US government regulation: a survivor’s guide

US government regulation: a survivor’s guide

Ethical Corporation • January 6, 2009

Flexibility and sharp-thinking are key for US businesses wanting to avoid a recession-induced backlash from Washington, argues Andy Savitz

Here’s what separates losers from winners in poker: losers hope to catch certain cards to win the pot; winners figure out how to win with the cards they’ve been dealt.

Most executives are looking at very bad cards right now: the collapse of the credit markets, the disruption of long-standing commercial relations, the downturn in consumer spending, and the anger in the eyes of their employees. It seems that just about everyone shares the sentiments of the man who was photographed towards the end of last year holding a large, hand-made sign aimed at the upper floors of a Wall Street investment bank building. The sign read: “JUMP, YOU F-----ERS.”

For many US business leaders the sense of doom is heightened by the fear that a wave of government regulation may soon crash over their heads the size of which has not been seen since the 1930s when the Roosevelt administration created much of the current federal bureaucracy in order to get the country working again.

During his successful race for the White House, president-elect Barack Obama called the current financial crisis a verdict on deregulation and pinned the tail on president Bush and his administration. But it was actually Ronald Reagan who began to dismantle the regulatory agencies in 1980.

After 29 years the worm is about to turn. Obama’s incoming environmental and energy team is like a who’s who of government regulators - the incoming heads of the Environmental Protection Agency, Department of Energy and Department of Environmental Quality, along with the new energy and environmental czar in the White House, are all former or current state or federal regulators with reputations for regulating.

While many in the business community undoubtedly view them as governmental Visigoths, most environmentalists and consumer advocates see their arrival (or return) as a needed sequel to “Business Gone Wild”, the horror film that is about to close its eight-year run in Washington.

More importantly, a Democrat dominated Congress seems eager to give the incoming administration what it needs to re-regulate business – from banking to fighting climate change to addressing employee healthcare – as consumer and environmental activists like Henry Waxman from California are replacing corporate stalking horses like John Dingell of Detroit on key legislative committees.

The new guard is likely to win more than it loses. Republican or conservative Democrats who voted for the multi-trillion dollar bailout of Wall Street will now have a harder time arguing against government intervention for others. We now have socialised banking for the rich, so why not socialised healthcare for the rest of us?

Play your cards right

Given both recession and regulation, what then becomes of sustainability (a.k.a. the self-interested, voluntary efforts of companies to make a profit by doing the right thing)? And how should corporate executives and companies play their cards, given the impending wave of government activism, other than rush out and hire a phalanx of new lobbyists?

Here are three suggestions:

First, don’t get down into a bunker and assume a siege mentality or worse, an aggressive, defiant “us versus them” posture. Others will be waiting to take away your chips, sit in your seat and keep you away from the table altogether. Above all, don’t throw good money after bad.

During the past eight years, oil major ExxonMobil wasted financial and political chips betting against the idea that climate change was a threat, long after it was obvious that it was time to fold that hand. At the same time, BP was hedging its bets, investing in becoming “Beyond Petroleum” while also making record profits before it fully committed to its new green path. When California sets its energy and environmental agenda, which big oil company is likely to command the most respect?

Second, look at the cards you are holding in light of changed circumstances. You may need to relocate your company’s “sweet spot” - the overlap of your business interests with the interests of society or of the environment. The latter are about to be redefined by the political establishment, possibly more drastically than at any time in our lifetimes. You must stay atop all new developments, read the tea-leaves and look for new places and new ways to get your business interests to intersect with the new priorities.

Sweet spots will be much more important than before because the risks and opportunities are greater under Obama then ever before. He is carrying the fears and hopes of a “rainbow coalition” many of whom have felt disenfranchised in all sorts of ways.

Fairness is likely to become the new mantra, so if your company acts unfairly or irresponsibly, it may go hard on you. If you find ways to do the right thing and to create economic benefits while doing so you are likely to find great favour.

This may take an internal realignment to find ways to get in the way of on-coming avalanche of tax-credits and other incentives to create green-collar jobs and promote solar and wind power. It may be to understand how to turn climate change regulation to your advantage.

Or it may be a matter of symbolic importance, like not flying to Washington in your corporate jet if you are coming to ask for a Congressional bailout for the automotive industry, as the heads of the former “Big Three” recently discovered. They looked a lot smarter and were more successful when, for the second round of discussions, they drove from Detroit in company cars and agreed to forgo their salaries until the companies rebounded.

Third, it’s impossible to pre-determine the precise layout of the high and low roads, or to predict the steps that you might take to win in the great reregulation – so be flexible and nimble in modifying your existing course or in charting a new one.

Take a lesson from Wal-Mart, the retail behemoth who turned on a dime to embrace environmentalism as soon as it discovered that conservation was also cost-reduction.

This is a time for executives and companies to be humble, which, if not a winning strategy can prevent unnecessary losses. A wise gambler once said: “When you sit down in a new poker game, look around to find the sucker. If you don’t see the sucker after a few hands, it’s you.”





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