Managing Public-driven Risks

Business leaders must command insight into all aspects of the companies they manage. Sophisticated models have been developed in areas as diverse as corporate finance, managerial and financial accounting, operations and customer relations management, yet none are widely deployed in the area of public affairs. A recent McKinsey study estimates that the business value at stake from government and regulatory intervention is huge – about 30 percent of earnings for companies in most industries – and higher still in the banking sector, where the figure tops 50 percent.1 The Wall Street Journal's annual CEO Council conference identified the need for business-government cooperation a top five priority.2 The Klaber Group works with its clients on managing risks and leveraging opportunities created from public sector actions.

Step 1 - Identify the Impacts on a Company, Project, or Business Unit from the Public Sector

  • Define the scope of public sector and public-driven risks
  • Assess the impacts to business operations from the public sector (e.g., legislation, regulations, public opinion, financial, legal action)
  • Understand the drivers of these impacts (e.g., political necessity for re-election, raising taxes and fees for government operations, environmental sympathies, bureaucratic risk aversion, anti-corporate sentiment)
  • Deploy tools to assess the scale of the impacts
  • Incorporate public sector information into capital project assessments, M&A, and on-going operations

Step 2 – Evaluate Regulatory Environment

  • Prioritize regulations by potential and action impact
  • Classify jurisdictions for various regulations, including where those jurisdictions overlap and potentially conflict
  • Identify where best practices may be more appropriate than regulations and trends in the use of best practices by industry sector
  • Review company history and relationships with agencies and create road map

Step 3 – Integrate Public Sector Issues into Core Business Functions

  • Develop metrics for aligning public affairs functions with overall strategic planning
  • Identify where policies are manifested in financial reporting
  • Evaluate where financial metrics are adequate and inadequate to capture public sector risk
  • Assess relevant shareholder actions
  • Review corporate expenditures on public affairs issues

Step 4 - Engage the Public

  • Define public stakeholders for company, project or business unit
  • Examine drivers for engaging stakeholders and associated approaches
  • Assess media role
  • Review applicability and relevance of charitable activity and corporate sponsorships
  • Assess the impact of public-driven risk to corporate brands           
  • Assess legal risks

Step 5 - Organizing for Public Affairs

  • Map current functions in government affairs, regulatory compliance, public affairs, and investor relations, including rotating subject matter expertise, and evaluate effectiveness and alternative models
  • Evaluate current charitable activity and corporate foundation and recommend additional alignment with business goals
  • Identify all trade association memberships, establish ROI metrics, and develop plan to extract maximum value from investment
  1. McKinsey Quarterly – Organizing the Government Affairs Function for Impact, November 2013
  2. Wall Street Journal, November 25, 2013