02/11/2016

Why government and business really do need to work together

Author: Nick C Jones, Director of PwC’s Public Sector Research Centre Nick

As the snow settles after the launch of PwC’s 19th Annual Global CEO Survey in Davos, one of the key issues remains how government and businesses can work better together to deliver the outcomes that both they, and citizens, want and need. As Professor Klaus Schwab noted in an interview ahead of the opening of the annual WEF meeting: “the need for cooperation btw governments and non-public actors has never been as great as it is now." 

So why is it that tensions abound between companies, who believe they can be trusted to do the right thing, and governments that aren’t so sure?

The regulations that governments are trying to enforce are intended to be in the best interests of the public, in their roles as consumers or employees. But they can involve reforms, penalties or higher taxes for business that result in higher costs - including those that result when business doesn’t have enough clarity about how regulations should be interpreted and implemented. These costs, in turn, are likely to be passed onto customers in the form of higher prices.

This no doubt contributes to the near universal frustration of CEOs in PwC’s 19th Annual Global CEO Survey that over-regulation is a threat to their company’s growth, and why 42% cite unclear or inconsistent regulations as a barrier to responding to changing customer expectations.

Nick's blog photo

What’s more, increasingly divergent political and legal systems around the world make it harder for multinationals to comply with rules or standards in their countries of operation without falling foul of their home country’s laws.

But viewing government through a combative lens is unlikely to help companies in the long run. For one thing, government and regulators have a big impact on companies, with 69% of CEOs citing them as highly influential on business strategy. And, despite their complaints about government interference, many companies expect the state to provide considerable help, whether it’s improving workforce skills and education or the infrastructure needed by any modern economy.

As both business and government navigate changing public expectations, they’re going to need each more than they might think. In the end, businesses want to create the best value they can for customers, and doing that increasingly means creating the best value they can for society at large. These are the same goals that government shares – a win-win.

For business, understanding why regulation is there in the first place, rather than focusing only on interpretation and compliance can help ease the stand-off. Regulations are often first introduced in response to a market failure or to embed good business practice in legislation.

Recognising the spirit of what government is trying to achieve can help businesses pre-empt the need for regulation by establishing core principles and values to guide decision-making. It paves the way for active alignment with government goals and programmes in order to help shape them and improve their effectiveness. Such actions will also serve to rebuild trust with regulators.

On the other hand, more recognition is needed by government of the extent to which regulation can create additional burdens and costs which need to be weighed against societal benefits. Meanwhile, if business expects constant legislative change, a climate of uncertainty will threaten investment, national growth and competitiveness.

What’s really needed is smarter regulation that’s proportionate, accountable, consistent, transparent and targeted. Streamlining public sector processes through digitization - and involving business in the co-design of implementation - can also go a long way toward enabling this process and easing the compliance burden for companies.

Nick C Jones is the Global Director of PwC’s Public Sector Research Centre and has authored, and contributed to, reports on a wide range of public services issues. He sits on PwC’s Global Government and UK Government and Public Sector Leadership teams and is also a member of the Editorial Team for PwC’s Annual Global CEO Survey, commenting on the relationship between business and government.

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