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Chapter 12
Business
Influence on
Government
and Public
Policy
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Learning Outcomes
1. Describe the evolution of corporate political participation.
2. Differentiate among the different levels at which business
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lobbying occurs.
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.
Define coalitions and describe the critical role they now
assume in corporate political involvement.
Discuss the Bipartisan Campaign Reform Act and other issues
surrounding campaign financing.
Outline the principal strategic approaches to political activism
that firms are employing.
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Chapter Outline
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Corporate Political Participation
Corporate Political Spending
Political Action Committees
Agency Issues
Political Accountability and Transparency
Strategies for Corporate Political Activity
Summary
Key Terms
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Business Influence on
Government and Public Policy
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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.
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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:
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Lobbying
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Political spending
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Business Lobbying
Lobbying •
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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.”
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Organizational Levels of Lobbying
Representation
Umbrella
Organizations
Trade
Associations
Individual Company
Lobbying
Broad
Examples
• Chamber of Commerce of the US
• National Association of
Manufacturers
Midrange
• National Automobile Dealers Assn.
• National Association of Realtors
Narrow/
Specific
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Washington and State Capital Offices
Law firms
Public affairs specialists
PACs
Grassroots lobbying
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What Business Lobbyists Do
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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
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Corporate Political Spending
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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.
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The Golden Rule of Politics – He who has the gold,
rules.
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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.
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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.
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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.
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Umbrella Organizations
Two major U.S. umbrella organizations
• Chamber of Commerce of the United
States
• National Association of Manufacturers
(NAM)
Other umbrella organizations
• Business Roundtable
• National Federation of Independent
Businesses (NFIB)
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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.
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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
contributions
are legal.
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Top 10 PAC Contributors
to Federal Candidates
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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
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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.
• 72% of money spent in 2010 came from
groups that were barred from making
political contributions in 2006.
• 47% of outside spending now comes from
donors whose identities are not disclosed.
• Super PACs are still relatively new, so their
full impact is not yet known.
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Agency Issues
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Agency issues arise when actions of
managers are not in the shareholders’
best interests.
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Corporate political spending, like all
corporate spending, should have the best
interests of the firm, its shareholders and
its stakeholders in mind.
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Political spending should not provide an
opportunity for managers to pursue their
own agendas, or for trade associations to
pursue theirs.
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Political Accountability
and Transparency (1 of 2)
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Political accountability – an assumption of
responsibility for political actions, and a willingness
to answer for them.
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Today, corporations have unprecedented freedom
to pursue their political agendas; restrictions on the
money they can spend are gone.
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Multiple opportunities exist to hide the nature of
their activities from public view.
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This freedom brings a duty for corporations to be
responsible; a movement to promote corporate
political accountability has formed.
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Political Accountability
and Transparency (1 of 2)
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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.
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Strategies for
Corporate Political Activity
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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 –
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Information Strategy (provide information)
Financial Incentives Strategy (make contributions)
Constituency Building Strategy (mobilizing others to
work together)
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Financial Performance Outcomes
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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.
Context matters, and strategies that work in
one situation will not necessarily work in
another.
A 2013 study found a negative association
between political investments and market
performance.
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Key Terms
• Ad hoc coalition
• Astroturf lobbying
• Citizens United v. Federal
Election Commission
• Coalition
• Company lobbying
• Connected PAC
• Cyberadvocacy
• Dark money
• 501©(4)s
• 527s
• Golden Rule of Politics
• grassroots lobbying
• Independent expenditureonly committee
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Leadership PAC
lobbying
Nonconnected PAC
Political accountability
Political action committees
(PACs)
Political involvement
Sectoral trade association
Speechnow v. Federal
Election Commission
Transparency
Umbrella trade associations
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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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