Navigating the Global Economy – Politics, Regulation, and a Changing World

It is an experience common to many companies: The global economy offers a world of opportunities for growth. However, time and again, businesses face obstacles that they cannot surmount by technical, legal or investive means. This is down to public policy, a set of rules, conventions and idioms that is unique to each country. And policymakers wield a mighty weapon that hangs over businesses like the Sword of Damocles—regulation. 

A case in point 

Midea, a Chinese electrical appliance maker, raised the government's hackles when it announced plans to buy a stake in the German robot manufacturer Kuka a few months ago.  Germany's Minister of Economic Affairs Sigmar Gabriel launched an inquiry to determine if this deal would jeopardize the nation's "public order or security," the implication being that it could yet be vetoed. Midea turned to Brunswick. Its consultants opened a channel and initiated a dialog between policymakers and the companies. The German government eventually gave the green light for the deal. Today, the Chinese firm holds around 95 percent of Kuka's shares. Midea and Kuka have since been striving to drive the company's growth. "We want to become no. 1 in the Chinese robotics market," said Kuka CEO Till Reute in 2017. 

The difference between business and politics 

"I don't know anything about politics! You're going to have to explain this to me," admitted the CEO of a company during a recent consultation. This is neither embarrassing nor surprising, for politics and business are worlds apart. 

The mechanisms of politics are not easy for outsiders to understand. However, companies that ignore the political factor do so at their own peril. And regulation is not the only risk factor. Business endeavors are vulnerable when the political debate gets heated and goes viral.

Business decision-makers can react quickly and resolutely to evolving circumstances, a privilege that public policymakers do not have. The political process is a protracted negotiation subject by many variables. Every resolution is born of compromise and bred for consensus. Each proposal is preceded by talks and more talks with stakeholders. 

This is how public policy is shaped in a democracy. The balance of power and public sentiment can tip decisions one way or another—often with greater gravity than bald facts. We may lament such imperfection, but live with it we must. It is a universal fact of democratic life. 

What can business do? 

Often enough, the prudent thing to do is to apprise policymakers of business plans at an early turn, especially if a project involves actions that have social implications such as layoffs. The environment, conservation, transportation, infrastructure, consumer protection and social issues are also sensitive matters prone to risk. 

One such case was the IPO of the largest German housing company Deutsche Annington (now Vonovia) in 2013. It rents apartments to hundreds of thousands of people. Most are not big earners. When they learned of Deutsche Annington's plans, many turned to tenants' associations and politicians, fearing that rents would rise after the IPO. Situations like this can put policymakers under pressure to act and pose a daunting communication challenge for companies. 

Tenants and workers are voters; politicians need votes to win elections. Bad news on the business front can spell defeat at the polls. This is why even mild tremors in the corporate world can give policymakers the jitters. The great challenge for companies is to put this fear to rest. 

The political apparatus 

An influential official well up in Germany's public hierarchy recently joked, "I don't like it when I wake up in the morning and am surprised by an important business news bulletin." The CEO sitting opposite got the joke—and the message. Politicians do not like being caught unawares by developments in business life. They want to be in the know—the sooner, the better. The political apparatus has to be given time to consider its position and find a way to communicate it. 

Policymakers also need sound information on which to base their positions. Many know little about the finer points of often complex business processes. What exactly happens during a takeover? How does an IPO actually work? Comparatively few parliamentarians in the German Bundestag have a background in business or economics. Some were lawyers, teachers, doctors or scientists before they sat in parliament; others had regular jobs in trade, retail, commercial, and industrial companies. Top-flight business-savvy managers are not to be found on the benches of the Bundestag.Yet its members are compelled to make decisions of consequence to the economy. 

A matter of trust 

Politicians have the power to allot billions of euros in government investment guarantees. This is actually a political instrument to promote the development of certain technologies and thereby create jobs in key strategic areas. Policymakers do not have problems with these guarantees per se, but they do struggle with their approval because taxpayers' money is at stake. Experience teaches that this is not just some administrative measure; it is a matter of trust. Trust can only be won in an open dialog. And good outcomes can only be achieved if policymakers and business decision-makers look each other in the eye, come to a mutually satisfying agreement and declare, "Let's do this!"

 

Dr. Joachim Peter is Director of the Brunswick office in Berlin. He mainly focuses on Public Affairs.