Regulatory: Public policy as a solution, not just a problem

Retaining lobbyists can be cost-effective for businesses

In our recent series of articles we have discussed the impact that government policy is having on client’s operations, opportunities and, ultimately, their bottom line. We have explored how everything from environmental policy to changing community redevelopment strategies affects the costs of doing business for clients in ways rarely contemplated by those making the policy decisions. We have not discussed in any detail how our clients can address these challenges, but in this article we will.

Many clients view government policy through the prism of legal processes: compliance, enforcement, negotiation and, if all else fails, dispute resolution. Counsel should also consider an additional process—lobbying. Changing public policy as it is being made can help clients avoid complex compliance issues, the risks of enforcement and the need for related negotiation or dispute resolution.

There are generally two considerations when a client is deciding whether to engage directly in the policy-making process.

  1. Is retaining a lobbyist cost effective?
  2. How does a client manage a lobbyist when the policy-making process is a mystery to the client?

This article focuses on the first question.

If we take as a given that the cost variability of equally-skilled lobbyists in any given geographic region can be assumed to be similar, the primary variable in the equation is “What is the value of the public policy decision to me? Or, alternatively stated, what is at risk?” The higher this value, the more likely affecting the policy is worth considering because success will pay dividends for the client. A client can use this calculation to consider both short and long-term financial risk and reward.

Clients have debated the issue of whether or not a lobbyist represents a cost of doing business or a source of (direct or indirect) revenue for a long time. Sometimes the debate over hiring a lobbyist is a philosophical one, but for clients who study the issue it is apt to be a strictly monetary or business discussion. Often the discussion is a function of a client’s business model; a tax-exempt organization is subject to restrictions on paying for advocacy, while a for-profit company need only comply with applicable state and local laws and regulation governing lobbying activity. The Constitution protects clients’ rights to petition the government, so the regulation of lobbying activity is generally limited to requiring disclosure about the policy at issue and the costs clients’ incur in advocating to ensure the final policy is acceptable.

Assuming a client is not de facto barred from lobbying activity because of its tax status or some other factor, there is a growing body of academic literature that concludes that retaining a lobbyist produces a return on investment for the client. In June, for example, The Manhattan Institute published a survey of recent academic studies addressing the cost benefit analysis for clients that are active in the political process, including by choosing to engage a lobbyist to represent their interests as policy decisions are being made. The report concludes that lobbying efforts “generally have positive effects” for firms.

The practical results of a positive public policy decision can yield benefits such as lower taxes, more favorable regulation and, in some cases, government funding. Depending on the study, clients reportedly improve their financial performance by as much as 5 percent a year because of successful advocacy efforts.

As lobbyists, we have seen many policy decisions refined and improved through effective education about a client’s operation. The resulting policy change does not necessarily lend itself to a detailed financial analysis, however. For example, clarifying ambiguous regulation may make compliance easier, thus avoiding costs borne of uncertainty for the client and the government. In other situations, a government decision can have obvious benefits for one entity over another. In these cases, the financial liability of an adverse policy decision and the potential benefits of the lobbying work are much easier to document and a return on investment calculated.

As has been highlighted in several different ways over the course of this opinion series, government and business are crossing paths more often and at a level of complexity not contemplated by policymakers a generation ago, let alone our Founding Fathers. Advancements in science and technology will continue to produce ever more complex policy considerations, influencing everything from environmental regulation to tax law. Having a professional advocate on the team will help clients better navigate the roiling waters of ever-changing government decision-making. All the better, the lobbyists’ work will frequently pay for itself and even more.

Contributing Author

author image

Thomas McMorrow

Tom McMorrow is a Partner at the law firm Manatt, Phelps & Phillips, LLP, in the Sacramento Government practice group and is Chair...

Additional Contributors: Jon Costantino

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.