Thomas McLarty III, McLarty Associates

This is an extract from the second edition of the Guide to Corporate Crisis Management- published by Latin Lawyer. The whole publication is available here.

What do we do the moment everything goes up in flames? For many individuals, organisations and companies, this is the key question regarding crisis management. The assumption is that, like volcanic eruptions or earthquakes, high-stakes moments of corporate emergency are inevitable and largely random, with timing that is near impossible to predict. Once a crisis hits, the best strategy is to focus resources towards the most urgent need: containing the flames and preventing further damage.

Adopting this ‘firefighter model’ is especially tempting when companies are operating outside their home country. Navigating a wide range of unfamiliar and opaque government bureaucracies, challenging local issues, and different corporate cultures can make the emergence of crises appear inevitable and their prevention even less possible. To extend the fire-department analogy, organisations could be forgiven for deciding that their best hope would be to focus on their response to a crisis: deploying the most expensive equipment and most aggressive team of firefighters ready to race out the door to extinguish the blaze. When it comes to crisis management in Latin America, it is no surprise that the firefighter model often prevails.

Yet we believe the firefighter model is the wrong one to adopt, especially in a region as complex and multifaceted as Latin America. In 1992, I became President Bill Clinton’s Chief of Staff, and subsequently, his Special Envoy for the Americas. During that time, I had the honour of helping forge some of the United States’ key policies towards our neighbours, from securing bipartisan support for NAFTA and negotiating Plan Colombia to helping shape the Summit of the Americas in 1994 in Miami – the first gathering of hemispheric leaders since 1967. When I first entered the White House, little did I know that I would return to the region more than 50 times as a member of the Clinton administration, or that I would continue travelling the Pan-American Highway in the private sector for McLarty Associates, the strategic advisory firm I founded upon leaving government.

The McLarty Associates’ team includes former ambassadors, trade negotiators and intelligence officers who have worked for presidents of both parties and business leaders who continue to shape the future of Latin America. Our team is very proud of our long experience in Latin America, and of our relationships throughout the region. It is also our belief, based on our combined knowledge of, and sustained engagement with, Latin America, that the best approach to crisis management is to focus on prevention – what happens before a crisis hits, not just on what to do in the immediate aftermath.

Call it the ‘fire marshal model’. Fire marshals often come from the ranks of firefighters, but their primary responsibility is to focus on prevention strategies – establishing and enforcing fire codes and educating citizens on fire safety. They run programmes that emphasise preparation, engaging communities to make sure citizens are aware of risks and are taking the steps necessary to minimise them. If a fire does occur, they are also responsible for examination – for determining the cause and making sure a mistake is not repeated. The role of the fire marshal is based around a very simple philosophy: prevention and preparedness are the most effective tools to reduce the chance of loss.

So, too, with crisis management. Yes, there are proactive steps businesses can take to limit the damage after a crisis hits. The spread of a disaster can certainly be contained and corrective measures can be taken to mitigate future risk. But for this chapter, our focus will be on reducing the chances that a crisis, or costly misstep, will occur in the first place. To achieve this, we must start to think about a pre-emptive tool in the field of crisis management: a government relations strategy.

What is government relations and why do we need it?

Many executives do not spend large amounts of time thinking about government relations, or else they assume it’s merely a synonym for lobbying. In fact, government relations is far more complex – and far more important to the success of a company – than many realise. This is especially true when a business is operating outside its borders. For firms doing business in Latin America, in other words, government relations is perhaps the key element of a successful, fire marshal approach to effective crisis management.

So what exactly is government relations? Put simply, it is the process used to build a relationship between an organisation and public officials – the decision-makers and stakeholders who are in a position to help create a better business climate to help fulfil a company’s objectives. Government relations is not merely transactional but is the process of constructing win-win solutions for both government and business. Companies who do nothing but ‘ask’ without proposing solutions to economic, logistical or societal needs, for example, should not be surprised to see their efforts rebuffed. Instead, we view government relations as a vital communications tool, a way for firms to share their perspective on planned policy or legislation, educate lawmakers about an industry and encourage policy outcomes favourable to their businesses.

Like all relationship-building, it is difficult to predict when and how government relations will pay dividends. However, one thing is certain: in a modern, global economy – and particularly in the combination of robust and emerging markets that is Latin America – a strong government relations strategy is an absolute necessity. In a ‘flat’ world, where competition can come from anywhere, organisations no longer have the luxury of doing business in a vacuum. Brand awareness among local stakeholders ensures that a firm’s interests are not ignored in favour of a better-known local competitor.

In the medium- and long-term, it is well understood why government relations, when executed properly, can positively shape policy towards business. But less well understood is the way government relations can shape businesses themselves. Like the fire marshal on an investigation, a business with a strong government relations strategy realises that knowledge is a key tool for preventing potential crises. Understanding the situation at hand, and the people involved, can help prepare an organisation for changes in policy – and help them identify and monitor areas of heightened risk.

The reverse is also true: organisations that ignore government relations do so at their peril. To understand how these consequences play out in practice, let us consider our first case study.

Case study: the importance of pulling government relations in early

A well-known consumer brand (for the sake of this case study, we’ll call it Acme Corp), appeared poised for a major win in a foreign market. The sales environment appeared promising. Executives could identify a large potential customer base. After considering what it thought were all the key factors, Acme Corp made a decision: to expand into a new product line overseas.

There was just one problem. Business units and the local government affairs operation weren’t in the habit of sharing information. For months, Acme’s business developed plans for expansion while remaining unaware of emerging policy risks that threatened to undermine the new investment. Once the government relations team discovered what the company intended to do, they immediately sounded the alarm. There were multiple regulatory and political realities that would undermine the success of the new investment, potentially rendering the expansion vastly more costly than projected. Acme was headed over a cliff – and because they hadn’t prioritised government relations, they didn’t know it.

In this particular instance, a worst-case scenario was avoided – the company was able to retool the new launch before disaster struck. Even so, much of the work – several months of effort – had to be redone to ensure that new manufacturing operations would comply with anticipated changes in public policy. Acme had adopted the firefighter model, planning to react to a crisis rather than planning to anticipate and avoid one. It paid dearly as a result.

To the company’s credit, however, that is not where the story ends. After seeing firsthand the shortcomings of the traditional crisis-management model, Acme resolved to become better fire marshals. Specifically, they incorporated government relations early – as a first thought rather than afterthought. The firm hired a global head of public policy to coordinate across regions, institutionalised communications between the business and public policy teams, and raised the profile of local government relations executives to help the firm anticipate and respond to external developments. The changes also allowed the firm to build a higher profile for itself in the market by opportunistically leveraging senior executive travel to the country to engage in high-level interactions with senior officials, which facilitated negotiations with the government on public policy.

Crafting a successful government relations strategy

Of course, making the decision to prioritise government relations – to seek knowledge, build relationships and educate stakeholders before rather than after a crisis strikes – is only a first step. As with any area of business or management, success in government relations depends on formulating the right kind of strategy.

So what separates winning government relations teams from the underperformers? Two factors matter most: defining and prioritising business needs and creating a connected process rather than a siloed one.

Many companies – even well-established companies – forget to ask the first important question of a government relations strategy: ‘Who are we?’ There are two audiences that any answer to this question must address. The first is external: modern firms are often sprawling webs of brands, divisions and teams. It is unwise to assume that government stakeholders in a new market will understand the exact nature of an organisation unless someone proactively educates them on the subject.

The second audience is internal. To run a successful government relations process, a company must have a clear understanding of its core interests. Only once it is clear which goals are essential and which are not can an organisation identify the intersection between its aims and the abilities and purviews of key stakeholders.

Yet even once a company answers the ‘Who are we?’ question, it is only beginning to craft a well-run process. Too often, government relations is run as a series of parallel tracks, each track accomplishing certain things on its own, but never connecting with its neighbour. Successful government relations’ processes look more like a modern mass transit system. At the centre is a well-defined web of communication that guarantees internal communication. From that core area, connections sprawl outward, linking between stakeholder groups.

Establishing a connected process, rather than a siloed process, requires discipline. But it is worth the effort. Consider our second case study.

Case study: the importance of avoiding silos

A large, diversified firm (this time, we’ll call it Ajax) had multiple brands operating across several continents. To its credit, Ajax already ran robust government relations teams. However, those teams were organised by business unit within countries. As a result, key government stakeholders were confused as to which brands Ajax represented – in certain cases they thought two brands were owned by competitors when in fact they were part of the same corporate parent. Ajax, in other words, failed to answer the ‘Who are we?’ question.

The siloed approach disadvantaged the firm internally as well. Each individual team accumulated success stories and best practices, yet there was no way to share that information and leverage it across the organisation as a whole. Opportunities were missed to broaden and deepen relationships with stakeholders, because it was not possible to create an accurate and comprehensive list of outreach targets. Moreover, the parallel-track process at Ajax made it difficult to measure the success of the government relations team as a whole, or to know where and how to deploy internal resources.

In the end, Ajax made the difficult but important decision to update its government relations process. The company harmonised its government relations teams within each country, adding intersections and connecting points along the formerly parallel tracks, and ended up in a much stronger position to advocate for changes to public policy that would better support growth and investment. After seeing the difference this new approach made, the firm harmonised its teams across all of Latin America as well. Ajax’s new, more disciplined and connected way of conducting government relations has enabled it to more effectively, thoughtfully and proactively position itself to influence not just industry-specific policy in local markets but have an impact on discussions regarding regional trade agreements and cross-border regulatory efforts.

No less important, this improved government relations process made Ajax a better fire marshal. The company’s understanding of issues and potential pitfalls is now both deeper and broader. It is more likely to have the right relationships in place to help spot and stop a crisis before it starts – or mitigate the damage from a crisis should one occur.

Engagement with stakeholders

So far, we have covered the subject of government relations from a bird’s-eye view. First from 30,000 feet: what is government relations and why does it matter? And then from 10,000 feet: how does an organisation set up an effective government relations process? Now we must consider the ground-level question. Once a company has prioritised government relations, and set up a well-run process, what should engagements with stakeholders look like? To answer this question, we suggest considering the ‘three Cs’ – consistency, culture and coordination.

Sporadic engagement is not really engagement. An organisation that hopes to achieve its well-defined goals, prevent crises and mitigate fallout when setbacks occur must be in constant contact with senior political leadership. It is not enough to build relationships with mid-level regulators. If the first contact with a decision-making figure comes in the context of the crisis, it is often too late. This is what we mean by consistency – high-level connections must be established and nurtured constantly, whether there is a specific short-term goal being sought or not.

American companies doing business in Latin America frequently export not just their products and business practices, but the set of unwritten social conventions that make up American business culture. This can sometimes lead to missteps. Senior executives can and should serve as company ‘ambassadors’, but it is also important to have local leaders on the team – individuals fluent in both the language being spoken and the nuance of what goes unsaid. Organisations should not underestimate the importance of good, old-fashioned chemistry when it comes to engagement with key officials – and they should work to develop that chemistry by knowing, and respecting, local and regional business culture. Every country comes with its own unique list of dos and don’ts. It is the job of expatriate organisations to know the items on that list and to address them when developing relationships.

This is true not just for developing relationships with key officials, but for building alliances throughout a country and a region. The most effective organisations see government relations as a team effort – and understand that the exact composition of the team is altered with every play. Just as the first contact with high-level leaders has to be well in advance of a crisis, the strongest alliances are the ones developed before, not after, the need for cooperation becomes urgent. The most successful government relations teams think beyond their immediate sector, reaching out to individuals and associations that can become part of a coordinated approach.

When done right, engagement is seamless and rewarding for all parties involved. When done wrong, however, an absence of stakeholder engagement can create hollow relationships whose weaknesses are revealed at the worst possible times.

Case study: the importance of smart engagement

Consider our third case study: a multinational natural resources company (we’ll call it ResourceCo) had a government relations programme, with a team on the ground; however, this team was led by technical and regulatory affairs specialists who did not coordinate with the firm’s internal public relations staff. The local senior executives were expatriates, lacking extensive experience in the Latin American country in which they were working. While they had done some local outreach, and had good relationships with the relevant regulatory agencies, they had little exposure to top government stakeholders.

As a result, when a relatively minor environmental incident occurred – the kind of mistake that should have been relatively easy to correct and move past – ResourceCo found itself unprepared. Ill-equipped to meet the immediate demands for information made by the press, members of Congress and senior political leadership, the company watched a minor mishap escalate into a full-blown political and media crisis.

In the end, the company was able to fully recover, both from a reputational and operational standpoint, by placing much keener emphasis on deep engagement. With a renewed focus on consistency, culture and coordination, ResourceCo was eventually able to move beyond the crisis at hand. But the firm suffered major losses in the short and medium term because of its firefighter approach to crisis management. Little wonder it vowed never to repeat that mistake.

On measurement and other remaining challenges

Even after a firm has fully adopted the fire marshal method – prioritising government relations, structuring a connected process and focusing on the ‘three Cs’ of engagement – that does not mean its work will be easy. There remain a number of challenges that even the best government relations teams will constantly face, problems that require constant attention in order to solve.

The most crucial of these is measurement. Even organisations that can answer, ‘Who are we?’ and ‘What do we need from our government relations team?’ often stumble on another basic question: ‘Is it working?’ That is because government relations does not lend itself to easily quantifiable results. There is no magic metric to determine success, and lots of moving parts and actors make the difference between causation and correlation difficult to divine. This is especially true when the leaders observing the data are far from the place where the action is taking place. It is easy for organisations to become ‘stuck in a rut’ where government relations are concerned.

Yet winning businesses find a way round these measurement problems. Rather than measuring everything, they pick the top priorities that will truly define success. They create a ‘scorecard’ with a variety of measures (for example, financial impacts or client satisfaction), but also make sure to consider context so as not to distort cause and effect. They rely not just on numbers, but on in-person reports – and they understand enough about the context to know which in-person reporters carry specific biases. Finally, they make time to reflect, iterate and learn. They recognise that measuring and improving government relations outcomes is difficult, so they set aside time to tackle the challenge.

If all this sounds difficult, that is because it is difficult. But it is also worth doing and worth doing well. With focus and discipline, and an understanding of what works and what does not, a government affairs department can become an essential part of a business’s Latin America operations – one that stops crises before they start.

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