Bloomberg Businessweek: CEOs Can't Get Enough of the Capital
At the height of his NBA career, Michael Jordan rebuffed a Democratic candidate for the U.S. Senate who was seeking his endorsement. “Republicans buy sneakers, too,” Jordan famously explained. Chief executives have typically come to the same conclusion: Getting involved in Washington politics is ultimately bad for business. Better to keep your distance and hire a team of lobbyists.
At least that used to be the prevailing opinion. Over the past few weeks, more than 20 CEOs, including Warren Buffett of Berkshire Hathaway (BRK/A), Lloyd Blankfein of Goldman Sachs (GS), Brian Moynihan of Bank of America (BAC), Michael Duke of Wal-Mart Stores (WMT), and Ursula Burns of Xerox (XRX), have visited the White House to press President Obama or his top aides on the urgency of raising the debt ceiling and warn of the economic calamity that will ensue if the U.S. defaults.
CEOs are also showing up more regularly on Capitol Hill. The combination of dysfunction in Congress and increased federal involvement in the economy since the financial crisis has led executives of companies large and small to personally press their case with members and regulators. Gia Schneider, the CEO of Natel Energy, a hydropower company in Alameda, Calif., has visited Washington about three times a year since 2009. “My focus has been almost entirely on educating regulators and congressional members and staff on the opportunity we see in a new kind of hydropower,” she says. “I thought I’d be more effective because I have specific knowledge of the industry, the potential, and the challenges.” In August, Congress passed two hydropower laws speeding up and simplifying the permit process for companies such as Natel.
A survey released on Oct. 10 by FTI Consulting, a global business advisory firm, found that institutional investors now believe CEOs should be playing a bigger role in Washington. “The old thinking in the C-suite was, ‘Nothing good can possibly come of it,’ ” says Brent McGoldrick, a managing director in FTI [Consulting]’s Washington office. “We were surprised to find that’s changed. Most institutional investors, who should have the most sway over what a company does, now prefer that CEOs spend more time in Washington ‘shaping and explaining’ what happens to their company, because government is playing such an important role.”
“CEOs … get a more serious hearing with congressmen and senators than the lobbyists”
A lack of clarity on corporate taxation, regulation, health care, and energy lies behind this change of heart: 82 percent of investors had a negative view of how Washington makes, or doesn’t make, decisions. “In every area I cover, there are industry-specific issues where a CEO could help their company’s bottom line simply by helping to create an environment of stability,” says Andrew Meister, an equity analyst at Thrivent Financial for Lutherans in Appleton, Wis. “The large budgetary and debt-ceiling issues create a terrible climate of uncertainty, but at the micro level of industry structure — Where do you locate a plant? What is the regulatory environment for a fuel like coal going to be? — you have the same thing going on.”
The acrimony in Congress and the chaos it’s produced are big reasons for the uncertainty—and why employing lobbyists may no longer suffice. “CEOs are more involved with the company, know what’s going on, and get a more serious hearing with congressmen and senators than the lobbyists who are running in and out of their office every day,” says Mike Breard, an energy analyst at Hodges Capital Management in Dallas. He cited the reopening of offshore drilling a year after the 2010 Deepwater Horizon disaster as an example of how CEO pressure helped shape or clarify policies affecting energy companies.
CEOs face three dangers when they come to Washington. First, the perception of partisanship is still undesirable. “Your goal is to help politicians see the way to the light,” Meister says, “as opposed to reinforcing whatever rhetorical arguments they espouse based on their party affiliation.” Second, while a few CEOs approach Michael Jordan’s level of celebrity, none enjoys anything like his popularity. In fact, the public regards executives nearly as negatively as members of Congress.
Finally, FTI [Consulting] found that D.C. elites — professionals working in government, the private sector, and nonprofits — also favor a greater CEO presence in Washington but for different reasons than investors do. Investors want executives to focus on issues that will help a company’s earnings; politicians and regulators seek their engagement with broader problems that could benefit from the attention a business leader can bring. David Cote of Honeywell (HON), who’s pressing to reduce the deficit, and Fred Smith of FedEx (FDX), who’s campaigned hard to overhaul the corporate tax code, were repeatedly cited by the survey’s respondents as having found a sweet spot between business and politics. “The key is being mindful not to lecture people,” FTI [Consulting]’s McGoldrick says, “and to frame what you want in the context of the greater good.”