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Managing Government Relations: A suspense-filled
adventure
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Charlie Coffey
Executive Vice President
Government & Community Affairs
RBC Financial Group
to
The Canadian Institute's
Implementing Best Practices
for Government Relations Conference
The Sutton Place Hotel
Toronto, Ontario
Wednesday, June 25, 2003
History may very well characterize the
first ten years of the 21st century as a period of transformation
within the financial services industry. Information technology,
regulation/deregulation, increased customer sophistication
and competition is already reshaping the financial services
landscape. This paper examines the impact of managing government
relations within the context of five (5) key drivers that
continue to accelerate the pace of change in the industry.
Let's take a look at the drivers:
1. Globalization and North American Integration
Market boundaries are ever expanding. In Canada, successive
rounds of more "liberal" trade have not only opened
foreign markets for Canadian companies, they've made access
to foreign suppliers much easier too. With globalization,
smaller corporations and even retail customers have access
to US and other foreign suppliers. As a result, domestic
markets are facing a huge challenge to remain both viable
and vibrant. US markets have always been a competitive challenge
for Canada's capital markets. But now the competition from
our neighbour to the south is even more intense as a result
of North American and international economic integration.
2. Convergence
Regulatory policy changes have eased the limits on permissible
activities undertaken by financial institutions (FIs), and
have enabled us to offer a wider range of products and services.
As a result, first in Canada and now increasingly in the
US, we're seeing the emergence of diversified financial
service enterprises. RBC, like its other Canadian competitors
and major global players (including Citigroup and JP Morgan
Chase), is a fully diversified financial services enterprise
with a presence in banking, insurance and investment banking.
3. Consolidation
Perhaps the single most significant and talked about factor
transforming the financial services industry right now is
consolidation. Whether it's the pursuit of a larger capital
and diversified base, increased credibility in the global
marketplace, external environment linkages, customer confidence,
the growing cost of technology, information and communication,
or a need to sustain/augment profitability, there are several
reasons why consolidation (via mergers or acquisitions)
remains a hot topic in boardrooms.
It's been said that execution accounts
for at least 50 percent of the consolidation process. Strategy
- the partner or partners and the decision itself - is important,
but the deal can fail with a less than optimal execution
and integration plan. Was the 1998 RBC and Bank of Montreal
merger of equals a misguided strategy? Not necessarily.
However, the initial execution process was flawed. To build
for success, consolidation should be planned with a transparency
approach at the very start. On the positive side, we did
learn some intense lessons on government relations that
year. We needed better relationships with Ottawa and stronger
relationships with elected officials and other community
leaders at the grassroots/local level. That's one of the
reasons my job was created.
Cross pillar consolidation, i.e., when
a bank merges with an insurance company, is another consideration.
There's a good business case to be made for expansion and
diversification of businesses and activities, i.e., buying
the capacity to sell a group of financial products and services
to customers. As you know, this type of consolidation has
been in the headlines of late.
4. Scale
One can't talk about consolidation without referring to
scale. We're not suggesting "get big for big sake."
However, to remain competitive and a relevant player in
this global environment, several financial institutions
have had to become considerably larger to accommodate the
integration reality. Ironically, while Canada's policies
were more progressive in permitting convergence, they've
been less advanced on permitting scale. Canada's banks have
been left behind in size. They've missed out on some of
the benefits of scale enjoyed by international competitors
and have been forced to narrow their range of products/markets.
Some have abandoned major global syndications; some have
outsourced their entire technology departments; others have
sold off chunks of their businesses because "size small" was a competitive disadvantage.
In a global world, scale is increasingly
important for long-term growth and survival in almost every
industry. This disjointed policy with respect to mergers
and scale has the potential for some unintended consequences.
If Canadian FIs can't achieve scale through domestic mergers,
they have only two options: grow abroad and/or exit activities
where they don't have scale advantages - and they've done
both.
5. Circles of influence
From the growing influence of parliamentary backbenchers
and shift in decision-making power from bureaucrats to politicians,
to more effective lobbyists and well-organized special interest
groups, it's clear that in theory and practice, the demand
for transparency and accountability is circumventing policy
consensus behind closed doors.
Policy directives not only require experts'
endorsements, they must also pass the sceptical public scrutiny
test. It's far more critical to manage the circle of public
opinion today than it's been at any time in the past.
What does all this mean to managing
government relations?
First and foremost, our relationship with
governments is multi-faceted and has become even more so
in the current environment. We provide financial services
to federal and provincial governments; they're our customers
and we compete aggressively for this business. We're an
agent for the distribution of some of their financial support
services and programs. We've also formed alliances with
a number of government departments to deliver financing
and services to targeted business segments (both nationally
and regionally).
Since we work with various government
departments to advance public policy priorities such as
training programs, youth employment initiatives, technology
innovation and education, access to financial services for
low-income individuals, to name a few, we have a tremendous
contact base…from our federal regulator - Office of
the Superintendent of Financial Institutions (OSFI), the
Department of Finance and provincial regulators, to Industry
Canada, Human Resources Development Canada, Indian and Northern
Affairs Canada, Department of Foreign Affairs and International
Trade, Canadian Heritage, Revenue Canada etc.
The key to managing government relations
(GR) during industry transformation is educating our various
stakeholders (including elected and non-elected officials)
on major aspects of our business: understanding the competitive
environment (domestic and global), changing customer needs
and behaviour, the impact of technology, the underlying
costs of doing business and the regulatory framework.
The challenge in education - understanding
the dynamics - almost always has to do with timing. Our
messages tend to resonate when something significant happens
in the public domain - something that directly interests/affects
governments and their constituents (mergers, acquisitions,
sales, branch closures). Given the increasing influence
and activity of grassroots leadership (from backbenchers
to special interest groups and everyday citizens) in shaping
public policy, it's very important for this growth group
to be well informed/consulted about issues.
A fundamental principle of good GR is
to "build relationships early" - to build a foundation
of trust and integrity/credibility that's there when higher
levels of engagement on more serious issues is required.
When possible, framing our agenda from the perspective of
the government's agenda (and its need to satisfy multiple
stakeholders) is helpful for building trust and leveraging.
Government relations is like the Harry Potter saga…it
contains all the elements that we've come to know and expect,
while introducing new characters and situations - a suspense-filled
adventure with no apparent end. The combination of a "rocketing"
Canadian dollar, a weak US economy, a slashing of the federal
government's economic growth forecast for 2003 by as much
as a full percentage point, a long and troublesome list
of urgent national problems (SARS and mad cow disease to
name but two), new players/issues on the canvas for both
the federal Progressive Conservative Party (PC) and New
Democratic Party (NDP), a lukewarm voice from the Canadian
Alliance opposition and a Liberal Party leadership race
- all add up to one thing: a best selling government relations
saga!
Does business have something to bring
to the table in times like this? I strongly believe it does.
In the broadest sense, business interests are not special
interests - they are the national interest. At a policy
level, business interests are about jobs, investment, growth,
trade, prosperity and the standard of living. Whether you
work at Kraft Canada, Bell Canada, the Canadian Hearing
Association or the Law Society of Upper Canada, the more
senior you become in the organization (whatever the industry),
the more public policy will require/occupy your attention.
Dealing with policy issues - with politicians and bureaucrats
is both essential and unavoidable.
As mentioned earlier, our industry has
more reasons than most for on-going relations with various
levels of government. We're interested in almost all of
the policies that affect the economic well being of our
customers, shareholders and employees. Our interest is predicated
on a fundamental view about how the economy works: for the
private sector, no matter what the size or kind of business,
Canadian competitiveness at home and abroad is largely hinged
on the quality of public policy. This means that first-class
management of the economic environment - well thought-out
and well-executed policy - makes the difference. The public
and private sectors, in Canada as elsewhere, are closely
connected parts of our economic system. Success or failure
is virtually always the result of mutual endeavours.
Business tries to affect the course of public policy, because
public policy affects us. It impacts us as taxpayers, as
corporate citizens and as employers. Business positions
on issues have virtually nothing to do with political parties,
and virtually everything to do with economic self-interest.
We must insist on an improved understanding of what does
"business interest" really mean? In my mind, it
means: Factual analysis. Stability. Predictability. Ethical
behaviour. Competition on a level playing field. Transparency.
Free flow of capital, goods and people. Profitability. Accountability.
Corporate social responsibility. A long-term view. Common
sense.
And after years of wrestling with the
"money" aspect of government relations (and the
perception of undue influence), the House of Commons approved
the controversial, amended C-24 finance bill exactly two
weeks ago - a bill that will end corporate and individual
contributions to political parties and replace them with
more than $22 million a year in taxpayer subsidies, (following
the Quebec and Manitoba models). If a change like this is
genuinely regarded as one that will encourage more Canadians
to be more active in demanding a system that's relevant,
ethical and workable, then this change is in both the national
and business interest.
As Susan Murray, Founder and Chief Executive
Officer, SAMCI said in her remarks at the Public Affairs
Association of Canada conference (October 24, 2002), "Ethics
and accountability ought to be central to the practice of
government relations. They are fundamental to a healthy
democracy, because the common element - trust - is what
allows citizens and their governments to consider issues,
decide priorities and work together. The foundation of SAMCI's
business model is "what we know", not whom we
know." SAMCI tells its clients that if they really
want to influence government, they have to be at the table,
not the golf course. They have to bring ideas, not political
donations."
Here are some examples that illustrate
how RBC manages government relations in an external environment
that embraces the driving forces of globalization and North
American integration, convergence, consolidation, scale
and circles of influence:
When Penny Collenette (a former adviser to the Prime Minister
and senior fellow at the Center of Business and Government
at Harvard University) wrote the article, "What the
banks must do" in connection to mergers, she posed
the question, "should Canadians have confidence that
our banks are taking the governance issue seriously?"
After conducting a random web site search of approximately
30 home pages of Canadian, American and European banks to
see if any up-front references to corporate governance principles
could be found, she discovered only one that mentioned corporate
governance on its home page - the Deutsche Bank. I can tell
you there are now at least two web sites with a reference
to governance on the home page. We noted her valid point
in the Maclean's magazine piece (January 2003) and we listened.
RBC's President and Chief Executive Officer,
Gord Nixon weighed in on the merger issue again when he
addressed the House of Commons Standing Committee on Finance
(February 3, 2003). He said, "The time has come to
provide Canada's financial services industry with clear
direction on the government's policy and expectations with
respect to bank mergers and the restructuring of the financial
services landscape. We need a process that's more predictable
and more transparent than it is today and public policy
that aligns the interests of government and the industry."
The financial services industry now has a clearer picture
of where it stands.
Gord Nixon also spoke to government relations in his remarks
at the Launch of the Medical and Related Sciences (MaRS),
Discovery District (May 12, 2003). "Perhaps the time
has come for the world of finance and government to review
the regulatory, institutional and tax systems to consider
changes that could be made to ensure that Canada has a financing
system that meets the needs of the future economy. As a
company that has always taken a leadership role in supporting
Canada's knowledge based economy, RBC is willing to participate
fully in any such review."
Here's an example of managing government
relations at the "Enough Talk", time for action
Toronto City Summit Alliance (June 5, 2003). At one point
I said, "We need political leadership…we're hurting
in this city. I appeal to my friends and colleagues in Ottawa
to get with the program and flow the money so we can get
on with what we need to do to help the citizens of Toronto."
In light of the economic impact of SARS and the financial
services industry involvement in the development of Toronto's
tourism recovery program, the federal government needs to
be more involved.
Not surprisingly, community action is
instrumental in modeling public policy. For instance, the
federal government's children's agenda and improvements
made to aboriginal business were given top billing in the
Throne Speech and the February 17th budget. I'm proud to
be among the lobbyists - the business interest - that continue
to push the envelope on these issues. When companies are
tuned-in to the government's social agenda and willing partners
to make it happen, managing government relations takes on
new meaning and new possibilities. In the case of supporting
the national children's agenda, Thomas S. Axworthy, former
Principal Secretary to Pierre Trudeau said it best: "If
there's a "silver bullet" in public policy, it's
probably in early childhood development (National Post -
May 16, 2003).
One more example…on Saturday, the
Canadian Chapter of Women Engaging in Bridge Building (WEBB)
hosted a conference entitled "Diversity and Islam -
Bridging the Gaps" on Parliament Hill. With more than
400 participants and a presentation roster that included
high-profile international experts, the event enhanced understanding
of the legitimacy and value of diversity and helped dispel
several misconceptions about Islam and the Muslim world.
RBC's sponsorship represented and re-enforced our commitment
to a broad diversity agenda.
Managing government relations revolves around engaging enlightened
public policy and promoting ethics, transparency, governance
and accountability, not to mention corporate social responsibility
in everything we do. Whether it's Canada and US relations,
Canada and SARS, Canada and mad cow disease, or the Toronto
City Summit Alliance, Party leadership races, aboriginal self-government
and leadership, the voluntary sector, education, innovation,
health, diversity, the environment, early childhood education
and care, youth, poverty, homelessness, the Prime Minister's
Task Force on Women Entrepreneurs, or the lobbyist code of
conduct, it's in our business interest to be a leading voice
and player. We must do a better job of telling our business
interest story - a national interest story about people, jobs,
investment, profit and economic survival. We must do a better
job of communicating to our stakeholders.
In closing, I'm reminded of what Sheldon Ehrenworth, Founder
of the Public Policy Forum and Executive Director, Driving
Governments to Excellence project, said during his presentation
to the Standing Committee in Government Operations and Estimates
(February 3, 2003): "I believe there are few issues more
serious to Canada's prospects as a nation than declining confidence
of our citizens in their federal government. Historically,
the federal government has held this country together through
a range of instruments, like tariffs, subsidies, crown corporations,
transfer payments and social programs. However, in the past
few decades, treaties, devolution, and fiscal realities have
all constrained the use of these instruments. At the same
time, Ottawa has lost much of its, capacity to develop new
ones, on its own, and in collaboration with the provinces,
the private and voluntary sector. Its capacity to apply great
minds to great challenges--and come up with great solutions
is at great risk."
These words make one think that managing government relations,
with a partnership mindset, makes good sense. In any event,
time will tell how the future unfolds for the ever-changing
financial services industry…understanding the connection
and impact of globalization, integration, convergence, consolidation,
scale and circles of influence will go a long way in helping
us better manage government relations.
And a sense of humour always helps too...take the annual
National Press Gallery dinner on June 14th. The funniest speech
by a long shot was the Governor General's..."Adrienne
Clarkson gave a personal blessing and blew kisses to the one
person who knew and understood Canada better than anyone else
in the country - US Ambassador Paul Cellucci." How's
that for supporting North American economic integration and
managing government relations!
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