“Business and Government Relations” Please respond to the following:

“Business and Government Relations”  Please respond to the following:

• Discuss the main reasons why a business should or should not be involved in political discussions or take a political stand. Use terms found in Chapter 9 to demonstrate your understanding of the material. 

Chapter 9

Many businesses have utilized the services of the American Legislative Exchange Council (ALEC), well known for its role in shaping conservative legislation and lobbying influ- ence. It has advocated against health care reform, to reduce state taxes on businesses, and to limit the political influence of labor unions. ALEC also was instrumental in many states in the creation of “stand your ground” laws, under which citizens were given the right to use guns or other weapons to protect themselves against assailants. After the public back- lash in the Treyvon Martin case in 2012—in which a black teenager was shot to death in Florida and his assailant defended his actions by claiming protection under Florida’s “stand your ground” law—many businesses began to distance themselves from ALEC. In 2012 Walmart joined other firms, such as Amazon.com, Coca-Cola, Kraft Foods, McDonald’s, General Electric, Sprint Nextel, and a dozen more, bending to pressure from civil rights groups. Walmart was the largest seller of firearms in the country and the largest employer of black workers and thus particularly vulnerable to protests surrounding the Treyvon Martin case. Walmart’s public affairs vice president explained the company’s action by saying, “ALEC had strayed from its core mission to advance the Jeffersonian principles of free markets.”

One industry that has been active in the political arena is solar power. Because solar energy has historically been more expensive to produce than fossil fuel energy, the indus- try has relied heavily on government incentives and subsidies to level the playing field. Although some major energy companies have entered the solar business, most of the 3,400 solar companies in the United States are small, such as Namasté Solar, a Boulder, Colorado, firm of 60 employees that installs solar energy systems for commercial and residential customers. The solar industry’s trade association, the Solar Energy Industries Association, has been very active in government affairs and advocacy, winning a number of policy victories. The federal stimulus bills of 2008 and 2009 provided tax credits, grants, and loans for solar installations and companies that made solar equipment (one of which, Solyndra, later failed). States—such as Hawaii, which required all new construc- tion to have solar water heaters by 2010—and cities—such as Berkeley, California, which loans money to residents to install solar panels—have also helped the industry with friendly policies.1

As the examples above demonstrate, many businesses—big and small—have become active participants in the political process to promote a variety of goals, from supporting organizations charged with developing legislation to support economic development and job growth to lobbying government regulators through a trade association to receive tax credits and grants. They are not always successful, however, as seen in the political part- nership of businesses with ALEC, which took on a new and controversial agenda. Yet, at other times, political action can bolster the industry, as seen in the solar power industry’s political efforts. Which alliances to join and political tactics to use may depend on the situ- ation. In general, business recognizes the necessity of understanding the political environ- ment and of addressing political issues as they arise. This is a constant challenge for business and managers entrusted with managing the political environment.

This chapter focuses on managing business–government relations and political issues. Businesses do not have an absolute right to exist and pursue profits. The right to conduct commerce depends on compliance with appropriate laws and public policy. As discussed in Chapter 8, public policies and government regulations are shaped by many actors, including

business, special interest groups, and government officials. The emergence of public issues often encourages companies to monitor public concerns, respond to government proposals, and participate in the political process. This chapter discusses how managers can ethically and practically meet the challenge of managing the business–government relationship.

Participants in the Political Environment

In many countries the political environment features numerous participants. These partici- pants may have differing objectives and goals, varying access to political tools, and dispa- rate levels of power or influence. The outcomes sought by businesses may be consistent, or at odds, with the results desired by interest groups. Participants may argue that their needs are greater than the needs of other political actors, or that one group or another group does not have the right to be involved in the public policy process. To better understand the dynamic nature of the political environment, it is important to explore who participates in the political process and their claims of legitimacy.

Business as a Political Participant

There is a serious debate between those who favor and those who oppose business involve- ment in governmental affairs. This debate involves the question of whether, and to what extent, business should legitimately participate in the political process. As shown in Figure 9.1, some people believe business should stay out of politics, while others argue that business has a right to be involved.

Proponents of business involvement in the political process often argue that since other affected groups (such as special interest groups) are permitted to be involved, it is only fair that business should be, too. This justice and fairness argument becomes even stronger when one considers the significant financial consequences that government actions may have on business.

An Irishman walks into a bar. This may sound like the opening line of a joke but it actually is the beginning of a television advertisement about responsible drinking, developed by British beverage maker Diageo. The company-sponsored ads promoting moderation in drinking, the first of their kind in the United Kingdom, were aired during prime time to maximize their impact. A Diageo spokesperson admitted that while the company wanted to discourage binge drinking by young people, a growing concern, it also hoped its campaign would help Diageo avoid possible governmental regulation of their product and its advertisements.2

FIGURE 9.1

The Arguments for and against Political Involvement by Business

Why Business Should Be Involved

Why Business Should Not Be Involved

A pluralistic system invites many participants.

Managers are not qualified to engage in political debate.

Economic stakes are high for firms.

Business is too big, too powerful—an elephant dancing among chickens.

Business counterbalances other social interests.

Business is too selfish to care about the common good.

Business is a vital stakeholder of government.

Business risks its credibility by engaging in partisan politics.

2 “Promoting Moderation,” Ethical Performance Best

Business and Public Policy

Businesses see themselves as countervailing forces in the political arena and believe that their progress, and possibly survival, depends on influencing government policy and regulations. But others are not as confident that the presence of business enhances the political process. In this view, business has disproportionate influence, based on its great power and financial resources.

In a 2011 Harris poll, a large majority of those polled believed that big companies had too much political power (88 percent). Political action committees, a favorite political instrument for businesses, were seen as too powerful by 87 percent of the public, as were political lobbyists (by 84 percent). What is the group perceived as having the least amount of power in politics? The answer is small businesses; only 5 percent of those surveyed felt that they had too much political power. In the

18 years that the Harris Poll has been asking these questions, people have become increasingly concerned about big companies, lobbyists, and labor unions having too much political power.3

Although the debate over whether businesses should be involved in the political envi- ronment rages on, the facts are that in many countries businesses are permitted to engage in political discussions, influence political races, and introduce or contribute to the drafting of laws and regulations, as discussed later in this chapter. But businesses do not act alone in these activities. Other stakeholders also are active participants in the political environment.

Stakeholder Groups in Politics

Various stakeholder groups, representing many varied concerns and populations, have a voice in politics and the public policy process. These groups often use the same tactics as businesses to influence government officials, elections, and regulation.

Labor unions have been involved in U.S. politics for decades. The AFL-CIO (a federa- tion of unions) and the Teamsters Union, for example, have formed political action com- mittees to influence electoral races and legislation. The International Brotherhood of Electrical Workers, as shown later in Figure 9.4, is often one of the top three groups in terms of political contributions. One report that analyzed political contribution data found that 159 House members counted the labor sector as their top campaign supporters, the same number of House members that counted the finance, insurance, and real estate sector as their top backers.4

Coalition Political Activity

Business organizations and stakeholder groups do not always act alone in the political process; often two or more participants join together to act in concert. Such ad hoc coalitions bring diverse groups together to organize for or against particular legislation or regulation. Politics can create unusual alliances and curious conflicts, as the following example illustrates.

Daylight saving time involves setting clocks forward in specific areas of the country to increase the amount of daylight that falls later in the day. At various times, different industries have lobbied for or against extending these adjustments. For example, the barbecue industry has argued that an extra few weeks of daylight saving would boost the sale of grills, charcoal, and utensils, which are usually used in the evening. The candy industry said that if daylight saving was not extended past Halloween, candy sales would decline as fewer children went out to trick-or-treat. The Air Transport Association, representing major U.S. airlines, argued that daylight saving time placed U.S. international flight schedules out of sync with European sched- ules. The National Parent Teacher Association also was opposed, claiming children would be going to school in the dark morning hours, increasing the potential for more accidents and abductions. In 2006, President Bush signed into law a National Energy Plan that, among other energy initiatives, extended daylight saving time four weeks. The major reason was to conserve electricity by having most work activity fall within daylight hours.5

Influencing the Business–Government Relationship

Most scholars and businesspeople agree: Business must participate in politics. Why? Quite simply, the stakes are too high for business not to be involved. Government must and will act upon many issues, and these issues affect the basic operations of business and its pursuit of economic stability and growth. Therefore, businesses must develop a corporate political strategy.

Corporate Political Strategy

A corporate political strategy involves the “activities taken by organizations to acquire, develop, and use power to obtain an advantage.”6 This advantage may involve, for exam- ple, changing or not changing a particular allocation of resources, such as government support for a project supported by business or the support of an industry, such as the solar power industry discussed at the beginning of this chapter. These strategies might be used to further a firm’s economic survival or growth. Alternatively, a corporate political strategy might target limiting a competitor’s progress or ability to compete. Strategies also may be developed to simply exercise the business’s right to a voice in government affairs, such as businesses collaboration with ALEC, discussed earlier in this chapter. Organizations differ in how actively they are involved in politics on an ongoing basis. Some companies essen- tially wait for a public policy issue to emerge before building a strategy to address that issue. This is likely when they believe the threat posed by unexpected public issues is relatively small.

On the other hand, other companies develop an ongoing political strategy so that they are ready when various public issues arise. Firms are most likely to have a long-term po- litical strategy if they believe the risks of harm from unexpected public issues are great, or when the firm is a frequent target of public attention. For example, firms in the chemical industry, which must contend with frequently changing environmental regulations and the risk of dangerous accidents, usually have a sophisticated political strategy. The same may be true for firms in the entertainment industry, which must often contend with policy issues

such as intellectual property rights, public standards of decency, and licensing rights to new technologies.

Political actions by businesses often take the form of one of the following three strategic types, also shown in Figure 9.2:

• Information strategy (where businesses seek to provide government policymakers with information to influence their actions, such as lobbying).

• Financial-incentives strategy (where businesses provide incentives to influence govern- ment policymakers to act in a certain way, such as making a contribution to a political action committee that supports the policymaker).

• Constituency-building strategy (where businesses seek to gain support from other affected organizations to better influence government policymakers to act in a way that helps them).7

The various tactics used by businesses when adopting each of these political strategies are discussed next in this chapter.

Political Action Tactics

The tactics or tools used by business to influence the public policy process are often simi- lar to those available to other political participants. Sometimes business may have an ad- vantage since it might have greater financial resources, but often it is how tactics are used—not the amount of money spent—that determines their effectiveness. This section will discuss tactics used by business in the three strategic areas of information, financial incentives, and constituency building.

7 Amy J. Hillman and Michael A. Hitt, “Corp

Promoting an Information Strategy

As shown in Figure 9.2, some firms pursue a political strategy that tries to provide govern- ment policymakers with information to influence their actions.

Lobbying

is the political action tool most often used by businesses when pursuing this type of political strategy, but some firms also use various forms of direct communication with policymakers. These various information-strategy approaches are discussed next.

Lobbying

An important tool of business involvement in politics is lobbying. Many companies hire full-time representatives in Washington, DC, state capitals, or local cities (or the national capital in other countries where they operate) to keep abreast of developments that may affect the company and, when necessary, to communicate with government officials. These individuals are called lobbyists. Their job is to represent the business before the people and agencies involved in determining legislative and regulatory outcomes. Lobbying involves direct contact with a government official to influence the thinking or actions of that person on an issue or public policy. Lobbyists communicate with and try to persuade others to support an organization’s interest or stake as they consider a particular law, policy, or regulation.

Businesses, trade associations, and other groups spend a great deal on lobbying. Figure 9.3 shows the total number of lobbyists and the amount spent on lobbying activity from 1998 to 2011. As illustrated, the number of lobbyists peaked in 2007 and by 2011 the number was about the same as in the early 2000s. The amount spent on lobbying, however, has continued to rise to over $3 billion each year. The organizations spending the most on lobbying since 2000 were the U.S. Chamber of Co the American Hospital Association, and the AARP (formerly the American Association of Retired People).8

Under U.S. law and EU directive (and in other nations as well), lobbying activities are severely limited and must be disclosed publicly.9 Lobbying firms and organizations em- ploying in-house lobbyists must register with the government. They must also file regular reports on their earnings (lobbyists) or expenses (organizations), and indicate the issues and legislation that were the focus of their efforts. Lobbyists have also historically pro- vided politicians with various perks and gifts, creating the potential for inappropriately influencing policy. As the following story shows, instances of political corruption can occur anywhere in the world.

In 2011, four European members of parliament were indicted for corruption involv- ing allegations of wrongdoing with lobbyists. One member, Pablo Zalba of Spain, admitted that he amended two pieces of consumer protection legislation at the request of members of an undercover team of reporters posing as lobbyists but denied accepting any illegal payments for his actions. The investigators said it was clear that Zalba was told he would be paid for his services. Earlier, three other members of parliament, Slovenian Zoran Thaler, Austrian Ernst Strasser, and Romanian Adrian Severin, allegedly accepted offers of cash in exchange for influencing laws. Thaler and Strasser resigned from their political positions when these allegations appeared in the media. Severin was expelled from his political party but remained in parliament as an independent.10

In response to what some viewed as widespread ethical violations exhibited by lobby- ists toward elected officials, Congress passed sweeping new legislation in 2007 directed at lobbyists and their interaction with politicians in an effort to bring ethics back into the political process, as described in Exhibit 9.A.

Businesses sometimes hire former government officials as lobbyists and political advi- sors. These individuals bring with them their personal connections and detailed knowledge of the public policy process. This circulation of individuals between business and govern- ment is often referred to as the revolving door.

In 2012, Microsoft hired a former senior FTC attorney who led several of the agency’s antitrust investigations of rival Google. Not to be outdone, Google hired a former top FTC patent expert. This type of “revolving door” hiring between a federal agency and the industry the agency scrutinizes is common. Apple hired a former top litigator from the FTC and Intel employed the FTC’s former associate general counsel and former chief of staff while the FTC was conducting an investigation of Intel’s possible antitrust activities.11

The 2010, congressional elections saw many members of Congress defeated in their bids for re-election, and some chose to leave office voluntarily. Where did these seasoned politicians go? According to a study undertaken by the Center for Responsive Politics, 52.6 percent of former members of Congress were employed by a lobbying firm or client, whereas only 20.5 percent found work in a federal agency or state government uni