Regulatory Strategy

We live in an age of transparency. Successful companies understand that reputation is no longer about spin; it's who you really are. They engage radically with society because there's significant value at stake—often above 30 percent of EBITDA in most industries. In fact, the long-term financial performance and sustainability of companies are intrinsically connected with how successfully they truly integrate with society.

McKinsey helps clients to organize, set priorities, and mobilize to work collaboratively with government bodies, regulators, local communities, and nongovernmental organizations.

Here's how we do it:

Prioritizing issues for external engagement

New regulation can put value at risk, but it also creates new opportunities (such as stimulus packages) and unlocks new growth levers. A rigorous, quantified assessment of the value at stake from these risks and opportunities—over both the short and the long term—is critical to prioritize an organization's outreach efforts. We help our clients quickly anticipate, identify, and understand the key regulatory issues that may affect their industries, leveraging an in-depth understanding of industry profit pools, as well as unique insights into the levers that governments and regulators might consider implementing in their sectors.

Building superior capabilities to map and manage external stakeholders

To execute the strategy, companies must proactively engage with a broad range of external stakeholders—regulators, consumers, the media, local communities, NGOs, and financial institutions. McKinsey helps clients to identify critical stakeholders, understand their overt and obscure agendas and priorities, and map out each group's influence within the decision-making process. We move stakeholders away from an "I win, you lose" mentality, instead creating a collaborative environment that builds long-term trust and encourages trade-offs and "win-win" solutions. And we help clients translate their positions into messages that will be credible and compelling to the relevant audiences, presented in formats ranging from detailed position papers to short "political factoids."

Mobilizing the organization

Implementing an external-affairs strategy requires organizational momentum and drive, and top-management involvement is often critical to success. We help clients raise the profile of corporate and external-affairs abilities so that it is commensurate with its real importance.

McKinsey has developed practices and processes to create cross-functional momentum on issues with significant value at stake. Our approach includes allocating sufficient resources, recruiting the right talent to the team, and putting in place processes to ensure that stakeholder engagement actively supports the strategic priorities.

Recent examples of our work

• We helped a large consumer-goods company develop a strategy that put concerns about obesity at its core—not just addressing stakeholders' issues reactively, but also proactively changing the portfolio of products, enforcing self-regulation, and supporting government-led programs.
• We helped a global natural-resources company to work with other industry players to mitigate the effect of proposed legislation that, over the next decade, would have put several billion dollars of profit a year at risk while not achieving the expected benefits. Working with the client, we established a fact base and assessed the impact of alternative policy options, planned and executed stakeholder-engagement activities, identified potential allies, drafted position papers to share with key influencers and policy makers, and developed agreed-upon messages to enable a rapid response to questions from the government and the media. Common ground emerged and better legislation was enacted, leading to a better outcome for society.
• Following the financial crisis, a number of new systemic regulations were put in place to promote the banking sector's financial stability. McKinsey helped a large bank to understand the implications of regulation on its business and to identify strategic actions necessary for a response to the regulatory changes. For instance, we analyzed a range of options for reconfiguring the operating model to comply with regulations and operate more efficiently and created a "heat map" to prioritize and monitor compliance with specific new regulatory requirements. The new integrated view of the regulations helped the bank to reduce the resources required for regulatory compliance.

Featured capabilities

• Our digital stakeholder and mapping solution quickly identifies relevant stakeholders to support complex business challenges. It mines big data to monitor debates in real time and to prioritize stakeholders to engage, pinpoints strengths and gaps in your current coverage, and helps form strategic options for engaging more effectively.
• Our regulatory and external-affairs capabilities (REAC) diagnostic, an external survey that takes about 20 minutes to complete, helps companies to make their own assessments of their external-engagement aptitudes.

See all capabilities