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Chapter 12Chapter 12Business Business

Influence on Influence on Government Government

and Public and Public PolicyPolicy

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Learning OutcomesLearning Outcomes1.1. Describe the evolution of corporate political participation.Describe the evolution of corporate political participation.2.2. Differentiate among the different levels at which business Differentiate among the different levels at which business

lobbying occurs.lobbying occurs.3.3. Explain the phenomenon of political action committees (PACs) Explain the phenomenon of political action committees (PACs)

in terms of their historical growth, the magnitude of their in terms of their historical growth, the magnitude of their activity, and the arguments for and against them.activity, and the arguments for and against them.

4.4. Define coalitions and describe the critical role they now Define coalitions and describe the critical role they now assume in corporate political involvement.assume in corporate political involvement.

5.5. Discuss the Bipartisan Campaign Reform Act and other issues Discuss the Bipartisan Campaign Reform Act and other issues surrounding campaign financing.surrounding campaign financing.

6.6. Outline the principal strategic approaches to political activism Outline the principal strategic approaches to political activism that firms are employing.that firms are employing.

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Chapter OutlineChapter Outline

• Corporate Political ParticipationCorporate Political Participation• Corporate Political SpendingCorporate Political Spending• Political Action CommitteesPolitical Action Committees• Agency IssuesAgency Issues• Political Accountability and TransparencyPolitical Accountability and Transparency• Strategies for Corporate Political ActivityStrategies for Corporate Political Activity• SummarySummary• Key TermsKey Terms

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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.

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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:• Lobbying

• Political spending

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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.”

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Organizational Levels of Lobbying

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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

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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.

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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 coalition1.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

• 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

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• 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.

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 its stakeholders in mind.

• 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)

• 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.

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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.

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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 –• Information Strategy (provide information)• Financial Incentives Strategy (make contributions)• Constituency Building Strategy (mobilizing others to

work together)

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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.

• 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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• 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 expenditure-

only committee

• 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

Key Terms Key Terms

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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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