Business, Government, and Civil Society
A variety of government actions in addition to laws and regulations powerfully affect companies’
finances, executives say. But executives also indicate that companies’ processes to manage
their relationships with government are generally less robust than are the ones used to manage
relationships with other stakeholders.
Government is likelier to affect companies’ economic value than any other group of stakeholders
except customers, say executives in response to a new McKinsey survey.1 The results also indicate
that most executives expect government involvement in their industries—which in most cases
has skyrocketed since the global economic crisis began—to continue increasing. The survey asked
executives about their companies’ relationships with the government of the country or region
that is their primary market: how government affects their companies’ economic value, how their
companies interact with the government, how effective those activities are, and who spearheads the
companies’ relationships with the government.
The results show that government actions have a significant effect on companies’ economic value:
34 percent of respondents say 10 percent or more of their operating income is at stake. Some
government actions, such as providing infrastructure and access to capital, are likelier to have a
positive than a negative effect on company finances. However, passing laws and setting policies—the
actions executives say most often affect their companies’ economic value—have an overall negative
effect. Respondents whose primary markets are in developing economies are more positive than
others, however, about the effect of government actions, such as the passage of laws and enforcement
of rules.
1 The online survey was in the field
from November 17, 2009, to
November 30, 2009, and received
responses from 1,167 executives
representing the full range of
industries, regions, and
functional specialties.
Je an
-F ran
ço is M
artin
How business interacts with government McKinsey Global Survey results:
2 How business interacts with governmentMcKinsey Global Survey results
A strong majority of executives say business must proactively and regularly engage with government,
even though many find that dealing with government is often frustrating and consider government
officials to be uninformed about the economics of their industries. Yet companies aren’t doing as
much to counter those problems as they could; for example, only a third say their companies are
“extremely” or “very effective” at building strong relationships with key government stakeholders. In
fact, despite the variety of practices that can help a company successfully manage its relationship
with government, a majority of companies aren’t effective at even one of them.
Government’s growing role
Government has a crucial and expanding effect on companies’ industries and economic value,
respondents say (Exhibit 1).
A variety of government actions affect companies’ economic value; not surprising, respondents
in every country select passing laws and enforcing regulations far more often than other actions as
Exhibit 1
Role of government
% of respondents, n = 1,167
Decrease somewhat or substantially
Increase somewhat or substantially
Stay the same
1 = Don’t know
How do you expect the government’s involvement in your industry to change in the next 3–5 years? 1
Which stakeholders do you expect will have the greatest effect on your company’s economic value in the next 3–5 years? 2
Survey 2009 GTG Exhibit 1 of 6 Glance: Exhibit title: Role of government
1Figures do not sum to 100%, because of rounding. 2Respondents who answered “other” or “don’t know” are not shown. 3Nongovernmental organizations.
Customers 74
Government 52
Employees 50
Investors 28
Suppliers 15
Media 8
NGOs3 5
63
23
12
3 How business interacts with governmentMcKinsey Global Survey results
having an effect (Exhibit 2). Although most government actions are less likely to have an effect than
those two, others are seen as likelier to have a positive than a negative effect on companies’ finances.
There are notable regional differences in the government actions executives say are likeliest to
have a positive effect—mostly related, it appears, to a greater need for infrastructure and capital in
developing economies (Exhibit 3).
Exhibit 2
Economic impact of government activities
% of respondents, n = 1,167 Which activities that government might engage in will have the greatest effect on your company’s economic value in the next 3–5 years, and how will they affect the economic value? 1
Survey 2009 GTG Exhibit 2 of 6 Glance: Exhibit title: Economic impact of government activities
Passing laws, setting policies67
Enforcing rules, regulation59
Purchasing our products/services25
Competing with our products/services
Providing infrastructure, services, other public goods23
Providing capital16
Advocating for the interests of our company/industry13
12
9
Reducing cost of capital by offering loans or loan guarantees
38 9 47 6
41 11 44 4
58 32 7 3
60 29 6 5
49 34 10 6
46 34 14 6
50 33 11 6
7 47 41 5
Always positive or more positive than negative effect
No effect Other or don’t know
Always negative or more negative than positive effect
% ranking given activity as among top 3
1Figures may not sum to 100%, because of rounding.
4 How business interacts with governmentMcKinsey Global Survey results
At companies that try to quantify the potential impact of government actions on their companies’
economic value, majorities assess a mix of potential risks and opportunities, with 71 percent
assessing the impact of regulations on costs, 70 percent the cost of complying with regulations, and
69 percent the opportunities created by regulations.
Exhibit 3
Where government matters most
% of respondents,1
By primary market
China, n = 82 India, n = 77European Union, n = 302
United States, n = 398
Other Asia- Pacific,2 n = 114
Middle East/ Africa, n = 57
Which of the following activities that government might engage in will have the greatest effect on your company’s economic value in the next 3–5 years, and how will they affect the economic value?
Survey 2009 GTG Exhibit 3 of 6 Glance: Exhibit title: Where government matters most
Always positive or more positive than negative effect
Action most likely to have a positive effect in given market
1 Respondents who answered “other” or “don’t know” are not shown; respondents could choose more than one answer. 2Excludes China and India.
Passing laws, setting policies 52 40 57 65 28 35
Enforcing rules, regulation 48 44 56 54 36 30
Purchasing our products/services
61 55 74 70 55 71
Providing infrastructure, services, other public goods
75 62 76 83 51 63
Providing capital 66 46 68 61 45 66
Advocating for the interests of our company/industry
67 40 75 62 38 67
Reducing cost of capital by offering loans or loan guarantees
49 52 67 59 46 44
Competing with our products/services
17 6 11 2 5 19
5 How business interacts with governmentMcKinsey Global Survey results
Respondents are nearly evenly divided on whether government actions will increase or decrease the
operating incomes of their companies over the next three to five years (Exhibit 4). Yet 34 percent of
respondents say the effect, whether positive or negative, will be 10 percent or higher; thus, significant
value is at stake for many companies.
What executives think of government
Given this value at risk, it’s heartening that 71 percent of respondents say companies should
proactively and regularly engage with government. But it’s less encouraging that only 43 percent say
their companies actually do so.
Exhibit 4
Government-driven value at stake
% of respondents,1 n = 1,029
No effect
Decrease Increase
Don’t know
Executives’ estimate of effect government activity will have on their companies’ operating income in the next 3–5 years
Survey 2009 GTG Exhibit 4 of 6 Glance: Exhibit title: Government-driven value at stake
1 Figures do not sum to 100%, because of rounding.
By up to 9% 18
By 10–24% 12
By 25–49% 3
By 50% or more 1
21
11
3
4
3834
15 12
6 How business interacts with governmentMcKinsey Global Survey results
Some of the reasons for the relative lack of engagement may be executives’ own views of government.
More than three-quarters agree that business must be actively involved in shaping government policy
to succeed and that it’s beneficial for companies to be as transparent as possible with government,
but large shares also express frustration with government along various dimensions (Exhibit 5).
Ineffective engagement
When companies do engage with government, executives indicate they’re not particularly good at it.
Engaging with the governments of their companies’ primary-market countries is a top-three priority
for only a third of CEOs—although the figure rises to nearly 60 percent in China. More are involved
in overseeing their companies’ efforts to engage: almost two-thirds of respondents say their CEOs
either sponsor those efforts personally or oversee the group that does so.
Exhibit 5
Businesses’ frustration with government
% of respondents who strongly agree/agree with given statement, n = 1,167
Survey 2009 GTG Exhibit 5 of 6 Glance: Exhibit title: Businesses’ frustration with government
Greater government involvement is bad for business
The regulators and policy makers who have influence over our industry don’t understand the economics of our industry
Government often uses unfair rhetoric when talking about our industry
It is difficult to accomplish anything when working with government
Government often blames business for societal problems
44
It is difficult to determine the best way to engage productively with government
44
43
41
40
28
However, executives don’t rate their companies all that highly on practices that, our experience
shows, are important for successful engagement with government (Exhibit 6). Fewer than half
say their companies are good at ensuring that government-related issues are on the agenda of the
senior-management team, and effectiveness declines from there. There are some notable regional
differences, with companies active in the European Union and the United States often lagging those
that are active elsewhere.
7 How business interacts with governmentMcKinsey Global Survey results
Exhibit 6
How companies engage with government
% of respondents who say their company is “extremely” or “very effective” in given activity,1 n = 1,167
By primary market
China, n = 82
India, n = 77
European Union, n = 302
United States, n = 398
Total Other Asia-Pacific,2 n = 114
Middle East/Africa, n = 57
Survey 2009 GTG Exhibit 6 of 6 Glance: Exhibit title: How companies engage with government
30% or less of respondents say their companies are effective in given activity
1 Respondents who answered “don’t know” are not shown. 2Excludes China and India.
Ensuring government-related issues are on agenda of senior-management team
44 43 41 42 53 49 40
Gathering intelligence about government actions that could affect company
36 37 34 33 38 34 49
Understanding social, political, economic objectives of government actions
36 35 33 39 42 44 41
Systematically sharing information about government actions among business units and functions
34 32 32 38 34 40 62
Using CEO as company spokesperson on government issues critical to strategic agenda
33 26 36 41 44 38 47
Working to build strong, trust-based relationships with key government stakeholders
32 27 29 34 46 41 53
Quantifying potential effect of government’s actions on economic value
29 30 23 32 31 31 35
Coordinating government-facing activities across business units and functions
28 24 30 27 37 35 27
Developing and executing a strategy for engaging with all relevant government stakeholders
27 22 23 34 41 36 43
Providing key government stake- holders with facts and analyses on how government actions affect company or industry
27 23 27 28 35 32 33
Among companies whose primary market is in the European Union or the
United States, less than a quarter of respondents say their companies are
effective at developing and executing strategies for engaging with all relevant
government stakeholders.
8 How business interacts with governmentMcKinsey Global Survey results
Further, in a majority of companies, key functions and businesses are not involved in supporting
government relationships. For example, only 26 percent of respondents say business units are
consistently involved in planning or executing their companies’ government-facing activities—even
though our experience shows that the government issues companies face are often driven by
individual businesses.
Looking ahead
• More executives say government will affect their companies’ economic value than say the
same of employees, investors, or suppliers. Yet companies’ processes to manage their
relationships with government, this survey shows, are generally less robust than the processes
they use to manage relationships with other stakeholders. Most companies would benefit
from making government more of a priority by building integrated capabilities to manage their
government relationships.
• Only a third of CEOs consider engaging with the government to be a top-three priority; our
experience indicates that companies will benefit when management of government relationships
is integrated into the top leadership’s mandate to ensure CEO sponsorship of, and involvement in,
executing the company’s government agenda.
• Just over a quarter of executives say their companies are “extremely” or “very effective” at
coordinating their government-facing activities across business units and functions. A better or
separate government affairs function is insufficient to manage government relationships effectively,
given that government actions can affect so many different business units and functions. A better
approach is for all business units and functions to play a role in managing a company’s relationship
with government.
• Respondents say they are less effective at engaging with government in their secondary markets
than they are in their primary ones. As multinational companies expand their operations to
developing markets in which they are unlikely to have experience engaging with government, they
will need to build this capability in their most important secondary markets (often China or India).
Contributors to the development and analysis of this survey include Andre Dua, a principal
in McKinsey’s New York office, and Kerrin Heil and Jon Wilkins, a consultant and principal,
respectively, in the Washington, DC, office. Copyright © 2010 McKinsey & Company.
All rights reserved.