, how can reformers

2 Scott Jacobs and Jacqueline Coolidge (2006)ReducingAdministrative Barriers to Investment, Foreign InvestmentAdvisory Service, Washington, D.C., p. 18.

This report exploreshow reformers canmanage stakeholdersthrough strategies toexpand and sustain thecapacity for change in

the political economy.


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I.B. Scope of the Report

The report is based on reforms affecting aparticular government function (businessregistration) in a selected group of 10 countries.It is further informed by work published byothers in this field.

Business registration has become a popularsubject of reform due in large part to the workof Hernando de Soto on the informal economyin Peru4 and the influence of the Doing Businessindicators published since 2002 by the IFC.However, reform of business registration andother licensing processes has been underway inOECD countries since the early 1990s. Thesereforms were implemented due to recognitionthat such procedures can create barriers to entrythat reduce entry into markets and movementinto other markets, and hence inhibit economy-wide investment, competition, productivitygains, and innovation. Business registrationreform has become a truly global phenomenon.

Business registration reform has another aspectthat is important to this report: It is a small andfairly simple reform affecting a clearly defined setof interests, and hence the stakeholder incentives

should be more clearly defined and managed.

A critical task in this report was the selection ofcases to study. Using the criteria described inAnnex 1, a group of potential cases was identi-fied and narrowed down to the set of 10 casestudies, distributed across regions and phases ofdevelopment, that were selected for this report.The 10 cases are identified in Table 1. For eachcountry, a case study was prepared using astandardized structure to assess the context of

the reform, identify stakeholders, identify howstakeholder participation changed over thecourse of the reform, and identify actions takenby reformers that influenced stakeholderparticipation.

familiar inside governments, where the day-to-day clash of interests is managed by skillfulofficials and politicians. The political economyof reform has been at the core of theories ofregulation for at least half a century of develop-

ment of research on public choice.3

Compara-tive economic research in the past 10 years hasincreasingly focused on the political economyof a reform to explain differences in reformsbetween countries. Indeed, the political econ-omy of reform has often become the exogenousX factor to which is attributed any unex-plained variance in multi-country, multi-factorregression analysis.

What is new, however, is the treatment of

interest group dynamics not as an X factor oreven a constraint around which reform isdesigned and limited, but instead as a factor tobe influenced by the reform itself. That is,interest group dynamics are becoming endogenousrather than exogenousto reform strategies. Thischange enormously expands the potential spacefor reform.

I.A. Purpose of this Report

This report focuses on one aspect of the politicaleconomy of reform. Using case studies from10 countries, it examines how various interests(classified into groups called stakeholders)participated in reform of the business registrationfunctions of government. Such participationwas not by chance, but was often initiated orinfluenced by specific actions taken by reformers.The analysis attempts to identify patterns of suchactions and stakeholder responses to determinehow reformers can purposefully managestakeholders through various strategies to expandand sustain the capacity for change within thepolitical economy. It then attempts to drawgeneralized conclusions from these cases thatmight be useful to reformers managing stake-holder interests in other reforms and countries.

3 Elaborated further through Neo-Institutional Economics.4 De Soto, Hernando (1989) The Other Path: The Invisible

Revolution in the Third World, (HarperCollins), New York.


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I.C. Methods used in this Report

This report analyzes stakeholder management as

a dynamic interaction in which stakeholderinvolvement and reform management strategieschange over the course of the reform process.To understand this changing strategy, it is usefulto deconstruct the reform process into specificphases that can be compared across 10 casestudies. The patterns of reform shown in thecase studies suggest that the typical reformprocess for business registration is divided intofive overlapping phases, as shown in Figure 1.

After identifying the stakeholders and incentivesin each country, the analysis maps the stake-holder management strategies over the fivephases of the reform to provide a dynamic view.

This detailed mapping of the 10 cases permits usto be more precise about what happens at eachphase of the reform with respect to managing

stakeholders. These phases can be described asfollows:

1. Idea formation and reform organization.In this phase, the concepts of reform andbetter results are introduced into thecountry through some mechanism. The ideaformation phase is mostly driven by newinformation or by changes in the externalcontext affecting business registration. Acore of reformers accepts change. Reformers

energized by ideas begin to organize them-selves in ways that permit them to challengethe existing system and to expand the circleof allies. Ideas empower organizations.

TABLE 1

Case Studies of Stakeholder Management in Business Registration

Europe and

Eastern Europe

Former

Soviet Union Middle East Latin America Africa Asia

OECD France Turkey Mexico

Emerging markets Bulgaria Jordan

Lower-tier Serbia Ukraine Tanzania IndonesiaVietnam

FIGURE 1

Five Phases of Business Registration Reform

Solution design

Idea formation and reform

organization

Political acceptance andadoption

Implementation

Broadening support,marketing reform


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2. Solution design.In this phase, the reform-ers develop concrete proposals for change,based on analysis of the existingsystem and a more systematicassessment of options and

experiences in other countries.Often, the solution design phaseinvolves a broader group ofstakeholders as expertise andinfluence are increasinglybrought into the reform. This phase isimportant to building ownership in keystakeholders. Critical decisions are made hereabout the scope and nature of the reform.

3. Broadening and marketing of reform

ideas. In this phase, the reform proposalsare introduced into a broader arenainvolving other stakeholders, the publicthrough the media, or political interests.This phase is usually intended to improvethe context for political adoption of thereform by overcoming the monopoly oninformation by the existing system and bymarketing a positive vision of the reformand its benefits.

4. Political acceptance and adoption. Inthis phase, the reform is brought to thepolitical level for consideration and adop-tion. The product of the political adoptionin most countries is, first, adoption of thereform mandate or principles, and, later,adoption of new instruments, such as alaw. This phase requires a period of inter-action with a broader group of politicalactors, and often provides opportunitiesfor those against the reform to intervene

through lengthy and complex political andlegislative procedures.

5. Implementation. Once formally adopted,the final phase is implementing reform.

This is a risky phase since attentionto reform and stakeholder manage-ment usually weakens. If the reform

does not create new institutions,implementation brings reform fullcircle back into the control of thosewho implement the existing system,where reformers have the least

capacity for influence. Even where newinstitutions are created, other interests canundermine and reverse the benefits of thereform.

The analysis in this report is organized by these

five phases of the reform to approximate thechanging character of the reform process overtime. The attempt to show changing patterns ofstakeholder involvement in different phases ofthe reform is, in fact, a particular contributionof this report.

As shown in Figure 1, these phases are notnecessarily sequential, and in most cases theyshould not be. It is desirable to approach thepolitical level at an early phase in some countries

(such as when a powerful Minister championsthe reform from the beginning, as in Jordan andFrance, or a new reform-minded Prime Ministertakes power, as in Vietnam), or to overlap somephases, such as the marketing of reform withsolution design. The relevant point about thesephases for stakeholder management is that eachphase requires the involvement of a differentmix of stakeholders and different stakeholdermanagement strategies. In Section V, this reportidentifies the actions taken to successfully

manage stakeholders in each of the five phases ofthe reform.

The analysis in thisreport is organized bythe fi ve phases of the

reform to approximatethe changing characterof the reform processover time.


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II. CHANGING CONCEPTS OF


5 This approach is similar to the model explained in WorldBank PremNotes (2004) Operationalizing politicalanalysis: The Expected Utility Stakeholder Model andgovernance reforms, No. 95, November.

6 World Bank (2005) World Development Report 2005: aBetter Investment Climate for Everyone, Washington, D.C.

7 Douglass C. North (24 June 2003) Understanding theProcess of Economic Change, Forum Series on the Role ofInstitutions in Promoting Economic Growth, WashingtonUniversity, St. Louis, Mercatus Center at George MasonUniversity and The IRIS Center.

This report focuses on stakeholder involvementin reforms as a dynamic learning processbycentering the analysis on the five phases ofreform. It seeks to clarify the evolving flow ofstakeholder involvement through a dynamic andproactive reform process, rather than focusing

on a static coalition at a point in time, such asthe launch of the reform.5

Much has been written about the role of stake-holders in reform, and many reports have reachedsome variation of the recommendation to engagestakeholders constructively in reform. Most ofthis literature, rooted solidly in public choicetheories of public policy, focuses on stakeholdersas inherent constraintsto reform, that is, asself-interested special interests that enlightened

reformers must seek to overcome in the largerpublic interest which the public is not organizedto protect. Regulation from this perspectivebecomes simply an instrument to create rents.

For example, the 2005 World Development Report6represents the mainstream when it warns that:

Investment climate policies are an enticingtarget for rent-seeking by firms, officials, andother interest groups.

But it is increasingly recognized that interestgroups can also profit from reforms, that is, thatreform does not have to be driven by selflesspublic interest, but can be effectively supportedby self-interest in change. Douglass North haswritten that reform actually comes from specialinterest attempts to capture rents: Entrepreneursenact policies to improve their competitivepositions, resulting in alterations of the institu-tional matrix.7 This more interesting view

provides new opportunities for reformers to notonly overcome self-interest, but to exploit


19/9211

self-interest among a wide diversityof stakeholders with very differentperspectives on the gains and lossesof change. Indeed, reformers can usethe natural process of competition to

push reform. North observes,Change is continually occurring, although therate of change will depend on the degree ofcompetition among organizations and theirentrepreneurs.

The role of reformers could be to use thereform process to create new forms ofcompetition among stakeholders to acceleratechange. This way, the reform process becomesa catalyst for empowering groups to compete

more forcefully for their own interests. Re-formers are successful to the extent that theycreate new conditions for competition amongstakeholders.

Another important aspect about thisapproach is that stakeholder interests areunderstood not as a predetermined clash ofinterests at any point in time which is astatic view but as a strategic process oflearning, adjusting, and influencing reform by

a range of interests guided by changingperceptions of the benefits and costs ofchange. That is, stakeholder interests are notrigid through time. This means that cleverreformers might be able to change perceptionsof benefits and costs, even in a politicaleconomy highly resistant to change, to create acoalition sufficiently competitive to win thereform.

This report accepts the hypothesis that

stakeholder interests are not necessarilyexogenous factors that constrain and limitreform, but can be endogenous factors shapedby the reform process itself. In other words,management of stakeholders is internalized aspart of the reform strategy. This implicitunderstanding is not unique here, but isemerging more frequently in World Bankreports. FIAS has written, for example, that

stakeholder communication is adynamic strategy of change:

Government activities to discuss anddesign reforms should be seen in the

wider context of changing the politicaleconomy inside the country, releasing reformenergies, and reinforcing a growing consensusabout market reform.8

A recent report on public-private dialogue (PPD)takes up the same theme of using relations withstakeholders as a way to intensify useful competi-tion among groups with different gains and losses:

The main potential benefits of PPD includefacilitating investment climate reforms bysupporting champions for reform, creatingmomentum, and accelerating the reformprocess. Public-private dialogue has a range ofpotential impacts, but it does not achieveanything on its own it works by facilitating,accelerating, or cementing other ongoinginitiatives, ones which without the boost ofstakeholder pressure would falter or fail.9

These two reports implicitly accept the notion ofstakeholder participation as an outcome of reform,not only as an input. The obvious question thatarises is how can groups be empowered to competemore forcefully in the policy process? Theoreti-cally, stakeholder participation is determined bythree factors: incentives, opportunitiesand capacities.

Incentives: Stakeholders respond to a range ofincentives that arise from their perceptionsabout the benefits and costs of change.Sometimes these benefits and costs are

personal and sometimes they are professionalviews about what is best for the country.Perceptions about the benefits and costs of

8 Jacobs and Coolidge (2006).9 Benjamin Herzberg and Andrew Wright (2006) The PPD

Handbook: A Toolkit for Business Environment Reformers:Operational Guidelines for the Charter of Good Practice inUsing Public-Private Dialogue for Private Sector Development,supported by DFID, World Bank, IFC, OECDDevelopment Center, at www.publicprivatedialogue.org.

Reformers are successfulto the extent that theycreate new conditionsfor competition amongstakeholders.


20/9212

reform can change over time, andtherefore this factor seems to bewithin the scope of the stake-holder management strategy.

Opportunities and capacities:Stakeholders respond accordingto the opportunities and capaci-ties they have. Stakeholders with strongincentives but strong barriers to engagement,such as disorganized SME sectors, are oftenunderrepresented in reforms, whatever theirgains from them. Opportunities and capaci-ties can also change over time, and therefore,this factor also seems to be within the scopeof the stakeholder management strategy.

The capacity to organize was clear in theBulgarian case. Business associations werecompeting and divided at the beginning ofthe reform, and were unwilling to join abroad coalition. During the reform, underdonor encouragement, they learned that theirviews on the issue were similar, foundmethods to cooperate, and at the end of thereform even met jointly with the president toforce a crucial decision to proceed.

Management ofincentives, opportunities, andcapacitiesis, therefore, likely to be at the heart ofstakeholder management. This is a practicalagenda. Management of stakeholder interestsinvolves empowerment (such as building advocacycapacities) of weak interests whose incentives arepro-reform. It may involve changing the perceivedself-interest of groups already active, or changingthe views of the problem or the solution, risks orbenefits of change, or costs of non-reform. Itinvolves discrediting self-serving arguments against

reform, or bringing in new political or civil society

actors to provide insights, isolatingresisting groups or even changing thedrivers of reform. It might involvemeans of compensation or penaliz-ing.10 It might involve what has been

called strategic communication toreduce political risk and promoteacceptance of reform.

This dynamic approach to stakeholder manage-ment also helps in identifying relevant stake-holders, because it is different from viewingstakeholders as anyone who is affected by areform. Similarly, the World Bank ParticipationGroup defined participation as a process bywhich people gain some measure of influence on

development decisions, and not simply involve-ment in the implementation or benefits of adevelopment activity. In the case studies ofbusiness registration reform on which thisanalysis is based, stakeholders are those who caninfluence the outcome of a reform process.

Then, stakeholder management is the set ofstrategies used to change incentives, opportunities,and capacities of competing interests who caninfluence the outcome of a reform process to build a

winning coalition through the course of a reform.The strategy aims to alter the influences onreform by changing the incentives, capacities,and opportunities for competition, and there-fore the involvement of stakeholders, to changethe outcome.

This concept of stakeholder management ismore strategic and proactive than concepts suchas citizen participation and policy dialogue.These tools might well be part of a strategy of

stakeholder management, but those tools do notadequately account for complex situations inwhich agendas oppose, interests compete, andreform is actively or passively resisted by thosemost able to participate. In other words, this paperfocuses on the need for a stakeholder strategy inwhich a range of tools is used more effectively overthe course of a changing reform situation.

10 See the interesting discussions of this in Sherrie A.Kossoudji (2001) Strategies of Stakeholder Analysis toImprove Participation and Project Performance: Conceptsand Field Techniques in Robert R. Bianchi and Sherrie

A. Kossoudji, Interest Groups and Organizations asStakeholders, Social Development Paper Number 35,

June 2001, World Bank.

Management ofincentives, opportunities,and capacities is likelyto be at the heart ofstakeholder manage-ment. This is a practical

agenda.


21/9213

III. CONTENT AND RESULTS OF

BUSINESS REGISTRATION

REFORMS IN 10 COUNTRIES

To understand the role of stakeholders in the10 countries studied, it is useful to summarizethe diversity of reforms carried out there. Thereforms are briefly summarized in Box 1.Content, system design, and results are summa-rized in Table 2. For each of the 10 countries,

Annex 3 provides more detail in comparing thepre-reform situation with the design of the new

system, and the results of the reform if they havebeen credibly measured.

The goals and the content of the reforms areremarkably similar among the 10 countries,which is a testament to an emerging interna-

tional consensus around the Doing Businessdefinition of good business registration. All

TABLE 2

Summary of Reform Content and Design in 10 Countries Studied

Bu

lgaria

France

Indonesia

Jordan

Mexico

Serbia

Tanzania

Turkey

Ukraine

Vietnam

Scope of reform (Y means reformbroadened beyond businessregistration to include relatedlicenses and formalities)

Y N N Y Y N N Y Y Y

Duration of reform (years) 4 3 2 6 6 5 5 5 3 8

Registry institutions (E = improvedexisting institutions, N = creatednew registries)

N E E N N N E N N E

Use of IT solutions Y Y Y Y Y Y Y Y Y N

% Results of reform (average of %reduction in time and cost ofregistration, 0 = still beingimplemented)

0 89 +0.3 78 95 82 0 83 41 90


22/92


23/9215

10 countries focused on reducing the cost, time,and discretion involved in business registrationand even related licenses by following similarstrategies, which included:

increasing user-friendliness of registrationpractices by standardizing registrationprocedures, introducing electronic filing andreceipt of documents, and single-windowoperations;

improving implementation of registrationpractices by centralizing the business registerunder a single authority or more account-able and efficient networks of institutions;

using silence is consent policies; and

improving transparency of marketinformation about businesses by makingthe business register database electronicand accessible over the Internet.

However, key aspects of the reforms differ,notably the scope of reform, the length of timeof the reform, the processes and institutionsinvolved, and the final results. Some of thesereform aspects can be linked to results. Theconclusions section of this report attempts torelate results to stakeholder managementstrategies.

Almost all of the countries saw some improve-ment in the business environment, except forIndonesia. In Indonesia, the results of thereform seem to be an increase in time and costs,due to the high costs and low reliability of theIT system chosen for the new registrationprocess. The increase in official costs largelyoffset or exceeded the savings due to less corrup-tion, which caused some initial disappointmentin the business community. This was com-pounded by the fact that the IT system did notwork well, so time savings were also less thanexpected. Stakeholders were not silent about thisperformance: business associations complainedto the relevant ministry, and asked for more

investment in the quality of supporting facilities,such as human resources and legal support.Indonesia is still sorting out these problems.

The scope of reform is a critical design decision.

The reforms in six of the 10 countries wentbeyond business registration to include other exantebusiness licenses, which had the potentialto greatly expand the benefits of reform. Fourcountries, however, limited the scope of thereform to business registration itself. Limitingthe scope was a strategic issue closely associatedwith the risks of stakeholder management andthe political time horizon for reform. Limitingthe scope of the reform to a single function business registration reduced the number of

stakeholders, and reduced the time needed tocomplete the reform to an average of 3.3 years,compared to 5.6 years on average for broaderreforms that included other business licenses.However, the broader reforms reduced theaverage costs and time needed to register by77.4 percent, while the narrower reformsreduced costs and time by an average of57 percent.

The case studies do not answer the question of

whether the broader scope and its larger benefitsjustified the higher investment in reform andthe delay in producing benefits. This is a strate-gic call that can be made only in specific cases.

In France, the narrower scope was a way tomanage the risks of failure, given the evidence ofpotentially strong resistance against broad reform:

According to the author of the French casestudy, reformers were quick to back down

when they realized that there was strongresistance to the proposal to transformbusiness registration into a single processwith social security, pension and taxauthorities through a unique declarationdue to the complexity of the undertaking.At the end, the mechanism to make theCentre de Formalits des Enterprises(CFE) function as a one-stop shop for all


24/9216

social partners was abandoned.The precedent of spectacularfailures of broad reforms and theneed for quick wins for com-pensating business support after

an elections victory pushed thegovernment toward a strategy oftargeted reforms that could buildtraction for larger initiatives later.

Likewise, Tanzanian reformers decided to reformthe general business registration regime first, andleave a host of specific regulatory licensingregimes for a later phase. This decision permit-ted business registration reforms to move ahead,even though it took four years to reach the phase

of legal adoption. However, waiting to reformthe specific licensing regimes risked undermin-ing and reversing the benefits of the generalreform, as local governments could react strate-gically to replace the lost revenues. This wouldmean a loss of support from stakeholders. Inretrospect, the case study author recommendsthat the two reforms should have been launchedside by side: Separating the two sets of reformsmay be useful in the context of buildingstakeholder understanding and management.

However, once this has been accomplished,actual implementation should be in parallel.

Jordan and Tanzania, two countries that startedwith narrower registry reforms, moved tobroader reforms when it became clear thatunreformed licensing practices threatened toundermine the benefits of registry reform. InSerbia, failure to go beyond a narrow reform ofbusiness registration meant that gains on theDoing Businessrankings were rapidly lost as

other procedures added time and cost:

(In 2005) the country of Serbia andMontenegro was in 43rd place among 155countries. However . . . in 2006, it fell tothe 60th place. The SBRA [new registry]further improved its efficiency, and it nowtakes an average of three days to register an

LLC. But, after registering in theSBRA, businesses still have toapproach other governmentauthorities to complete theregistration procedure (such as the

Public Revenue Office to obtain atax number, the PIB) as well asboth the pension and healthinsurance bureaus to register forsocial security).

It seems reasonable to conclude that broaderlicensing reform is probably inescapable either as part of the original reform or as alater phase to safeguard and extend thebenefits of a more efficient registry. A good

stakeholder management strategy could be away to manage the risks of broader reforms,thereby getting more results from reforminvestments.

Institutional designs were also important. Six outof the 10 countries created wholly new businessregistration institutions to implement the newregistration system, while the other four usedvarious approaches to improve the efficiency ofexisting systems:

New institutions: Bulgaria, Serbia, andUkraine created new professional registrybodies, while Jordan, Mexico, and Turkeybuilt broader one-stop shops.

Improving existing institutions: The Frenchreforms consisted mostly of changing anex anteauthorization into a simple ex postnotification. Indonesia permitted registrationonline rather than visiting the ministry.

Tanzania streamlined and unified the existingsystem through an IT-based registry joining112 local governments. Vietnam streamlinedand clarified the registration and licensingsystem.

The institutional design of the reform seemed toaffect results. The countries that improved

Broader licensingreform is probablyinescapable eitheras part of the originalreform or as a laterphase to safeguard

and extend the benefi tsof a more effi cientregistry.


25/9217

existing institutions had an average 60 percentreduction in costs and time, while countries thatcreated wholly new institutions reduced costsand time by an average of 76 percent. This islogical, since the scope for re-engineering is

greater when creating new institutions. More-over, according to the case studies, results weremost easily reversed in Indonesia and Vietnam,which in hindsight seems predictable since thereform did not substantially change the underly-ing incentives of the system. However, the timeneeded for the two kinds of reforms was notvery different: 4.3 years for improving existingsystems compared to 5 years to create newsystems. A tentative conclusion is that creatingnew institutions is preferable from a benefit-cost

viewpoint than trying to fix existing institutions.

Most countries centralized the new system at thenational level to ensure a standardized approachacross the country. However, four countries(Mexico, Ukraine, Tanzania, and Turkey)pursued a decentralized system mostly imple-mented at the local level, but under supervisionor standards from the national level. In Turkey,for example, registration is done under standard-ized procedures by Provincial Trade Registration

offices working under local Trade or IndustryChambers. The results were not significantly

different between the countries that chosecentralized solutions and those that chosedecentralized solutions. However, consultationand coordination mechanisms with local gov-ernments in Mexico and Turkey were among the

most developed of the 10 countries, suggestingthat the costs of stakeholder management arelikely to increase as system design becomes moredecentralized.

Nine out of the 10 countries put IT solutions atthe very heart of their reforms, while onlyVietnam did not. The stakeholder implicationsof IT solutions are interesting, because ITsolutions replace individual tasks, decisions, anddiscretion that create opportunities for corrup-

tion and rents. For that reason, one might expectthat reforms involving IT would be the moststrongly opposed by those who gain rents. ITsolutions also radically change the relationshipbetween the public service and the public,because the transparency and standardization ofthe service increase. One might also expect ITsolutions would be strongly supported by thebeneficiaries of reform. However, there is littlesign that the use of IT strategies in itself substan-tially changed the stakeholder dynamics in these

countries, with one exception: the use of ITseemed to generate conflict over IT financing.


26/9218

IV. THE DYNAMICS OF STAKEHOLDER

INVOLVEMENT IN 10 COUNTRIES

The roles of stakeholders can be describedagainst this backdrop of the reform content,system design, and results. This section maps thestakeholders that were involved in the reformsand their incentives. The identification ofstakeholders is based on the principle, stated

above, that stakeholders are those who canactively influence the outcome of a reformprocess.

It is worth noting from the outset that stake-holder management in these 10 countries haddeeply cultural aspects, and opportunities forparticipation were influenced both by the largerculture of the society, and the administrativecultures in the public sector. In most developingcountries, there are weak traditions of openness

and stakeholder participation in public policy.On the contrary, there are typically long-standing traditions of information monopolizationand secrecy, and hostile and suspicious relationsbetween the public and the business sectors. InSerbia at the time, it was illegal to even providea draft law outside of the Council of Ministers(although this regulation was fortunately

ignored). The author of the Bulgarian casedescribed this culture and its implications well:

An additional difficulty was. . . . the cultureof secrecy which prevented public institutionsfrom interacting freely with other stakehold-

ers. The traditional way of designing reformin Bulgaria involved no public discussions,and an almost complete block on informationfor the media. . . . Clearly, the traditionalBulgarian approach to reform strengthenedthe insiders because they could more easilycontrol the reform, while the stakeholdermanagement approach to reform strength-ened the reformers and the outsiders becausethey had much more access to informationand could exert their influence more easily.

Cultures of secrecy were already changing,however, an external factor that greatly helpedreformers. Stakeholder participation in somecountries benefited from an increase in opportu-nities stemming from a wider trend toward moreopen government, which was creating moresympathy for reforms based on getting results


27/9219

and reducing corruption. The Indonesian caseauthor noted that opportunities for stakeholdersto influence public policies were increasing bothin the policy development and monitoring phases:

The reformation era in Indonesia had createda more open administration system inIndonesia. Stakeholders relating to govern-ment administration were becoming moreconcerned with the quality of governmentservices. Business practitioners had morespace to express their views on governmentpolicies. In addition, private stakeholderswere becoming more active in monitoring thegovernment.

Similarly, according to the author of Mexicoscase study:

An aspect that indirectly helped to boost theimplementation of SARE around the country,and helped to shape stakeholders views, wasthe increased accountability of electedofficials derived from the renewed politicalenvironment, i.e. a more open and pluralistpolitical system.

The trend toward more government opennessand accountability is an essential context forstakeholder management, because it means thatthe underlying relationships between the stateand civil society are changing to permit easieraccess and entry for competing interests. Inother words, barriers to entry are falling andallowing more policy competition. In manycases, the new entrants, such as SMEs, havelittle capacity to participate, but have strongpositive incentives. The implications for

stakeholder management are clear.

Selling these reforms is difficult for anotherreason. In most of these countries, reformershad not only to overcome the immediateinterests in favor of the status quo, but also tocreate innovative and unfamiliar approaches topublic policy development that were, in

themselves, seen as threatening to wider groupsof insiders. Reforms based on new principles ofgovernance can create resistance even amonggroups not directly benefiting from the statusquo. Stakeholder management in many coun-

tries, then, involves a double-barreled challengeof changing a specific public service andcreating a new standard for openness in thepublic sector.

IV.1. Who Were the Stakeholders inBusiness Registration Reform?

Most studies of stakeholder involvement beginby mapping out the stakeholders involved in

reform. The key stakeholders are summarized inTable 3, which is based on a more detaileddescription for each of the 10 countries includedinAnnex 4. Mapping the stakeholders is neededas a starting point, but it is insufficient for thisreport because a map is static, and does notassist in predicting how management strategieswill change the stakeholder map over time. Adynamic phase is added by mapping the chang-ing primary stakeholders over the five phases ofthe reform process in Table 4.

Stakeholders in these reforms fell into sixcategories:

1. Political elites: prime ministers andministers

2. Public administration: all other public sectorinterests from a wide range of ministries andagencies

3. Regulated professionals: primarily notariesand lawyers

4. Private sector: a wide range of privateinterests, usually represented by businessassociations

5. Civil society: NGOs such as anti-corruptiongroups, as well as academic think tanks

6. International interests: donors and tradenegotiators, as well as European Commissioninterests for countries in the accession process


28/9220

coalitions and common interests that can beinfluenced as part of the stakeholder manage-ment strategy. In fact, none of the reforms wascaptured at the outset by any one group.Competition for policy outcomes occurredamong ministers, business interests, and evendonors.

Table 3 shows that no group of stakeholders ismonolithic. In fact, each category of activestakeholders had subgroups opposed to eachother. Each category had groups actively forand against the reform. This complex pictureof stakeholders is positive for reformers,because it illustrates the wide range of possible

TABLE 3

Active Stakeholders in Business Registration Reform in 10 CountriesActivestakeholders

For Against

Political elites New political leaders fighting economicproblems such as unemployment andcompetitiveness

Ministers of economic development and relatedfields

Ministers/politicians who want to respond tocomplaints from businesses/be seen as loyal topolitical leadership from the top

Ministers/politicians fighting corruption City mayors and governors seeing direct rewards

for their cities/provinces in increasing investmentand SME creation

Politicians with constituents who will lose fromthe reform

Politicians in opposition parties who opposefor strategic reasons

Politicians with ideological positions againstmarket opening and private sector

Politicians using current systems for advantage,such as by creating hidden businesses

Publicadministration

Reform units charged with business environmentreforms

Ministries charged with economic developmentand trade

Think tanks charged with economic policyresearch

Tax departments that wanted to increase taxrevenues by increasing number of businessesand reducing tax evasion through unregisteredbusinesses

Ministries, agencies, and inspectors losingstaff, revenues (legitimate and illegitimate), andpowers to the new registry or to st reamlining

Ministries closely connected to sectors orprofessions that might lose from reform

Local governments employing staff under theold system

Tax departments unwilling to give up separatetax numbers

Regulatedprofessions

Accountants and notaries who saw that volumeof work would increase as more businessesregistered

Judges, law professors and lawyers whoparticipated in and designed the currentsystem

Notaries worried about streamliningpaperwork

Private sector Businesses in sectors seeing rapid change due tointensifying competitiveness in an economyopening up to the world

Trade associations (often getting stronger as thereform progressed), both large and SME sectors

Foreign investors

Dominant firms used to special privileges Companies with private electronic databases

or selling registry information Companies, such as banks, that used registry

controls in their lending programs

Civil society NGOS against corruption Mass media supporting principles of develop-

ment, good governance, and lower corruption

Internationalinterests(donors, tradenegotiators)

Donors encouraging private sectordevelopment (PSD) and marketopenness

Donors whose national model was notchosen in the reform


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This complexity shows the valueof a systematic mapping, bothstatic and dynamic, of stakeholderinterests at the outset and during areform. It also suggests that

successful stakeholder manage-ment should not exclude anyinterest a priori, but should seekallies among all groups. Thecomplexity of stakeholder interestsprovides many opportunities forreformers to build winning coalitions. Forexample, the Bulgarian case showed that strongopponents of reform can be weakened bysplitting their ranks: Some of the most influen-tial opponents were law professors, who believed

they were protecting the interests of society. . . .Because of their high status they were the mostvisible group at the start of the reform. Gradu-ally, the reformers managed to reduce theirinfluence by finding more progressive membersof the legal community who were able to disarmthe arguments of their colleagues.

One of the interesting points about Table 3 isthat it reveals the wide variety of groups thatbenefit from the status quo. Business registration

seems like a simple administrative task, but itgenerates many kinds of spin-offs (called rentsby economists) from jobs to revenues to

information resources to servicesin notary and legal professions tocreation of shadow companiesthat can be used for illicit activi-ties. Protection of all of these

benefits produced resistanceduring the reforms.

The only category of stakeholdersuniformly in favor of reform wascivil society, that is, NGOs and

the media. In none of the 10 countries did civilsociety institutions play an important role inopposing business registration reform. Thisillustrates the pro-reform sentiment that hasemerged in most countries, due in large part to

concern about government corruption. Mediaand NGO attention on reform focused primar-ily on fighting corruption. The connectionwith registration reform was made quickly andcredibly in most of the studied countries. InBulgaria, for example, the Center for the Studyof Democracy (an NGO that specialized inanti-corruption issues) generated the firstserious demands for reform of businessregistration.

The static map in Table 3 should be furtherspecified to show the changing mix of stakehold-ers over the five phases of reform. Table 4 below

TABLE 4

Summary of Stakeholders Over Five Phases of ReformPhase of Reform Key Stakeholders

Idea formulation and reformorganization

New political leaders, donors, technocratic reformers in economic or research areas,highly organized business interests

Solution design Key ministers, donors, technocratic reformers working with a broader group ofgovernment officials, cooperative practitioners, highly organized business interests

Broadening and marketing of reformideas

Business groups more broadly, media, NGOs working on anti-corruption, wider groupsof politicians

Political acceptance and adoption Political institutions, targeted coalition building to swing passive or neutral politicians,media

Implementation Public administrations, monitoring by key stakeholders to keep reform on course, media

Each category of stakeholderhad groups actively for andagainst the reform. Thisillustrates the wide range ofpossible coalitions andcommon interests that can be

infl uenced as part of thestakeholder managementstrategy. None of the reformswas captured at the outsetby any one group.


30/9222

expected to oppose reform, while the privatesector is expected to support reform, but thereality is more complex. As Table 3 shows,neither the public sector nor the private sectorwas monolithic in supporting or opposing

reform.

In only four of the 10 countries (Turkey, France,Tanzania, Mexico) did the private sector take animportant role in advocating for reform at initialand early stages. In the other six countries, theprivate sector was either too disorganized to beinfluential at the start of the reform, too intimi-dated by the public sector to be critical, orimportant parts of the private sector activelyopposed reform. That is, even where the private

sector had strong incentives to support reform,its opportunities and particularly its capacitiesfor participating in the reform were often weak.

In Vietnam, the case study author reportedthat: Many investors were not fully awareof the difficulties and obstacles fromadministrative procedures facing them.They were also not much interested inreform, removing obstacles, or enablingtheir business activities. In fact, they were

reluctant to discuss, speak out, or commenton shortcomings, weaknesses of the legalsystem as well as bureaucratic attitudes ofstate officials.

In Ukraine, the former state monopolies, stilldominant and powerful, opposed reform,while the growing SME sector saw thereform as opening new opportunities forthem in the market economy. New entrantssuch as foreign investors played a useful role,

but the study authors note that big foreigninvestors did not see registration as animportant constraint, and they did notcooperate with SME business advocates inUkraine. Their role could have been moreeffective if they had consolidated efforts andgenerated a joint position with nationalUkrainian stakeholders on business registra-tion reform, concluded the authors.

shows the key active stakeholders over the courseof the reform. The different incentives, opportu-nities, and capacities of the various stakeholdergroups partly explain why different groups aremore active at different phases of the reform,

particularly in the political and implementationphases.

Another reason is that the reformers themselves,through the stakeholder management strategy,change the incentives, opportunities, and capaci-ties to increase the participation of pro-reformgroups and reduce the participation of anti-reform groups. As discussed later in this report,successful reform is characterized by buildingrelationships with different groups of allies over

the reform cycle to change incentives, opportu-nities, and capacities, and progressively bring inwider groups of stakeholders until a winningcoalition is created.

IV.2. Stakeholder Incentives,Opportunities, and Capacitiesin Business Registration Reform

The pattern of competition for control of public

policy becomes clearer when the incentives,opportunities, and capacities of stakeholders areexamined. The pattern of participating andnon-participating stakeholders at any one phaseof the reform reveals the underlying pattern ofincentives, opportunities, and capacities ofstakeholders. The Bulgarian author noted theimportance of discovering the major stakehold-ers and the determinants of their views at theinitial reform stages, and then using thoseviews to set up the management strategy.

The specific mix of incentives relevant tobusiness registration reform is country-specific.However, there is a general pattern: In each ofthe 10 countries, the public sector interests thatwere collecting economic rents from the system lostheavily, while most business interests gainedheavily. Following public choice theories ofregulation, this suggests that the public sector is


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based on deep mistrust between the publicand private sectors. This skepticism wassometimes justified by previous failures:

In Tanzania, there was initial resistance

from within the government on theneed to implement a sector-wide reformprogram because an earlier major legislativereform project was widely seen as a failure.

In other cases, skepticism was based in anarrow view of what was possible, usuallycombined with ignorance of what othercountries had already done. In other cases,the skepticism was based on a kind ofnational chauvinism in which the existing

system was seen as the best possible. Thisargument was usually made by the verypeople who had designed the existing system.In Bulgaria, reformers were openly accused ofundermining national legal traditions,although the existing registration system hadbeen in place only since 1989. This kind ofskepticism and chauvinism representedstrong inertia against reform, and was achallenge in most of the 10 countries. It wasovercome by sustained and credible argu-

ments, international cases, study tours, andother forms of information exchange thatbuilt offsetting coalitions of supporters.

2) Legitimate concerns about the principlesand design of the reform and its capacity toprotect important public policies. Thesekinds of concerns were sometimes a self-serving cover for private interests, but gener-ally were useful in structuring a public debateabout the pros and cons of reform and

different designs. These kinds of concernswere answered in every country by thereformers through intensive public debateand controlled stakeholder management.Sometimes, the reformers won the argument(Bulgaria, Tanzania), and sometimes thereforms were changed to accommodate theconcerns (France, Indonesia, Serbia). One ofthe determinants of the success of registration

In Bulgaria, none of the business associationswas proactive enough in isolation to effec-tively support the reform, and tension andcompetition between them meant that theywere not prepared to take a unified position in

support. Reformers, supported by donors,acted as intermediaries in organizing themand helping them develop and communicatecommon positions.

Public choice theory is ultimately vindicated,however, because in every country, importantprivate sector interests became supportive of thereform as it proceeded. By the implementationphase of the reform, private sector interests werestrongly supportive in most countries, with the

exception of professional interests, such aslawyers and notaries, who stood to lose directpersonal income from the change.

What may be surprising to public choicetheorists is that, in nine of the 10 countries (theonly exception was Turkey), individuals in thepublic sector were the leaders and main advo-cates of reform at the early and intermediatestages. In some cases, these public sector leaderswere political, representing new governments.

But in other cases, the public sector leaders werefrom career levels, representing reform-mindedtechnocrats with agendas that encouraged themto challenge other parts of the public sector. Thepositive role of the reform-minded technocratssupports thepublic interesttheories of regula-tion, in which enlightened civil servants makepolicies in favor of the wider public interest.

IV.2.i. Stakeholder Incentives Opposing

Reform

The case studies suggest that those who wereagainst the reform at the beginning of thereform had basically four incentives:

1) Skepticism of the effectiveness of reformcompared to the existing system, or in thecapacity of the government to reform well,


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accommodation reduced the benefits ofspeeding up reform, but the result wasthat banks and the Treasury droppedtheir resistance to the reform.

In Indonesia, notaries in rural areas aswell as cities argued that they did nothave access to the Internet and onlinesystems. This argument, which mighthave been legitimate for some ruralareas, became a convenient defense fornotaries who preferred to keep registra-tion on a personal level between them-selves and ministry officials. In response,the Minister of Law and Human Rightssigned a decree allowing continued use

of manual registration, making onlineregistration optional. This decree greatlyreduced the benefits of the reform bykeeping the door open for corruptioninside the registration process.

In Tanzania, the general business licensehad become a major tool for ensuringcompliance with many regulatoryrequirements (public health, industrialzoning, environmental regulations), and

regulators were concerned that thereform could mean a loss of control overbad business behavior. Reformers had toassure them that the reform includedalternative methods and timing forcritical regulatory functions throughregulatory licensing reforms to ensurethat regulations enforced under thegeneral license revert to sector-specificregulatory measures. Reformers won theargument, while regulators retained all

their individual licensing functions. Butregulators apparently began increasingfees for licenses, again undermining thereform results. A general reform is nowbeing planned to correct the problemsof too many licenses and fees.

3) Ideological principles were important in afew of the transition countries that still

reform was the skill of reformers in knowingwhen and how to accommodate concerns,without sacrificing too many benefits of thereform. The case studies provide severalexamples of this trade-off:

In Bulgaria, some of the most influentialopponents included law professors.There were strong concerns from thelegal community that removing judgesfrom the registration process wouldincrease corruption in the corporatesector. The response from reformers wasto fight back by aggressively arguing inpublic and the media that the newregistry would reduce corruption by

improving market transparency, andthat judges had been unable to reducecorruption. Reformers won the argu-ment, but the final reform gave margin-ally more discretion to judges tointervene in registration.

In Serbia, there were initial concerns fromthe national statistical agency that thenew system might endanger the collectionof important statistics. The response from

reformers was to work with the agency toidentify key data that would be lost, andthen to develop ways of collecting thatdata, sometimes through the registry andsometimes through random surveys of thebusiness community. The agency sup-ported the reform as a result.

In France, banks, supported by theTreasury Ministry, were concerned thatstreamlined registration might make new

business loans more risky by reducinginformation available on start-ups.Reformers accommodated banks byallowing them to maintain a require-ment to have a formal authorizationsupplied in 15 days by the clerks ofthe commerce courts, Greffiers desTribunaux de Commerce, as the officialrequirement to get a loan. This practical


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occurred after a change in leadership, eitherthrough an election or other means (theaccession of the new king in Jordan). InSerbia, the reform began barely a year afteran historic change in regimes from the

Milosevic era to a democratic regime thistransition assisted the reformers becausepolitical leaders wanted to create new,democratic institutions, while the courts,packed with Milosevic appointees werealready largely discredited. But in the othersix countries, reform occurred withoutsignificant political change, showing thatgood management strategies can changeincentives for reform even if key stakeholdersdo not change. In those countries, key minis-

ters who supported the reform stood to gainfrom the favorable reactions of the businesscommunity, which was becoming an increas-ingly vocal political force in most of thecountries studied over the reform period.That is, the political economy of reform wasincreasingly rewarding the reformers.

2) Technocratic agendas and professionalvalues were the core incentives for several ofthe stakeholders, including the technocratic

reformers, NGOs, and think tanks. Com-bined with these admirable values werestraightforward bureaucratic incentives offighting for turf, of

IFI Stakeholder Management in Business Registration Reforms

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