By Doug Pinkham
Public Affairs Council President

September 16, 2009

How's this for stating the obvious?

"We're having to think much more about the role of government in the economy," said Mohamed A. el-Erian, CEO of Pimco, the world's largest bond fund, in a recent article in The Washington Post.

It seems that certain Wall Street firms have suddenly realized that federal policy-making not only affects their short-term profitability, it has become integral to their future business plans.

Though companies receiving federal assistance clearly have a reason to stay close to Washington, other financial firms have also awakened to the reality that government matters.  Many banks and investment firms have had a presence in Washington for years, but some apparently only recently got the message.

They are opening up D.C. offices, hiring lobbyists, monitoring legislation and - for the first time - considering how new regulations might affect their investment decisions. According to the Post, Pimco traditionally assessed the risk of new investments by considering five financial criteria, but has recently added a new benchmark: the impact of federal policy-making.

The fact is that government has always mattered. Washington has always had the potential to open up new markets or shut down a firm in its infancy.

In the excellent book, "Winning the Influence Game: What Every Business Leader Should Know About Government," leadership consultant Michael Watkins and his coauthors note that "the ability to influence government rule making has probably never been more critically important, to companies large and small, than it is today."  Why? Watkins lists three reasons:

• Government involvement in business is growing.
• Technological innovations are changing the way the world works.
• We are in the midst of a fundamental restructuring of the economy, driven by technology, that is impacting all sectors of business.

Perhaps this would be a good time to mention that the book, co-written by former Rep. Mickey Edwards and Usha Thakrar, was written nine years ago - long before the current financial crisis.

"Winning the Influence Game" also provides five undeniable examples of how government affects business:

• Government decides who owns what information.
• Government influences which standards dominate and how they are developed.
• Government places restrictions on mergers, alliances and acquisitions.
• Government decides what can and cannot be exported.
• Government imposes taxes.

So why has it taken so long for so many companies to discover that having a presence in Washington is a good move? The reason is that CEOs are trained in the sciences of finance and operations, not in the art of public affairs. Business schools teach deal-making, not policy-making. They study competition in the marketplace of goods and services, not in the marketplace of ideas.

But you don't have to go to business school to be ignorant about the role of government. As Bill Gates famously said in 1995, "I'm sorry that we have to have a Washington presence. We thrived during our first 16 years without any of this." That was before Microsoft discovered the hard way that running afoul of Washington can be very, very expensive. Now Microsoft, along with a host of other IT companies, has one of the best-staffed and effective public affairs operations in the nation's capital.

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In other news this past week, the U.S. Court of Appeals for D.C. upheld a 2007 ethics law requiring trade associations to disclose the names of contributors to their lobbying activities. The National Association of Manufacturers (NAM) had challenged the law on First Amendment grounds, saying that contributors should be allowed to remain anonymous.

The law in question is the Honest Leadership and Open Government Act, which decreased the threshold for disclosure of those members participating in the lobbying activities of an association. The act also changed the amount a member can contribute to an association without being required to disclose its membership. Instead of a $10,000 semiannual contribution, the trigger would be a quarterly contribution of at least $5,000. NAM had argued that the new rules could discourage member involvement and deny them their rights to privacy and association, according to The Hill.