Business and society ethics sustainability and stakeholder management 9e chapter 12

Explain the phenomenon of political action committees PACs in terms of their historical growth, the magnitude of their activity, and the arguments for and against them.. Corporate Poli

Chapter 12

Business Influence on Government

and Public

Policy

Learning Outcomes

1 Describe the evolution of corporate political participation.

2 Differentiate among the different levels at which business

lobbying occurs.

3 Explain the phenomenon of political action committees (PACs)

in terms of their historical growth, the magnitude of their

activity, and the arguments for and against them.

4 Define coalitions and describe the critical role they now

assume in corporate political involvement.

5 Discuss the Bipartisan Campaign Reform Act and other issues

surrounding campaign financing.

6 Outline the principal strategic approaches to political activism

that firms are employing.

Chapter Outline

• Corporate Political Participation

• Corporate Political Spending

• Political Action Committees

• Agency Issues

• Political Accountability and Transparency

• Strategies for Corporate Political Activity

• Summary

• Key Terms

Business Influence on Government and Public Policy

• Government is a central stakeholder of

business, and its interest is broad and

multifaceted.

• Government’s power is derived from its legal

and moral right to represent the public in its dealings with business

• Society would be best served if the system

maintained a balance of power, but a

controversial U.S Supreme Court ruling

(Citizens United v Federal Election Commission)

has left business with the power to drive the political agenda unchecked

Corporate Political Participation

Political Involvement -

•Participation in the formulation and execution

of public policy at various levels of government

•Two major approaches to corporate political activity:

• Lobbying

• Political spending

Business Lobbying

Lobbying -

•The process of influencing public officials to promote

or secure passage or defeat of legislation.

•Lobbyists are intensely self-interested.

•Their goals are to promote legislation that is in the interest of their organization, and to defeat legislation that runs counter to that goal

•Because of the large amounts of money involved,

people will cross the legal and ethical line

• Lawrence Lessig – “There’s all the difference in

the world between a lawyer making an argument to the jury, and a lawyer handing out

$100 bills to the jurors.”

Organizational Levels of Lobbying

What Business Lobbyists Do

• Get access to key legislators

• Monitor legislation

• Establish communication channels with regulatory

bodies

• Protect firms against surprise legislation

• Draft legislation, slick ad campaigns, direct-mail

campaigns

• Provide issue papers on anticipated effects of

legislative activity

• Communicate sentiments of association or

company on key issues

• Influence outcome of legislation

• Assist companies in coalition building around issues

• Help members of Congress get reelected

• Organize grassroots efforts

Corporate Political Spending

• Corporations must vet requests for political

contributions to avoid “dangerous terrain.”

Arguments for Political Spending -

• The Supreme Court decision in Citizens United ruled

that government may not restrict corporate

political spending, equating such spending with free speech Unlimited spending creates an imbalance

of power.

Arguments against Political Spending

-• Business is not likely to focus on the common good.

• The Golden Rule of Politics – He who has the gold,

rules

Grassroots Lobbying

Grassroots Lobbying

•Mobilizing the “grassroots,” which are

individual citizens who might be most directly affected by legislative activity, to political

action

Cyberadvocacy

•Using the Internet to amass grassroots

support and enable grassroots supporters to contact their legislators

Grassroots Lobbying (continued)

Astroturf Lobbying/Grasstops Lobbying

•Fake groups that appear to be genuinely

grassroots but are largely created and funded

by a professional organization or trade

association

Trade Association Lobbying

• The Center for Political Accountability

revealed that trade associations helped companies conceal and spend over $100 million in just one year

• Industry-level lobbying is common

Umbrella Organizations

Two major U.S umbrella organizations

•Chamber of Commerce of the United States

•National Association of Manufacturers

Coalition Building

Coalition

•Forms when distinct groups or parties realize they have something in common that might warrant their joining forces for joint action

Building a coalition

1.Manage the sequence in which issues are addressed

2.Increase the visibility of certain issues

3.Unbundle issues into smaller sub-issues

Political Action Committees

• Political Action Committees (PACs) - are

committees organized to raise and spend money for political candidates, ballot

initiatives, and proposed legislation.

• Connected PAC – is associated with a

specific group or organization, and can only raise money from that group

• Nonconnected PAC – can accept funds from

any individual or organization, including a connected PAC, as long as those

Top 10 PAC Contributors

to Federal Candidates

• National Association of Realtors

• National Beer Wholesalers Association

• Honeywell International

• Operating Engineers Union

• National Auto Dealers Association

• International Brotherhood of Electrical

Workers

• American Bankers Association

• AT&T, Inc

• American Association for Justice

• Credit Union National Association

The Impact of Super PACS

• Super PACS have facilitated outside spending

in politics, and the effect has been huge

• Outside spending in presidential elections

has gone from $17 million in 1992 to almost

$1.3 billion in 2012

groups that were barred from making

political contributions in 2006

donors whose identities are not disclosed

• Super PACs are still relatively new, so their

full impact is not yet known

Agency Issues

• Agency issues arise when actions of

managers are not in the shareholders’

best interests

• Corporate political spending, like all

corporate spending, should have the best

interests of the firm, its shareholders and

• Political spending should not provide an

opportunity for managers to pursue their

pursue theirs

Political Accountability and Transparency (1 of 2)

• Political accountability – an assumption of

responsibility for political actions, and a willingness

to answer for them.

• Today, corporations have unprecedented freedom

to pursue their political agendas; restrictions on the money they can spend are gone.

• Multiple opportunities exist to hide the nature of

their activities from public view

• This freedom brings a duty for corporations to be

responsible; a movement to promote corporate political accountability has formed

Political Accountability and Transparency (1 of 2)

• Transparency– has become a major issue because

much of today’s corporate political activity is

outside public view

• Dark Money is the term which refers to the political

contributions from undisclosed donors - more than

$300 million in the 2012 presidential election

• Ads funded by dark money tend to be “the most

vicious.”

• Advocacy is best understood when one knows the

motives of the person making the arguments

• Voters have a right to know who is making the

arguments

Strategies for Corporate Political Activity

• The purpose of political strategy is “to secure a

position of advantage regarding a given

regulation or piece of legislation, to gain control

of an idea or a movement and deflect it from the firm, or to deal with a local community

group on an issue of importance.”

• Three types of strategies that companies use to

interact in the political arena –

work together)

Financial Performance Outcomes

• Studies to determine whether corporate

political spending influences political decisions have mixed results

• A meta-analysis found that corporate political

activity had a consistent positive relationship with a firm’s financial performance, but generic results are of limited value because the

outcomes occur in a variety of contexts

one situation will not necessarily work in

another

• A 2013 study found a negative association

between political investments and market

performance

• Transparency

• Umbrella trade associations

Key Terms

Organizational Levels of Lobbying

PACs

• Instruments through which business uses

financial resources to influence government

Coalition Building

•Business and other groups joining forces to

achieve common goals

Political Strategy

•To secure position of advantage regarding a given regulation or piece of legislation

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