Envoping: Or Interacting with the Operating Environment During the ''Age of Regulation''

By Fady J. Rahmé

The operating environment is changing faster than ever before, and is threatening business
survival. Regulators and Public opinion have become major stakeholders for an increasing
number of industries. The 21st century will be the Time of Regulators and ever greater change
within corporations. What appears to be a particular challenge for highly regulated firms
(Tobacco, Pharmaceutical, Petroleum, and Telecom) will be, in a very near future, a major
issue for most companies. The business leaders feel it and rank this "change" as the number
one threat to their business. They seek a solution. This book offers one under the name of
"EnvOping" or managing the interaction with the Operating Environment of Corporations.
It is a new approach of Corporate Affairs and Communication (CA&C) that moves this
department from a marginal consulting role to a core function at the heart of the corporation's
management, from a technique to a science that can be taught in universities.
The book is a mixture of theories and live examples taken from the author's 30 years of
professional experience and provides the tools to structure the role of the EnvOping manager.
It allows managers to look to the future and the coming changes with more confidence

• Language: English
• Publisher: Xlibris UK
• Release date: May 15, 2013
• ISBN: 9781483613765

Fady J. Rahmé

Over the past three decades, Fady Rahmé has worked in diff erent functions in Europe, the Middle East and Africa, understanding and analyzing the Operating environment and managing the interaction within it. He was a journalist (1980-1987), then an Analyst of Political and Financial Risks (1988-1990) before holding various consulting and operational positions in Marketing, Strategic Communication and Business Development for a variety of Multinationals and SMEs. (1991-2005). Since 2006 he is Regional Vice-President in charge of Corporate Aff airs and Communication and Compliance at Japan Tobacco International. He holds a Master’s Degree in Public and Private Law from the St Joseph University in Beirut and completed Post Graduate studies in Political Sciences at the Institut d’Etudes Politiques de Paris. He has also attended the International Executive Program of Management at INSEAD.

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Copyright © 2013 by Fady J. Rahmé.

All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the copyright owner.

The content of this book does not necessarily reflect the opinion or views of any specific industry or any specific industry player. Responsibility for the information, views and opinions expressed in the book lies entirely with the author.

Translated to English by Carol Stephenson

Rev. date: 05/08/2013

To order additional copies of this book, contact:

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Contents

Introduction  The Age of Regulation

Chapter 1  The Operating Environment and its Stakeholders

A.  Defining the Operating Environment (EnvOp)

B.  Stakeholders and the Operating Environment

1.   Regulatory Bodies, Public Authorities, and Professional Communities

2.   Media and public opinion leaders including NGOs.

3.   The consumer as a political player

4.   Customers (B to B or B to C)

5.   Employees

6.   Shareholders and financial stakeholders

7.   Competitors and the economic sector to which a corporation belongs

Chapter 2  The Corporation Facing the EnvOp

A.  Interact or simply suffer?

B.  The regulator—a player like no other

C.  Change in the EnvOp is not a risk like any other

Chapter 3  EnvOping

A.  EnvOping: A profession creating value for shareholders—from resilience to strategic resilience

B.  Who manages interaction in the EnvOp today and who will manage it tomorrow?

C.  Skills and training for EnvOping managers—Towards a new and specific academic discipline

Chapter 4  EnvOping and its Role in the Corporation

A.  The five functions of the EnvOping manager

1.   The Radar—Reading the EnvOp and anticipating developments

2.   The Translator—Understanding the challenges of the business sector, identifying and defining the impact of change on these issues, and establishing priorities, backup plans and the extent of the intervention needed

3.   The Orchestra Coordinator—Identifying targets and establishing, with senior management, a strategy, setting out positions to defend or support during the engagement with various stakeholders as part of a global action plan.

4.   The Timekeeper—Defining key performance indicators (successes and failures), monitoring the deployment of the action plan—and if need be—correcting the current course.

5.   The Knowledge Keeper—Establishing processes to take advantage of accumulated experience and allowing the transfer of the acquired knowledge.

B.  EnvOping: Corporate Social Commitment and Good Governance

C.  Conclusion: EnvOping—Earning a seat at the table

General Conclusion  EnvOping—Is it an Art or a Science?

Bibliographic Summary

To Careen, Jad, Tarek and Aya.

Acknowledgment

To all those who have given their time to answer my questions or share views about the content of this book, or even to read the manuscript and provide their valuable comments and recommendations. Without their support and encouragement, I may have never had the courage to proceed. I thank them for their time, efforts, and dedication. This is only a small expression of my gratitude.

Introduction

The Age of Regulation

The idea of contributing to current thinking on the best ways to manage the interaction of corporations with their operating environment was born in late September 2009. At the time, the G20 summit was happening in Pittsburgh in the United States and, for the first time, the leaders of twenty of the world’s largest economies met to discuss the freeze on stock-market trader bonuses and bank executive pay. These issues had never before been regarded as a State responsibility nor as an economic activity subject to specific regulation. This event heralded to the world that it was going to live through many changes to recover from the global financial crisis of 2008-2009.

In fact, some twenty-four months prior to the summit, major economies were experiencing the onset of a recession, which continued to grow until the autumn of 2008, at which time finance ministers of the largest countries decided to bail the financial sector out. This was now in dire straits due to, amongst other things, excesses involving sub-primes, credit default swaps (CDS), and other complex financial tools hitherto unknown to the general public.

Treasuries, faced with an unprecedented economic crisis, and although predominantly fans of free trade and a free economy, found themselves in a hopeless situation. How could savings invested in banks or in life insurance policies be rescued when the world’s largest banks and insurers seemed incapable of meeting their own financial obligations and could be considered to be technically bankrupt? ‘Fresh funds’ essential for business operations were becoming scarce. The property market went into recession, swiftly followed by those of industry and trade. The triumphant eras of ‘Reaganism’ and ‘Thatcherism’ of the late twentieth century appeared to have had their day. Was liberalism going into decline just like its rival communism had twenty years before? Should businesses be allowed to be led by the marketplace without regulatory interference? The consequences for small investors and savers would be as tragic as they were for the banks if we were to do so.

It all started in the 1980s, a period during which the principles of the technique of leveraging were established. This is a technique which allows a stakeholder (corporate or individual) to buy financial bundles, property, or shares whilst borrowing against these bundles, loans, equivalent to several times the value of the original financial assets. Everyone seemed to forget that this would only be profitable if the goods or products purchased were ‘worth more tomorrow than today’. However, what would happen if that was not the case? If the rising market started to fall, this technique of leveraging would make the fall exponential, inevitable, and very hard to master, resulting in a chain of insolvencies. But nobody wanted to consider this as a possible scenario. The crazy years of 2007 and 2008 had turned the world into one huge casino and convinced everyone that they would gain whilst disregarding the basic principles of caution and prudence. Little time had passed since other crises such as the 1987 stock market and the dotcom crash of 2000 had happened, when stakeholders were heavily in debt, but no lessons had been learned.

Early in 2008, the real economy took over from the virtual one, when it became clear that

•   the world’s largest underwriters were using structured financial tools known as CDS, which relied on placing the risk with companies deemed to be foolproof, without diluting these risks, a basic rule of insurance;

•   banks pursued their customers requesting that they over-invest in the property market on the basis that everything would be worth more in the future, without asking themselves the question of what would happen if supply exceeded demand; and

•   the smallest traders, like the largest, were betting on ten, twenty, indeed sixty, times the stake.

Within months the situation was becoming very serious. With the property sector no longer finding speculative buyers, the global economic machine was jammed. Borrowers were no longer able to make their repayments, banks were short on liquidity, consumers no longer had access to credit, and production was falling. The United States was entering a recession followed only a few months later by Great Britain, the whole of Europe and some developing countries. Imports from Organisation for Economic Co-operation and Development (OECD) countries collapsed, carrying serious risks for India and China, the main beneficiaries of industry delocalisation. Governments and regulators were forced now to act. The authorities had to take things into their own hands, because allowing the free market to run would have had very serious consequences for pensioners, savings banks, shareholders, and for the financial institutions relying on these complex tools. We are going to learn, however, that some institutions are too big to go under, notoriously too big to fail.

One would like to think that by the time the reader reads these lines, the economic crisis would have been resolved and that the reordering of the business and financial world would have taken place. However, the purpose of this book, started during the economic crisis, is not to map, analyse, and understand the ins and outs of this crisis but rather to shed some light on what may be one of its consequences—that is, the extension of the State’s regulatory role in areas previously considered to be the sole responsibility of businesses and the laws of a free competitive market, in response to strong pressure from public opinion.

The State’s increasing role in business was to give rise to a new approach to risk management. Indeed, when one business partner—the State being one—expands its sphere of activity, it places corporations in a situation where new ‘rules of the game’ create not only new opportunities but also constraints and risks with which a company will have to cope, whether that is in benefiting from opportunities or in adapting to stresses or in dealing with the risks and costs associated with that. Accordingly, businesses must develop their risk management tools and techniques by regarding the regulatory body as another permanent partner and no longer just as an occasional stakeholder. It must be considered as an active, ongoing partner, not merely a distant influence issuing laws and regulations to which one can easily adjust. Regulation, in the newest sense of the word, will bring continuous change and will be the keystone in the operating environment within corporations and business organisations. It will play a pivotal role among stakeholders, influencing and changing that environment.

Establishing new regulations or amending existing ones entails hazards for businesses affected by these regulations. The State’s role as regulator has always existed, but what the early years of the twenty-first century bring is a novelty in terms of its scope. Regulation can, in a number of cases, cover most aspects of a business, its production, and spread into emerging industries. Nicolas Sarkozy, the French President, accepting the G20 presidency said on 16 November 2010, ‘If the world does not want the return of US protectionism, we need to develop a regulatory framework for trade and the financial markets.’

Perhaps, post the ‘Age of Services’, the time has arrived early in the twenty-first century for the ‘Age of Regulation’. Professor James Teboul (author of the concept The Age of Services) has, along with a number of experts, explained that towards the end of the twentieth century, most businesses would rely on the notion of service in their approach to production and the delivery of goods to consumers for their success. It seems that today the differentiation between companies might depend on one’s ability to interact with the operating environment, a major dimension of which is managing regulatory bodies. The twenty-first century looks set to be ‘The Age of Regulation and Regulators’, the latter being elected public officials (MPs) or designated civil servants and experts responsible for the laws and/or regulations governing a specific industry or sector.

If there is a process that the financial crisis of 2008-2009 has accelerated, it is that there has been a resurgence of regulation. Here, the word ‘resurgence’ is used to mean that there have been times—right up until the fall of the Berlin Wall and the end of Communism—where the State was not only the most significant player in the economy but was also the seat establishing the rules of competition among market players.

However, establishing codes, laws, and rules is nothing new for government officialdom. It is possible to go back in time and see that codes of interpersonal relationships were already being kept in the time of the Babylonian Hammurabi (circa 1700 BC). We could also cite Pax Romana and Roman law which spread all around the Mediterranean and across much of Europe, developing and enacting regulations which superseded local traditions and practices and which established itself in every province in the empire. The empire introduced the idea of the law as a written code, enforced by a judicial system under the control of a Senate. Successive centuries would see very few changes made to this ‘division of labour’ between the private sphere, family, business, etc. and the authorities. So a regulatory authority has always been there, but its scope for intervention seems to have been more limited.

After the French Revolution, and the social change that followed, we note that social demand enshrined the State as governor of the relationship between different levels of society. The State acted as the public representative in terms of political decision-maker (the executive power being under the control of an elected parliament) but also as a player—even though in a tentative and limited way—in the better distribution of wealth. This was the century of Montesquieu and the ‘Spirit of Laws’ (1748). It was up to the French State—through taxation and sometimes loans—to provide the rudiments of social justice. It was responsible for ensuring that the benefits of the ‘Declaration of the Rights of Man and the Citizen’ adopted in 1789 were passed on to its own citizens. Agriculture, commerce, and, later, industry and finance remained in the private sphere and were regulated by the