Corporate Lobbying
David S. Emery
For:
Professor Alan Palmiter
Sustainable Corporations
April 29, 2015
Abstract
Corporate ability to influence legislative action is one indication of the ability of legislative
action to make corporations sustainable. Corporations did not view lobbying as effective until
the Business Roundtable, through repeated successes, demonstrated the influence corporations
could have in Washington. The most successful lobbyists and corporations have been able to
exert influence ever since. Because the legal environment of lobbying in the United States
requires a high degree of transparency, there is abundant lobbying data available to research.
Researchers, accordingly have done multiple studies on the effectiveness of corporate lobbying,
and with few dissenters, the consensus is that corporate lobbying is effective. The return on each
lobbying dollar spent ranges from a few dollars, to hundreds of dollars, depending on the
methodology employed. Similarly, lobbying activity positively correlates with firm performance
as measured using a variety of metrics, including a portfolio-based approach. Although
corporations do not always get what they want from the government, these studies indicate that if
corporations do not desire federal legislation that would make them more sustainable, it is
unlikely that Congress will ever introduce such legislation.
1
Introduction
The term lobbying, as constrained by the scope of this paper, describes paid activity in
which corporations hire lobbyists to influence the United States Congress, the executive branch,
and large federal agencies.1 Lobbyists, typically lawyers, influence legislators to ensure that
Congressional action is either favorable or at least not unfavorable to their client’s corporate
interests.2
Defining a few other common lobbying terms will facilitate understanding. Inside
lobbying refers to the direct lobbying of decision makers, like congresspersons, and the people
that work with them.3 Outside lobbying refers to efforts to shift public opinion on a given issue
in an indirect attempt to influence decision makers.4
Single issue lobbying refers to the attempted influence of a congressperson regarding a
single issue of importance.5 Multiple issue lobbies usually represent organizations or
associations with diverse interests, such as unions or business associations.6 Most corporations
are considered single-issue lobbies.7
Corporations lobby more than any other group, although the total number of corporations
that lobby in significant amounts numbers less than 300.8 According to one source, for “every
dollar spent on lobbying by labor unions and public-interest groups [combined], large
corporations and their associations now spend $34. Of the 100 organizations that spend the most
on lobbying, 95 consistently represent business.”9 Corporations also lobby through
organizations, including the Business Roundtable, and more prominently, the U.S. Chamber of
Commerce.10
Although the total number of registered lobbyists is around 12,000, one analyst estimates
that “the actual number of working lobbyists was close to 100,000 and the industry brings in $9
billion annually.”11 Despite the large number of lobbyists, “those with real clout number in the
dozens, and a small group of firms handles much of lobbying in terms of expenditures.”12
Because of the extensive regulation of lobbying, including various disclosure rules, much
is known about lobbying activity.13 Disclosure rules often mandate that the identity of the
1
"Lobbying in the United States." Wikipedia. Wikimedia Foundation, 5 Mar. 2015. Web. 23 Mar. 2015.
Id.
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9
Drutman, Lee. "How Corporate Lobbyists Conquered American Democracy." The Atlantic. Atlantic
Media Company, 20 Apr. 2015. Web. 24 Apr. 2015.
10
"The Chamber of Secrets." The Economist. The Economist, 21 Apr. 2012. Web. 24 Apr. 2015.
11
Id. citing Lee Fang, March 10, 2014, The Nation,Where Have All the Lobbyists Gone? On paper, the
influence-peddling business is drying up. But lobbying money is flooding into Washington, DC, like
never before. What’s going on?, Accessed March 21, 2014
12
Id. citing Brad Plumer (Nov 8, 2011). "Corporate lobbying is a very exclusive club". The Washington
Post. Retrieved 2012-01-13.
13
Id.
2
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lobbying client, lobbying firm, congressperson targeted, and the amount spent.14 Thus, there is
ample corporate lobbying data to study,15 and a variety of approaches have been used.
The effectiveness of lobbying activity, to me, indicates the extent to which corporations
are able to influence government, one of the primary forces capable of forcing corporate change.
Change is necessary if corporation are going to become sustainable.
History
Successful corporate lobbying did not come about until the early 1970s.16 Before then,
the prevailing corporate attitude was that government should be avoided, and hopefully
government would return the favor. A corporate lawyer writing in 1971 wrote that, “As every
business executive knows, few elements of American society today have as little influence in
government as the American businessman, the corporation, or even the millions of corporate
stockholders.”
As regulation increased in the 1960s followed by “slowing economic growth and rising
wages, a community of leading CEOs formed the Business Roundtable, an organization devoted
explicitly to cultivating political influence.”17 The Roundtable is comprised of CEOs of
corporations including General Electric, Walmart, Dow Chemical, ExxonMobil, AT&T, Xerox,
EY, Boeing, and State Farm Insurance.18 The successes of the Business Roundtable are well
documented, and include defeating a consumer protection agency bill, defeating a full
employment act, defeating a labor reform law, and successfully lowering their taxes.1920
Other corporations at the urging of lobbyists slowly followed the example set by the
Business Roundtable.21 It was not until the 1990s that corporations began to embrace fully the
idea that lobbying could lead to increased profitability.22 Later in this Paper, there will be many
examples of successful lobbying, including some of the novel efforts from this period.
Why Lobby?
The most obvious answer to why corporations lobby is to influence governmental policy
in a way that is beneficial to their interests. During one survey of corporate lobbyists, when
asked why their companies maintained a Washington office, “the top reason was ‘to protect the
company against changes in government policy.’ On a one-to-seven scale, lobbyists ranked this
14
Id.
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16
Drutman, Lee. "How Corporate Lobbyists Conquered American Democracy." The Atlantic. Atlantic
Media Company, 20 Apr. 2015. Web. 24 Apr. 2015.
17
Id.
18
"Business Roundtable." Wikipedia. Wikimedia Foundation, 20 Feb. 2015. Web. 25 Apr. 2015.
19
Id.
20
Drutman, Lee. "How Corporate Lobbyists Conquered American Democracy." The Atlantic. Atlantic
Media Company, 20 Apr. 2015. Web. 24 Apr. 2015.
21
Id..
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reason at 6.2 (on average). But closely behind, at 5.7, was ‘Need to improve ability to compete
by seeking favorable changes in government policy.’”23
In addition, various studies have shown that lobbying, when done well, presents
significant return on investment (“ROI”). In fact, the only way the majority of these studies
differ is in the amount of outsized returns that are possible, ranging from six dollars returned for
every dollar spent to hundreds of dollars for every dollar spent. Obviously, this ROI positively
impacts firm value, as another study demonstrates. All of these studies will be discussed in
detail, including their methodologies. A testament to the effectiveness of lobbying, an unnamed
executive is quoted as saying, “If you don’t know your senators on a first name basis, you are not
doing an adequate job for your stockholders.”24
Legal Environment of Lobbying
The legal and regulatory environment surrounding corporate lobbying is complex, and
the failure of a lobbyist to comply with the rules can result in incarceration of up to five years or
fines up to $200,000. The complexity of this area of law is evidenced by the American Bar
Association Manual on the lobbying, which is over 800 pages long.25
Sources of lobbying law include the Lobbying Disclosure Act of 1995,26 the McCain
Feingold Act of 2002,27 and the Honest Leadership and Open Government Act of 2007.28 Many
of these statutes have been later reformed and amended, adding to the complexity. Sources of
lobbying law also include judicial decisions, including most notably the Citizens United
decision.29 In Citizens United, the Supreme Court held that “the First Amendment prohibited the
government from restricting independent political expenditures . . . ” by nonprofit corporations,
for-profit corporations, labor unions and other associations.30 Predictably, this decision has lead
to increased corporate campaign spending.31
With rules so complex and specific, there are many loopholes.32 According to lobbyist
Gerald S. J. Cassidy, “Our profession is at a critical point where we can either embrace the
23
Id.
Quoted in Hacker, Jacob S., and Paul Pierson. Winner-take-all Politics: How Washington Made the
Rich Richer-and Turned Its Back on the Middle Class. New York: Simon & Schuster, 2010. Print.
25
William V. Luneburg, Thomas M. Susman and Rebecca H. Gordon, editors (2009). "The Lobbying
Manual: A Complete Guide to Federal Lobbying Law and Practice -- Fourth Edition". American Bar
Association. Retrieved 2012-01-12.
26
"Lobbying Disclosure Act of 1995." Wikipedia. Wikimedia Foundation, 29 Sept. 2014. Web. 25 Apr.
2015.
27
"Bipartisan Campaign Reform Act." Wikipedia. Wikimedia Foundation, 14 Mar. 2015. Web. 25 Apr.
2015.
28
"Honest Leadership and Open Government Act." Wikipedia. Wikimedia Foundation, 9 Jan. 2015. Web.
25 Apr. 2015.
29
Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 130 S. Ct. 876, 175 L. Ed. 2d 753 (2010).
30
"Citizens United v. FEC." Wikipedia. Wikimedia Foundation, 22 Apr. 2015. Web. 25 Apr. 2015.
31
Mayersohn, Andrew. "Four Years After Citizens United: The Fallout."Opensecrets. Opensecrets, 21
Jan. 2014. Web. 25 Apr. 2015 (noting that “During the 2012 cycle . . . non-party outside spending tripled
2008’s total and topped $1 billion for the first time, [and] super PACs accounted for more than $600
million of that spending.”).
32
"Lobbying in the United States." Wikipedia. Wikimedia Foundation, 5 Mar. 2015. Web. 23 Mar. 2015.
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constructive changes and reforms by Congress or we can seek out loopholes and continue the
slippery slide into history along side the ranks of snake oil salesmen.”33 On the same subject,
Jack Abramoff, released from prison after his extensive corruption and lobbying scandal is
quoted as saying, “You can't take a congressman to lunch for $25 and buy him a hamburger or a
steak or something like that ... But you can take him to a fund-raising lunch and not only buy him
that steak, but give him $25,000 extra and call it a fund-raiser -- and have all the same access and
all the same interactions with that congressman.”34
Fortunately, our regulations require a high degree of transparency, such researchers can
study the implications of corporate lobbying efforts and analyze the results of those efforts in a
variety of ways.35 Unfortunately, that transparency has substantial limitations. For example,
Citizens United encouraged so called “spooky PACs” or “dark money” organizations.36 These
spooky PACs are political action committees that receive undisclosed contributions that they
then spend to influence the outcome of elections.37 Because corporation need not disclose their
contributions, they could be spending much more than is currently known.
Studies on Corporate Lobbying
This paper will analyze and discuss studies regarding the effectiveness of corporate
lobbying activity. The first paper analyzed was written by the conservative-leaning lobbyists
Shapiro and Dowson in 2012.38 In it, they argue for the effectiveness of lobbying in contrast to
three recent studies suggesting that lobbying activity is harmful to shareholder value. The
liberal-leaning Allison and Harkins wrote the second paper in 2014.39 In it, they claim that for
every dollar spent on influencing politics, the top lobbying corporations received $760 in federal
business and support, among other things. Chen, Parsley, and Wake Forest’s own Ya-Wen Yang
wrote the final paper regarding lobbying effectiveness in 2014.40 In it, they analyze the
relationship between corporate lobbying expenditures and “accounting and market measures of
financial performance.”
33
Id. citing Robert G. Kaiser; Alice Crites (research contributor) (2007). "How lobbying became
Washington's biggest business -- Big money creates a new capital city. As lobbying booms, Washington
and politics are transformed.". Citizen K Street (The Washington Post). Retrieved 2012-01-13.
34
"Lobbying in the United States." Wikipedia. Wikimedia Foundation, 5 Mar. 2015. Web. 23 Mar. 2015.
citing CNN Wire Staff (November 6, 2011). "Abramoff: Lobbying reforms haven't fixed 'flawed'
system". CNN. Retrieved 2012-01-13.
35
"Lobbying in the United States." Wikipedia. Wikimedia Foundation, 5 Mar. 2015. Web. 23 Mar. 2015.
36
Mayersohn, Andrew. "Four Years After Citizens United: The Fallout."Opensecrets. Opensecrets, 21
Jan. 2014. Web. 25 Apr. 2015
37
"Political Nonprofits." Opensecrets. Opensecrets, 22 Apr. 2014. Web. 25 Apr. 2015.
38
Shapiro, Robert J. "Corporate Political Spending: Why the New Critics Are Wrong." Legal Policy
Report 15. Manhattan Institute for Policy Research, 15 June 2012. Web. 23 Mar. 2015.
39
Allison, Bill, and Sarah Harkins. "Fixed Fortunes: Biggest Corporate Political Interests Spend Billions,
Get Trillions." Sunlight Foundation Blog. N.p., 17 Nov. 2014. Web. 23 Mar. 2015.
40
Chen, Hui and Parsley, David C. and Yang, Ya-wen, Corporate Lobbying and Firm Performance
(October 2014).
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Shapiro and Dowson: “Corporate Political Spending: Why the New Critics Are Wrong”
Shapiro and Dowson wrote their paper in response to three different studies that
purported to show that lobbying was actually largely ineffective and harmful to firm
performance.41 The first study they analyzed was a 2012 study by Aggarwal and two colleagues
that looked at the effects of contributions to 527 organizations and soft-money contributions
(which were banned for corporations in 2002).42 Shapiro and Dowson’s interpret Aggarwal et al.
as saying that 527 contributions indicate that corporate managers are expressing personal
political opinions through corporate giving, raising agency concerns.43 Aggarwal et al. claim
that for each additional dollar contributed to these organizations, the firm loses $133 in market
value.44
Criticizing these findings, Shapiro and Dowson note that the decline in market value is
difficult to trace to 527 contributions.45 It may be that the firms that are making these
contributions have agency problems, as Aggarwal et al. suggest, and this explains the decline in
market value.46
Aggarwal et al. are never entirely clear on the link between 527 spending and a decline in
market value.47 Shapiro and Dowson also note technical issues and potential bias in Aggarwal et
al.’s methodology. To Shapiro and Dowson, a definitive or reliable link between spending
money on political influence and a sharp decline in market value is difficult to explain, and in
fact is not explained by Aggarwal et al.48
In addition, Shapiro and Dowson note that Aggarwal et al. provide alternative
explanations for the market declines they observed. Firms that made 527 contributions typically
had below-average R&D and investment spending.49 This may be one explanation of these
firms’ lower performance, or there may be some common cause. For example, these firms may
not feel inclined to invest heavily in R&D and investment if their projected future profitability is
low.50 This, in turn, may be due to the fact that “such firms [were] in industries with strong
competition from imports, [and] it might well [have] be a sound business decision to contribute
to a party or politicians skeptical of the trade agreements . . . that intensified that competition.”51
Shapiro and Dowson next criticize two studies from Harvard’s John Coates from 2010
and 2012.52 Coates’s studies made broader claims relating not to soft-money and 527
contributions, but to PAC contributions and lobbying.53 Like Aggarwal et al., Coates links
41
Shapiro, Robert J. "Corporate Political Spending: Why the New Critics Are Wrong." Legal Policy
Report 15. Manhattan Institute for Policy Research, 15 June 2012. Web. 23 Mar. 2015.
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corporate political contributions to agency problems, poor governance, and a lack of shareholder
rights.54
Coates’s first study from 2010 was, according to Shapiro and Dowson, full of
contradictory data and methodological problems.55 For example, despite arguing that worsening
corporate governance (as measured by an index of indicators) correlates with increased political
activity, Coates’s own charts show that the opposite is true, a fact he never discusses.56
Coates’s methodological problems extend to the regression analysis he uses to attempt to
establish a link between firm value and corporate political activity. One issue with Coates’s
approach was his use of “relative Q” to measure firm performance.57 Relative Q is the ratio of a
firm’s market value to its book value.58 Apparently, there is little basis for measuring a firm’s
performance using such a figure as book value is merely an accounting concept, and the
differences between the true value of a corporation’s assets and their book value can be
substantial.59
Shapiro and Dowson continue by noting that politically active firms tend to be among the
largest of corporations, as we have already discussed. In addition, firms that lobby tend to
operate in heavily regulated industries.60 Coates does nothing to correct for these variables.61
According to Shapiro and Dowson, such an oversight would prevent publication in any peerreviewed journal.62
Coates addresses some of these problems in his 2012 study. Ultimately, his study has the
same conclusions, though slightly toned down.63 His own updated data, however, do not support
his continued conclusions, according to Shapiro and Dowson.64 When Coates corrects for
corporate size and regulated industries, “at a 95 percent level of statistical confidence, the
difference in firm value between companies that lobby and those that do not may be only 1
percent.”65 In addition, when correcting his methodological problems from the 2010 study,
Coates’s data shows that firms in regulated industries have values that positively correlate with
political activity.66
Shapiro and Dowson note that both in his 2010 and 2012 articles, “Coates acknowledges
that numerous studies show that corporate political activities have paid off for companies and
industries through favorable trade provisions, earmarked spending, lower taxes, and eased
regulation.”67 In addition, Coates is no stranger to the vast amount of research that contradicts
his own.68 He stands by his conclusions, however.
On a final note, in critiquing these three studies, the authors conclude that
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1. Firms employ a variety of strategies to influence the political process
in ways that may, or should, improve their performance and benefit
their shareholders.
2. Corporate spending decisions on campaign contributions and lobbying
efforts are generally made in a rational and strategic manner.
3. This political spending does not appear to systematically affect
congressional voting, but it does regularly influence policymaking.
4. Corporate political activity appears to have a generally positive effect
on firm value, as reflected in excess market returns.
5. The precise mechanisms that produce these positive effects remain
unclear.69
Allison and Harkins: “Fixed Fortunes: Biggest corporate political interests spend
billions, get trillions”
Allison and Harkins, working for the Sunlight Foundation, analyzed 200 forprofit corporations, “all of which had active political action committees and lobbyists
in the 2008, 2010 and 2012 election cycles.”70 They chose to analyze three years
before and three years after the Citizens United decision.71 Of the 20,500 paying
clients that hired lobbyists, these 200 corporations spent 26 percent of the total
amount spent.72 They conclude that over the years covered, those 200 firms spent a
total of $5.8 billion on lobbying and campaign contributions, and in return received
$4.4 trillion in “federal business and support.”73 That is $760 dollars in business and
support for every $1 spent.74 With numbers this extreme, we will certainly question
the methodology employed.
The authors begin by noting that the time period covered includes shifts in
political control of the House of Representatives, Senate, and White House.75 The
period also covers two stimulus bills, troop surges overseas, and massive bailouts.76
These events certainly help begin to explain the federal business and support received
by the “Fixed Fortune 200.”
The authors acknowledge that many of the Fortune 200 firms invest heavily in
politics and lobbying in part because “their businesses are inextricably entwined with
government . . . spending decisions.”77 Of all of the firms in the Fortune 200, 102
received “more than 10 times what they spent on politics . . . .”78 Of course, one
69
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Allison, Bill, and Sarah Harkins. "Fixed Fortunes: Biggest Corporate Political Interests Spend Billions,
Get Trillions." Sunlight Foundation Blog. N.p., 17 Nov. 2014. Web. 23 Mar. 2015.
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immediate challenge to the methodology employed is that it is not clear how much
business these corporations would have received in the absence of their lobbying
activity.
Despite these shortcomings, the study goes on to mention specific benefits
that have accrued to large lobbying corporations. For example, they note that Blue
Cross and Blue Shield saves about $1 billion per year through a unique provision in
the tax code drafted just for them: section 833.79
Interestingly, they observed that the corporate response to Citizens United has
been rather quiet insofar as the Fortune 200 are concerned.80 Super PAC spending
was only $3 million, with $2.5 million coming from a single donation from Chevron
to a super PAC.81 They do note however, that giving to organizations like the
Chamber of Commerce is anonymous and thus cannot be tracked.82
Ultimately, the authors conclude that the numbers are extreme. While the
majority of the Supreme Court held that the “appearance of influence or access . . . ”
does not give rise to the appearance of corruption or cause the “electorate to lose faith
. . . ” the authors argue that low voter turnout may indicate otherwise.83
Chen et al.: “Corporate Lobbying and Firm Performance”
In this study, the authors attempt to find a direct causal link between lobbying
expenditures and financial performance.84 They do this both through a study crafted
to isolate lobbying variables for analysis (using regression assuming both linear and
nonlinear relationships, and various statistical approaches that I do not fully
understand), and through a portfolio-based approach.85
They conclude that there is a positive correlation between lobbying
expenditures and financial performance.86 This is true when they measure financial
performance using a variety of approaches, although the authors concede that the
results are weaker when they measure performance as cash flow from operations.87
In addition, the portfolio approach demonstrates that firms that lobby more
outperform peers that lobby less.88 They note that lobbying activity tends to increase
after stock prices decline, but the results that they measure are not merely explained
by mean reversion.89 Interestingly, the outperformance is captured almost exclusively
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Chen, Hui and Parsley, David C. and Yang, Ya-wen, Corporate Lobbying and Firm Performance
(October 2014).
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by the firms with the greatest intensity of lobbying activity.90 Chen et al. measured
the excess return at a high 5.5 percent.91
Other Studies
A TEDx Talk by Marci Harris, a lobbyist, was revealing.92 In the talk, she
discusses the role that lobbyists play in facilitating government action. To her, a
lobbyist is typically an expert in a particular area that a client hires to represent their
interests to legislators in that area. Lobbyists educate lawmakers about the issues,
and to the extent that there are lobbyists on both sides of an issue, according to Ms.
Harris, the legislator is more informed for having been lobbied.
A study from the left-leaning Center for American Progress discusses
inefficiencies that result from lobbying, 93 while also discussing some interesting
studies that are relevant for our purposes. Essentially, the authors argue that rent
seeking precludes productive economic activity. To the extent that corporations do
not spend the money devoted to lobbying to operate the business, this may be true.
Critics would say that if the government did not have so much power over certain
industries, they would have no need to lobby. Indeed, the critics would say, Google
and Microsoft both tried to avoid lobbying until faced with harmful legislation.94
I found the studies they referenced more interesting:
One study found that increasing lobbying reduces a corporation’s effective
tax rate, with an increase of 1 percent in lobbying expenditures expected
to reduce a corporation’s next-year tax rate between 0.5 percentage points
and 1.6 percentage points. . . . Another study based on data from 48
different states found that a $1 corporate campaign contribution is worth
$6.65 in lower state corporate taxes. . . . Finally, federal contracts were
more likely to be awarded to firms that have given federal campaigns
higher contributions, even after controlling for previous contract awards.95
These studies provide further evidence that lobbying is effective.
90
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92
"People and Technology Can Beat the Lobbyists: Marci Harris at TEDxMidAtlantic." YouTube. TEDx
Talks, 14 Dec. 2012. Web. 29 Apr. 2015.
93
Craig, John, and David Madland. "How Campaign Contributions and Lobbying Can Lead to Inefficient
Economic Policy." Center for American Progress, 2 May 2014. Web. 20 Mar. 2015.
94
Hamburger, Tom, and Matea Gold. "How Google Learned to Stop Worrying and Mastered the
Washington Lobbying Game." Washington Post. The Washington Post, 12 Apr. 2014. Web. 23 Mar.
2015.
95
Craig, John, and David Madland. "How Campaign Contributions and Lobbying Can Lead to Inefficient
Economic Policy." Center for American Progress, 2 May 2014. Web. 20 Mar. 2015.
91
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What does it all mean?
Making the corporations sustainable requires changes to the way things are currently
done. Change could come from either internal or external sources. Internally, corporate actors
can make the corporation behave in a way that benefits society as a whole. Externally, economic
or social pressures could force corporate change, as happens with shifting societal values.
Additionally, external regulation could force the issue more directly. It is this lattermost
changing force that I think stands the best chance of allowing or necessitating corporate change.
It is for this reason that I decided to analyze how likely external change brought on by the federal
government may be. To me, this question transposes in to a question of corporate power over
legislation, a question that the effectiveness of lobbying helps to answer. Based on the influence
exerted by corporations over the United States Congress, the executive branch, and large federal
agencies, it seems unlikely that corporations will be forced to change in ways that they do not
find advantageous.
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