Managing Government Relations:
A suspense-filled adventure

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!