Clean tech goes to Washington – but is it getting there fast enough? by Korn Ferry

Clean tech goes to Washington – but is it getting there fast enough? by Blair Bennett, Shelly Fust and Asheley Linnenbach

September 2010 Renewable energy and clean technology companies delay in adding government relations (GR) executives to their senior decision-making team at their peril. Far more than other industries, effectively influencing policy and legislation and tapping available government funds can be a make-or-break proposition for these usually young firms. Hurdles to hiring the right executive–entrepreneurial, influential, adaptable–can be removed once companies understand where this critical talent currently resides.

The need for powerful advocacy has never been greater for renewable energy and clean technology companies —a sector that includes hundreds of solar, wind, nuclear, energy efficiency, clean coal, biofuel, smart grid, electric transportation, water and wastewater enterprises. Still, these companies, whose growth can depend on Washington’s stamp of approval, often hesitate to add to their executive salary overhead by hiring a full-time government relations (GR) executive in Washington, D.C. When should fast-growing clean tech companies invest in government relations talent? Yesterday, according to Washington insiders. “It has to happen early in a company’s development,” said Rhone Resch, president and Chief Executive Officer (CEO) of the Solar Energy Industries Association. A CEO should add a GR executive the moment he senses the need to engage with Washington. A GR executive is invested solely in your company, and can drill down to the many sub-levels of agencies and subcommittees that spawn public policy. An outside lobbying firm may open doors, but someone from the company—often the CEO—will still be required to make the pitch to the relevant agency or staffer. “The CEO’s time is very expensive. You don’t need your CEO talking to a mid-level manager in the Department of Energy about a program that may or may not happen.”

Having a full-time GR executive on the ground can make a critical difference. Consider that the American Recovery and Reinvestment Act of 2009 earmarked more than $50 billion for renewable energy investments, including 19 specific solar energy programs. Complete information about these funding opportunities “is not going to be entirely online, and it cannot all be communicated in a webinar,” Resch continues. “I think more clean tech companies are realizing that most of their business models are driven in large part by policy. A policy does not just happen. You need to spend the time and the resources with members of Congress and with the administration to help ensure that policies are created to work effectively.”

Rapid growth means growing up fast The clean tech sector has been expanding at a blistering pace. The stock index for such U.S.-based clean tech companies soared 25 percent in 2009, during the depths of the financial crisis, when venture capitalists also invested nearly $5 billion in renewable energy companies (Bennet, J. 2010). Still, for those firms just moving beyond start-up mode, creating a government relations function More clean tech companies are realizing that most of —let alone another executive their business models are driven in large part by policy. position—may sound like overreaching. Access to capital remains tight, after all, and the notion of diluting equity is unappealing. Companies at this stage of development also often have a senior team that blends the founders with managers from private equity firms or other recent external hires—people who are accustomed to representing their own interests. The result is that the government relations function, if handled by an overextended early-stage management team, can get short-shrift. The risks associated with ineffective (or nonexistent) government relations— including missing out on stimulus funding and being blindsided by unfavorable bills or regulations—can far exceed the cost of hiring a fulltime GR executive to run this “line of business” (Calmes, J. 2009). The most effective GR executives not only wield influence on Capitol Hill, they also help their colleagues at corporate headquarters by translating regulatory and legislative developments into strategic insights. To determine why, when and, equally important, where government relations should be added to the organizational chart, leadership teams should understand the drivers, benefits and where to look for this increasingly crucial leadership talent.

Why to look for GR talent now If Los Angeles-based Rentech did not have its “man on the ground in Washington,” said CEO and President Hunt Ramsbottom, the synthetic fuels producer may not have signed lucrative contracts to provide alternative jet fuel to more than a dozen airlines. The company also may not have managed to jump-start stalled discussions with the U.S. Department of Energy regarding approval of a new production facility. And Rentech certainly would not have maintained enough credibility on Capitol Hill to help shape alternative fuel-friendly tax policies that face annual renewal. Rentech’s vice president for government affairs, James McVaney, is trusted by key White House and congressional staff, said Ramsbottom. And that pays off. “The policymakers we work with and the customers we do business with trust us in large part due to Jim’s consistent presence in Washington,” Ramsbottom said. “The economics of clean tech currently require legislation to get most of these new businesses off the ground. Many important conferences now take place in Washington, and there is a lot of capital flowing out of there.”

“Clean tech companies need to have an executive who is thinking about government relations as part of the bottom line on a daily basis.” Brian Hardwick

senior vice president with Kratos and the head of the Washington-based public affairs firm’s clean tech practice

Rentech created McVaney’s senior-level government relations position three years ago. But many fast-growing renewable energy and clean technology companies delay adding government relations executives to their senior leadership teams—at their own peril. As Ramsbottom pointed out, policymakers and lawmakers regulate and, in many cases, essentially fund clean tech companies. Effectively influencing policy and legislation while tapping available funding, such as the more than $50 billion earmarked for renewable energy investments last year, requires senior-level government relations expertise on staff—often times, in addition to the use of external lobbyists. “Many of the clean tech companies we see don’t even have a line item for government relations in their budget,” said Brian Hardwick, senior vice president with Kratos and the head of the Washington-based public affairs firm’s clean tech practice. “For many clean tech companies, government decisions directly impact the bottom line. Clean tech companies need to have an executive who is thinking about government relations as part of the bottom line on a daily basis.”

Outside lobbyists alone won’t do the trick. Their focus on short-term legislative victories often doesn’t translate into a long-term strategic approach. Companies with more advanced government relations functions, like Rentech, rely on both internal and outside expertise. “If you’re Shell and you hire a top-ten, multi-client firm you’re going to get plenty of attention [from the firm],” Ramsbottom says. “If you’re a company the size of Rentech, you’re not. Besides, no one advocates for you harder than your own employee.”

No one advocates for you

The relationships GR executives establish and nurture in Washington often extend into the commercial realm. For example, McVaney’s contacts with his GR peers played a key role in harder than your own employee. Rentech’s pursuit of a major customer for its synthetic jet fuel. “I have been trying to work through the CEO of this company, and it turns out that this company’s Washington [government relations] people, who Jim knows very well, have been instrumental in pushing the alternative fuels initiative inside their company,” he says. “We get a lot of our contacts for customers through our Washington office.”

“ In many ways, advocating on behalf of a clean tech interest is selling a promise rather than a reality. The benefits will come in the future but the risks are perceived as here and now.” James McVaney

Rentech, vice president for government affairs

What talents to look for The primary role of any government relations executive is that of strategic conduit. This executive participates in political and legislative discussions to help broker policy and legislative outcomes that are favorable to corporate strategy while informing internal strategic decision-making with political and legislative insights. Doing so requires mastering multiple policy issues: labor, taxes, trade, procurement, environmental, health and safety. Out in the field, the job demands being part salesman, part teacher, part diplomat. “In many ways, advocating on behalf of a clean tech interest is selling a promise rather than a reality. The benefits will come in the future but the risks are perceived as here and now,” said McVaney. “Policymakers are easily confused by the endless parade of new energy companies with a better mouse trap, and this often leads to clean tech being viewed with a jaundiced eye. Members of Congress have been burned, or seen colleagues burned, by companies that promise projects or breakthroughs only to have them evaporate. The ‘start-up’ nature of many clean tech firms also makes their claims susceptible to skeptics.”

Given the complexity and critical nature of these responsibilities in clean tech, it makes sense to include the government relations executive as a member of the senior management team (see “Location Matters” sidebar). Although the leadership and skills profile for the position continues to evolve, certain attributes crop up in specifications from clean tech firms hunting for a government relations executive. These include: Self-motivation: New GR executives in clean tech usually build their functions (and GR strategies) from the ground up. This requires being able to articulate a compelling vision as well as securing the ongoing support of the rest of the executive team. Entrepreneurial experience: Many clean tech companies shift strategies and business models quickly and dramatically. Manufacturers of clean tech equipment that are distributing and operating their technology this year may choose (or be forced) to sell off their technology development pipeline or shed their distribution capabilities nine months from now. Executives who enter this environment should be comfortable with uncertainty and risk, as well as managing non-stop change. Agile decision-making: In this environment, time is precious. Fellow executives expect nimble thinking and demand quick, adaptive responses. Being adept at “thinking on your feet” particularly in response to changes or new information is an essential style GR executives have mastered. Translation skills: The successful GR executive decodes legislative lingo, which tends to be highly technical, to audiences who are unfamiliar with the K Street vernacular. Likewise, he or she may be called upon to translate technical specifications to policy-makers and their aides.

Where to find GR talent

Location Matters Throughout this paper, the government relations executive is referred to as a member of the senior decision-making team. This positioning is intentional. While other potential reporting relationships exist in practice–some GR executives report to a vice president of marketing, the top business development executive, or the general counsel, for example–a direct reporting line to the CEO offers important benefits. First, this arrangement conveys that the company takes government relations seriously. Second, it affirms the two-way nature of the role: taking the firm’s mission to Washington, and Washington insights back to the firm. The GR executive does not simply helm a “monitoring office” that watches for changes in regulatory policy and legislation coming down the pike. “Government relations staff need to be senior members of the management team,” said Rhone Resch, president and CEO of the Solar Energy Industries Association. “They should be viewed as a key part of the company’s business development strategy, and they really need to have direct access to the CEO and be a part of the organization’s strategic planning.”

Clean tech companies seeking GR executives can find this talent in several different areas: the broader energy sector, including newer clean tech companies as well as traditional enterprises (e.g., oil and gas companies and utilities); relevant trade associations; other industries where regulation plays a significant role (e.g., high-tech manufacturing, telecommunications); lobbying firms; and current or former government officials, legislators and staffers from Washington. Each of these sources pose a general set of pros and cons for the clean tech industry.

Individuals from the government affairs department of another corporation can bring with them a valuable roadmap of how to navigate Washington’s influence channels as well as experience operating within a corporate culture. The challenge lies in identifying how well a GR executive from another industry—or even large, traditional energy companies—can adapt to the management demands of a fast-growing clean tech firm. GR executives within a traditional oil and gas corporation, for example, typically operate with an abundance of resources, well-established processes and other senior-level colleagues, at their disposal. In most cases, a clean tech company’s incoming GR executive will begin by leading a department of one. Other conditions within today’s clean tech companies—including the transition from technology founders to a new executive team, private equity (rather than traditional) boards, and corporate strategy that may need to turn 180 degrees on a dime—may fluster even seasoned GR executives who have grown accustomed to a more stable corporate environment. GR executives from rapidly changing industries such as high tech may be better suited to clean tech companies, but these individuals will likely require the investment of more time to learn about the realm of renewable energy. Lobbying groups and industry associations represent another potential source for GR executive talent. Of these two sources, executives from trade associations tend to offer the skills and leadership most similar to GR executives in traditional energy Lobbyists’ relationships with Washington influencers can and other industries. Energy association executives possess an be highly valuable, but they frequently lack first-hand understanding of the thought experience inside fast-growing corporations. patterns of corporate entities from working with member companies in their industry. However, an association’s pace of business and change tends to be much slower than that of a typical clean tech company. Lobbyists from multi-client firms typically work on a broad range of issues for numerous private-sector clients, and their relationships with upper-level Washington influencers can be highly valuable. However, like the officials they huddle with, lobbyists frequently lack first-hand experience inside fast-growing corporations. Capitol Hill and the departments and agencies within the executive branch possess plenty of potential candidates extremely well-versed in current

policy, regulatory issues and government spending programs. However, new lobbying limits that apply to “every appointee in every executive agency,” according to one of the President Obama’s first executive orders, prevents his appointees from lobbying the administration for the duration of his presidency (Eggen, D. 2009). Restrictions also limit which committees or personal offices senators, congressman or some of their staff may lobby upon leaving office. Also, many, though not all, current and former government officials have careers steeped in government service, not bottom-line-driven corporate life. As a result, companies can expect GR executives from this track to require more time learning about what drives corporate and industry decision-making. There are, of course, exceptions to this high-level rundown of “clean tech suitability” attributes. To make the most effective GR executive hiring decision possible, clean tech executive teams and boards should understand these attributes and how they relate to, and fit their growing, and increasingly important government relations needs. Although the landscape in Washington can change with each election, there is no doubt that the federal government will continue to play a dominant role in shaping the future of energy. To gain a seat at the table, clean tech companies need to have a respected government affairs professional as part of their executive team. Those that don’t prepare now are setting themselves up for a crisis to manage down the road.

References Bennet, J. 2010. Are we Headed Toward a Green Bubble? Entrepreneur, April.

Calmes, J. and Story, L. 2009. In Washington, One Bank Chief still Holds Sway. The New York Times, July 19.

Eggen, D. and Smith R.J. 2009. Lobbying Rules Surpass Those of Previous Presidents, Experts Say. Washington Post, Jan. 22.

Blair Bennett is a Client Partner in Korn/Ferry International’s Washington, DC office, and a member of the Government Affairs Practice.

Shelly Fust is a Senior Client Partner in Korn/Ferry International’s Los Angeles office, and a member of the Sustainability Center of Expertise.

Asheley Linnenbach is a Client Partner in Korn/Ferry International’s San Francisco office, and a member of the Corporate Affairs Center of Expertise.

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