Lobbying & Law
The high-tech boom was hitting its peak when 3Com Corp., a high-flying Internet networking company based in Santa Clara, Calif, hired Greg Garcia in February 1999 to head its new Washington office. At the time, Garcia said that 3Com, like many other tech companies, was beginning "to recognize that Washington has an impact on how we do business."
Garcia racked up plaudits in two job-- performance reviews while lobbying assiduously on Federal Communications Commission rules and on China trade. Garcia "was doing a fabulous job," says 3Com general counsel Mark Michael, and in December 2000, the company allowed Garcia to hire a second lobbyist.
But by June of this year, both Garcia and his co-lobbyist were unemployed. Responding to a huge budget shortfall, Korn management decided to focus almost exclusively on company units that generate revenue, and the Washington office didn't make the cut. "It was a step we took with profound regret," Michael says, but adds that the shuttering will save 3Com $500,000 a year.
"A business decision had to be made," adds Garcia, who is now a staff member at the House Science Committee, where he handles outreach to information-technology companies. "If I had been called into the executive committee meeting and told, `Greg, the company is in survival mode; are you absolutely essential?' I would have had to say no."
With the economy in recession, 3Com is not alone. Dozens of companies that have a Washington-based government relations staff are struggling with the question: Is an office in the nation's capital stocked with expensive lobbyists a critical business need? According to corporate managers and Washington lobbyists, the answer is: "It depends."
A good Washington outpost serves as a company's political eyes and ears, helping to shelter the firm from damage should a crisis arise or new regulations be proposed. A Washington office can also help secure benefits by marketing products and services to government agencies, winning tax breaks, or lobbying for more-liberal trade rules.
"The question for a CEO would be, `What are our issues in Washington, and how important are they to the bottom line of the company?' " says Charles S. Mack, a former president of the Business Industry Political Action Committee and the author of a book on lobbying. "If the issues have a significant impact on the company in the short or midterm, then it's pretty shortsighted to close the office. If the issues are all fairly low-priority and are ones that a trade association can handle just as easily, then perhaps [shutting the office] is the best way to go."
In tough economic times, "every lobbyist faces the same barrel of the same gun," says Robert C. Cresanti, vice president for policy at the Business Software Alliance. The board of directors and the CEO want to know "what value you are bringing to the running of this company," he adds. "If I say that I've knocked down three or four regulations that were enormously burdensome and kept us from going under the wheels of the bus, then the argument can be made that a Washington presence is important."
CEOs shouldn't make a rash decision to close a Washington outpost, particularly if their industry is highly regulated, Mack says. For the most part, companies haven't done that in 2001. Besides 3Com, only a few firms have shut down their Washington offices this year: DoubleClick Inc., J.C. Penney Co. Inc., Lucent Technologies, Novell Inc., and Ryder System Inc. Meanwhile, AT&T and Cable & Wireless laid off personnel, while Intel Corp. and Hewlett-Packard Co. chose not to replace top lobbyists who departed. Excite@Home Corp. laid off its lone lobbyist after the company declared bankruptcy in September. This tally does not include those offices that have closed because of a merger. In recent years, major names such as Ameritech, Champion Paper, Dresser Industries, and Exxon have closed their Washington outposts after a merger.
Companies are "filling Washington posts, but not filling them as quickly" as they once were, says Nels Olson, a Washington partner at the executive search firm Korn/Ferry International. Although business is slower than usual, Olson's firm did help Michigan-based Dow Chemical Co. bring aboard Lisa A. Rickard as its new head of government relations. She was hired in late November after serving as of counsel in the Washington office of the Florida-based law firm Greenberg Traurig. Previously, Rickard headed government relations for Ryder, but was forced to leave when the company closed its office earlier this year.
Olson won't comment specifically on Dow, but says it's smart for a business to have a strong Washington presence. "There are plenty of examples of companies paying a price for not having quality representation in Washington."
Even so, companies such as Ryder are willing to take the risk. CEO Gregory T. Swienton said in a statement that Ryder "will continue to be an active member in its industry associations" and that it will keep an eye on Washington from its headquarters in Miami. Sources familiar with Swienton's decision confirm that the Washington office was closed in a cost-cutting move.
The same can be said for Lucent Technologies. The company began downsizing in July, reducing its total personnel to 60,000 from 155,000 a year ago. Lucent closed its Washington office and retains only a federal marketing staff. For other needs in Washington, it is using outside consultants. "Outsourcing government affairs will produce a cost efficiency," says Lucent spokesman Bill Price.
If a CEO chooses contract representation or an industry trade association, he or she must assign someone at headquarters to oversee the outsiders, experts say. "We can update them on important things, pose questions as to what they need, and be a de facto Washington office," says Edward Black, president of the Computer & Communications Industry Association, a high-tech trade group. "But the company has to stay involved."
One former corporate lobbyist says he encouraged his old employer to drop its trade association memberships after the company closed his office. "It's money wasted," this lobbyist says, unless the company has a knowledgeable staff person sitting on the trade group's public policy committees. Otherwise, he says, the firm risks paying $75,000 or more in membership dues, only to have the association advocate public policy positions counter to its interests.
Relying on an outside lobbying firm can be just as expensive as maintaining a small Washington office. "Those guys are pretty dear," says Mack. "If you want to amputate your Washington office and hire a consultant to keep tabs for an hour a week, it's not realistic." Businesses typically pay rates of $5,000 to $20,000 a month for K Street representation.
Witness Bridgestone/Firestone Inc.'s experience last year when its top executives had to testify before congressional committees. The tire maker, which had already been forced by the National Highway Traffic Safety Administration to recall millions of tires, had no Washington office and only a few outside consultants who worked on an as-needed basis. By the time of the highly publicized hearings, most of the outsiders had quit and the company had to scramble for new representation. Now Bridge stone/Firestone operates its own Washington office and retains a bevy of highly paid consultants. Its lobbying tab shot up from about $100,000 in the year before the August 2000 recall to more than $5 million a year since then.
Other companies have been burned for their lack of Washington savvy. Two years ago, Sen. Susan Collins, R-Maine, held hearings to examine the marketing practices of sweepstakes companies. Major names in the sweepstakes industry, such as American Family Enterprises and the Michigan Bulb Co., scrambled to hire outside lobbying firms, but their efforts were for naught. Collins pushed through legislation to regulate the industry within a year. It's unclear whether a Washington presence would have stopped the legislation or watered it down, but relying on outside firms proved completely ineffective. The legislation passed both chambers of Congress unanimously.
The experience of ZapMe! Corp. offers another cautionary tale. The San Ramon, Calif.-based company caught the attention of Washington activists backed by Ralph Nader when it began handing out computers and Internet hookups to school systems in exchange for the right to monitor students' Web-surfing habits. Its plan was to sell the information to marketing companies.
The activists caused a stir that prompted Sens. Christopher J. Dodd, D-Conn., and Richard C. Shelby, R-Ala., to introduce legislation to require that companies obtain parental permission before collecting marketing data in schools. ZapMe hired the Washington lobbying firm Van Scoyoc Associates Inc. Even so, the negative publicity damaged ZapMe, and the company went out of business late last year.
Microsoft, of course, is the poster child for those companies that paid a heavy price for being unschooled in Washington's ways. As recently as 1995, the software maker employed just one Washington lobbyist, who was stationed in the firm's marketing department in Chew Chase, Md. Once the Justice Department socked the company with an antitrust suit in 1998, things changed quickly. Microsoft now employs several outside firms and has an office in Washington with 10 registered lobbyists.
Firms such as Yahoo! Inc. and Siebel Systems recently added lobbyists, saving they recognize that a Washington office can prepare a company for such blowouts, as well as bring rewards. Witness the airline bailout package passed by Congress in September, and the pending economic stimulus bill packed with corporate tax breaks that analysts say could be worth billions of dollars to certain companies. Other companies see the federal government as a potential market for their products. Amway, Cisco Systems, and eBay are reportedly looking to hire more in-house personnel in Washington.
"Decisions by policy makers make a real impact on our business," says John Scheibel, Yahoo's director of government relations. "From potential liability issues to the privacy issue, Washington decisions are important to the company."
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