In a recent interview, a French official working at EU level expressed concerns about decreasing French capabilities to influence Brussels and called for a completely renewed influence strategy. “L’influence précède l’action” – “Influence precedes action,” he said.

Influence capabilities mean the ability to weigh in on how decisions are taken, to shape in a very subtle way the opinion of other stakeholders, and this is the goal not just of European member states but of all other stakeholders.

Julien Bedhouche

For the French this means not only having the right people at the right place among the European Institutions but also being able to leverage the different layers of the French community present in Brussels, working both for private and public bodies.

Of course, logic and a detailed and rational argument remain the main tools to support any position, but it would also be naïve to believe that the decision making process is driven by pure rationality. As with any human activity, it’s also about interactions: the amount of resources and time you will dedicate in order to build your network and enhance these interactions in the best possible way.

The capacity to convince comes not just with logic and rational argument, but also because you’ve set up a network that will provide you with easier access to the most relevant people and save you a lot of time.

For a country, it’s part of the diplomatic work. To extend its sphere of influence, the government must have the proper structures in place. This takes time and resources but it is essential as it is part of so-called ‘soft power’, the non-coercive method of persuading other countries to follow its lead, or at least its views on certain topics.

For a company operating within the European Union, some kind of ‘soft power’ has become a necessity. Developing its own sphere of influence makes sense at a local level, as it always needs good relationships with the authorities, but it also makes sense on a larger scale. Conflicts and litigation are costly and time consuming; they are not the primary objectives of any company and not part of their business models.
Once new regulations emerge from political authorities, companies have no choice other than to comply.

Compliance is not enough

Compliance is a priority for companies, first as a reputational tool. Damage to reputation has become the main driver for compliance and is one of the most deterrent effects of regulations.

Regulations, for their part, eliminate any financial gain or benefit from non-compliance. The idea of any regulation is that non-compliance should never pay off. It is a credibility issue for the regulator and also a deterrence tool.

Rewarding or not, compliance could be seen as a straightforward, rules-based process. There are no benefits attached to taking on regulatory risks and once regulations are to be implemented, it is already too late to complain; there is no option other than compliance.

But overall risk management is not just a compliance issue and strategic surprises can also come from the regulatory environment. Compliance is only the last stage of a risk management process that must encompass regulatory risks in its full range.

Compliance remains a costly thing, especially in the final steps of its implementation, and especially if you didn’t see it coming.

Recently, there was a story about a European bank deciding to cut down on expenses for its US branch. The bank decided that the government affairs department was no longer part of its plan and it was shut down. In the year that followed, a new US banking regulation came in and had an unexpected impact on the business operations of the institution. Because of the absence of monitoring and close watch over what was happening on the legal and political side, no one within the bank could anticipate the potential effects of the regulation soon enough to avoid an expensive compliance process.

The bank found itself unprepared and with neither the in-house expertise nor the relevant networks of people that could soften the costs of an unavoidable compliance breach. The company had to spend a huge amount of money on consulting fees and law firms to be fully in line with the newly enacted regulation.

This example is a case study of the strategic nature of regulatory risks. Compliance is one thing; it is a rules-based process and it cannot be subject to negotiation. If a company wants to manage the regulatory risks properly, that is another thing. It is necessary to set up a structure that will ensure people will work upstream of the regulation.

In order to fully cover the regulations to which the industrial sector is subject, the government affairs function will have to know the political agenda of the authorities responsible for the design, adoption and enforcement of any relevant sector-specific rules. Only then can the team start thinking about planning a strategy of influence.

To understand the regulatory risk in the European Union as a strategic risk, companies must not only have a deep knowledge of their EU regulator but also understand how and why an EU legislation can impact their business and, finally, how to be able to influence the course of an EU regulatory proposal.

The EU framework: the only way out to embrace global competition

When you consider the European Union as a political entity, it is both a source of anxiety and a source of optimism. Anxiety, because of the multiple crises linked to the numerous indebted economies with no growth for the past few years, leading to major social anger towards the European Union.

Optimism, because when you see the economy as a global competition, you quickly figure out that it is a driver for more European unification. Key issues like global trade rules, energy supply, climate change, and research and development require a stronger and more coherent approach than at the level of nations. Therefore, it is easy to understand that the EU institutional framework remains the only one able to provide a solid business environment to compete with other major economic blocks for the next 30-40 years.

Moreover, since 2008, the member states have demonstrated their will to save, at any cost, the eurozone, despite an aggressive attitude from financial markets towards the euro as a currency and many ‘Dr Doom’ predictions. Far from a once and for all rescue, it shows the unconditional commitment of the larger member states to maintain the political structures as they are, instead of jumping into a fragmentation strategy with an uncertain outcome. The European Union seems to have reached a point of no-return and will remain at least for the next decade the institutional framework within which to work.

Technically, the involvement of the member states during the peak of the debt crises has also somehow weakened the European institutions like the Commission or the Parliament, giving them secondary roles, although official treaties had respectively granted them what is the equivalent of executive and legislative branch status. This is even more the case since the Treaty of Lisbon came into force in 2009, turning the European Parliament into one of the legislators along with the EU Council.

From a risk management perspective, as long as the European Union and the euro exist, companies must not only have the knowledge but also the proper understanding of what’s going on at EU level. As mentioned, the regulatory environment is a source of strategic surprises and an unexpected regulation is, indeed, a nasty surprise.

What this means for a company is that it should be able to track new legislation at EU level from the very beginning. It should know the key people with the ability to initiate legislative proposals, understand the EU jargon that could be disturbing at first for any beginner, identify who already has influence capabilities and express messages through the right channels. In other words: influence the course of the development of any new, relevant regulations for their business.

Influence tools

In order to establish an efficient influence strategy, the first step for any government affairs team will be to be aware of what is happening or will happen. In EU affairs, this means first of all a thorough monitoring of the European Commission activities, whether it is policy development with research, consultations (‘Green Papers’), communications (‘Strategy’, ‘Roadmaps’) or work programmes (draft legislative proposal).

What matters is to work as far upstream as possible. It will give the company the most up to date knowledge about the agenda and the priorities of the regulators. This legal surveillance will save time and ensure better response planning.

The European Union has a unique way of working on new legislation and the involvement of every stakeholder is part of this process. The European Commission expects to receive input from the industry targeted by a new initiative, whether it is binding or not. The smartest company will anticipate the information; the smartest company will look credible with a strong and detailed position to submit to the authorities.

Next comes the time to identify every other stakeholder through a mapping process. This major step will provide a useful web of contacts, both public and private, that could play an important role if an issue emerges due to the complexity of the case or if further clarification is needed. The basic idea is to not be left without answers.

The connection phase is the concrete use of the pre-established web of contacts. This web will become the network used to know and be known. In a lobby capital like Brussels, a company or a professional association needs to be recognised as a stakeholder, which means to be considered as a reliable player with a specific input and a technical expertise in its own field.

This expertise will give the legitimacy to participate to the various conferences and meetings that are held in Brussels every month for every industrial sector. Credibility and visibility are key when it comes to having inlfuence on how institutions will decide to act.

It is also vital to build cross-sector coalitions, a very common lobbying practice which consists of finding partners with shared interests on a specific case in order to act jointly in front of the EU institutions.

The influence strategy must encompass all these steps before it will be able to redirect any trends at EU level. Regulatory risks can be predictable; they are the products of a public decision-making process that has to be closely watched. They are also preventable, through an appropriate and thorough compliance process. But to optimise compliance costs, the industry should work as far upstream as possible to identify shortcomings and future burdensome provisions.

If compliance is the final action of a broader risk management process, then influence must become its prerequisite. Influence precedes action.