How Adding GR to IR Can Make for Better PR

Increasingly, we live in a society where governments at all levels are taking a more activist role and setting the rules for how corporations can act and compete. As a result, all industries – not just utilities, banks, telecoms, railways and pharmaceuticals – are regulated today to some degree.

While the G in ESG is Governance, it could just as easily be Government, given the outsized influence it can have on shareholder value creation risks and opportunities related to taxes, tariffs, competition reviews, subsidies/bailouts, labour, decarbonization and, of course, corporate and securities laws. COVID-19 workplace restrictions and lockdowns are a new area of government involvement.

In this issue of IR focus, we look at the purpose and importance of Government Relations (GR) in the creation and protection of corporate value and make the case for tight integration between GR and IR within the public affairs of every company.

What is GR?

Government relations is often portrayed in one dimension: lobbying. In this characterization, a company hires a lobbyist – sometimes a former politician – to use personal connections to influence government on a particular issue. This must, of course, be done within the confines of the law (see Doing Business in Canada: Lobbying by Gowlings WLG). However, to think of GR only in lobbying terms is akin to suggesting that IR’s only function is investor outreach. There is much more to both practices.

The University of Calgary does a nice job of summarizing the role of GR when it writes: “Government Relations advances and serves the university community by developing, managing and maintaining relationships and coordinating activities between the federal, provincial and municipal governments and the university to further the university's goals and priorities. Government Relations highlights the achievements and needs of the university and enhances the profile of the university with the government.”

Substituting the words “university community” with “public company” provides a good working definition for the practice of GR today as it should be thought of by IROs. CIRI itself practices a form of GR through the ongoing advocacy efforts of its Issues Committee.

GR in Action: Trains

The corporate dustup between CP Rail and CN Rail over their competing bids for Kansas City Southern (KCS) railroad is an excellent example of how GR and IR and politics, policy and corporate developments intersect. In a very public move, CP formally appealed to the Surface Transportation Board – a U.S. federal agency charged with the economic regulation of various modes of surface transportation, primarily freight rail – to examine CN’s offer on the basis that it could “destabilize the balance between the industry’s six largest players,” according to an Associated Press story. CP’s GR strategy included sending a letter to regulators, signed by CP’s Canadian lawyer David Meyer, which reads, in part, “the only combination involving KCS that is in the public interest is the one that Canadian Pacific has proposed, and which has already garnered support from over 400 shippers and other stakeholders.” This prompted a Credit Suisse analyst to remark that ultimately the “linchpin in this discussion” is what KCS’s Board of Directors perceives to be the regulatory risk in CN’s offer. CN promptly responded with arguments of its own and the fight rages on over shareholder value and public service with the combatants using GR, PR and IR tools.

GR in Action: Airlines

Another example of GR, and one that illustrates how it can be used to ward off financial ruin, is provided by the federal government’s pandemic $5.4 billion aid package to Air Canada. While it was seen as a creative deal on Bay Street, it was a long time coming and raised the eyebrows of Air Canada rival WestJet, whose CEO Ed Sims told his workers that the Government of Canada is now the fourth largest shareholder in their biggest competitor. More GR efforts are no doubt underway to ensure WestJet gets an equal share of support, but the underlying message is that government has an outsized influence on the airline industry.

Why GR Matters to Corporate Value

In speaking to GR practitioners, IR focus counted several ways in which good government relations is critically important to the achievement of corporate goals:

• Creating an early-warning system for proposed regulatory changes so that a company can attempt to influence government thinking and/or proactively prepare strategies (and shareholder communications) in advance of those changes;
• Sharing corporate plans and activities with government officials so as to seek an alignment of interests or to build a better understanding of company activities with policymakers so as to inoculate against unwanted policy changes or attention;
• Identifying government opportunities (e.g. new spending plans) and helping to position a company for a successful bid; and
• Warning a company if the actions it is about to take, including acquisitions, are likely to trigger government scrutiny.

Given that many Canadian companies are international in scope and therefore subject to rules, regulations and political influences in many countries, GR often has an incredibly broad and complex mandate. Think of Canada’s oil, gas and pipeline industries and the GR efforts they must make domestically and in the United States. The outcome of these activities has never been more important to shareholder value creation.

GR in Action: Groceries

In the words of one GR practitioner: “Government sets the table for a great many activities that influence business and the perception of individual companies and to my understanding, brand perception and reputation are important to shareholders. A perfect example is when Loblaws, Metro and Empire Company faced off with the federal government’s industry committee last summer over their decision to cancel a $2-an-hour COVID pay bump. While the meeting was probably unavoidable, the headlines didn’t play well and probably didn’t help corporate valuations. On the other hand, the meeting did burnish the reputations of MPs who looked tough in their questioning.”

After testimony from the grocery store executives, CBC’s audience commentary was aflame with reaction – some of it unfavourable to the industry and capitalism generally with comments such as: “You must remember who the store executives are beholden to, their overlords, the stockholders and Board of Directors. Gotta maintain those profits.”

In the book When It Hits the Fan: Managing the Nine Crises of Business, the author, Gerald C. Myers, writes: “A common side effect of a public perception crisis is an unwanted increase in attention from the public sector. Regulatory, health and safety agencies often get into the act and with them come the special interest groups. Few things are as disruptive to a chief executive’s operating style as having to testify at congressional hearings…Legislative hearings are a form of theatre, designed to enhance the politicians in control. Groups that don’t amount to much more than a few people, a letterhead and a duplicating machine will be given the same attention as the chief executive officer of a major corporation if that suits the committee chairman’s purpose.” While his choice of language is dated (the book was published in 1986), his observations ring true even today.

Could GR have saved Canada’s grocery giants from the government spotlight? The truth is, probably not. However, GR can be very effective behind the scenes in building goodwill with policymakers and their advisors.

GR and IR: A 360 Degree Approach

The benefits of GR have long been recognized by regulated industries. Although no longer a Canadian public company, Dofasco, the “Our Strength is People” organization, was a strong proponent of an integrated IR, GR and PR approach as part of its Public Affairs group. Through its actions, the steelmaker became widely recognized as a responsible company. Almost 25 years ago, it joined the Dow Jones Sustainability Group Index as the only Canadian company ranked as a sector leader.

This position gave it additional credibility when speaking to all levels of government and it did speak with a clear voice to advance its interests and those of its customers, employees and the Canadian steel industry. Its Public Affairs Group adopted what it referred to at the time as a 360-degree approach to stakeholder relations to ensure a full alignment across IR, GR, PR and employee relations. Although times have changed, Dofasco’s Public Affairs business model – developed and practiced by industry icons Al Goddard, Jean Cormier, Peter Earle and Gord Forstner – stands as a best practice.

“Governments don’t typically understand your business as a matter of course,” said Forstner, now Principal of Forstner Group, “so companies need to build understanding, preferably well in front of any ask of government – whether that’s in potash, life sciences, mining or tourism.”

Forstner noted that flow-through shares are a “consummate Canadian industrial policy invention” that form part of the reason why “Canada grows mining companies above our weight class. This is built on government’s ‘acquired’ understanding that mines require a great deal of expenditure before any ore is produced, and flow throughs offer investors a way to participate in the tax benefit of those upfront expenditures. Creating that kind of financial instrument required government support, which was based on financial insight and mining policy congruence. Enlightened companies in capital intensive industries like mining work very hard to provide insight into the financial inputs and outputs of their business to inform public policy.”

How GR Can Help IR: The Need to Integrate

GR and IR (and indeed PR) practitioners need to work together to further corporate interests. IROs we spoke to offered practical advice on how they make this happen and the benefits of doing so:

• Ask GR practitioners to provide regular briefings to IR so that IROs have a good handle on emerging areas of government policy that may affect the company’s business lines, including costs of operation.
• Invite GR practitioners to sit in on briefings with sell-side analysts or institutional investors who, in the words of one IRO, “are always interested in gaining nuanced perspectives of government policies as they affect the industries and companies they cover.”
• Ensure GR, IR and PR all have a seat at the table during M&A transactions so that the C-suite and legal team have “a holistic view of the marketplace of opinion” and are not acting in a vacuum.
• Leverage insights from GR plans and strategies to craft key messages for investor audiences that “can differentiate your company from others” – a point made by a cannabis industry advisor whose company positioned itself with governments in 2015 (prior to legalization) – as the champion of consumer choice, competition and decriminalization.
• Bring GR in early and often when creating sustainability reports so that messaging to governments and policymakers is clear and beneficial to corporate interests.

Many smaller companies do not have the resources to engage a full or even part-time GR professional. In such cases, participation in industry associations can be especially important in helping to yield favourable results and keeping the company informed of potential policy changes. In addition, as CIRI is the recognized voice of IR in Canada, collaborations with organizations such as the Chartered Professional Accountants (CPA) Canada, Governance Professionals of Canada (GPC) and the Canadian Coalition for Good Governance (CCGG) help to raise awareness of issues and keep our organization in the centre of legislative discussions that affect our members.

As governments the world over become more involved in the business of business, it pays to have an integrated IR/GR/PR approach. Anything less can leave your company on the sidelines of public debate and policymaking – and that may well have an outsized influence on corporate value and the ability to create it.

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