Chapter 9 Influencing the Political Environment McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, All Rights Reserved.

Ch. 9: Key Learning Objectives  Understanding the arguments for and against business participation in the political process  Knowing the types of corporate political strategies, and the influences on an organization’s development of a particular strategy  Assessing the tactics businesses can use to be involved in the political process use  Analyzing how the problem of money and campaign financing in the American political system affect business  Recognizing the challenges facing business in managing business–government relations in different countries 9 - 2

9 - 3 The Arguments For and Against Political Involvement by Business Figure 9.1

9 - 4 Business as Countervailing Force in Politics?  Many business executives and managers see their role in the political process as vital to the progress (and possibly survival) of their company  2005 Harris poll showed concern about business influence:  90% of public polled felt business had too much political power  85% felt political action committees (a favorite business political tactic) were too powerful  At the same time only 16% of respondents felt public opinion had much power in the political environment

9 - 5 Role of Interest Groups and Coalitions  Interest groups, representing varying concerns and populations, have a voice in the political process  Labor unions have a longstanding role in U.S. politics  Recent increase in AFL-CIO dues of 4cents/month to support political activity raised $7million  Unions are not unified in their support for a particular party  Ad hoc coalitions  Diverse business organizations and interest groups band together in support or opposition to a specific legislative or regulatory initiative

9 - 6 Influencing the Business-Government Relationship  Business leaders and scholars agree that firms must participate in the political process  Stakes are too high for business not to be involved  Government acts on issues that affect basic operations of companies  Companies therefore must formulate their Corporate Political Strategy  Involves the activities taken by organizations to acquire, develop, and use power to obtain an advantage

9 - 7 Types of Corporate Political Strategy  Three strategic types  Information strategy Businesses seek to provide government policymakers with information to influence their actions  Financial-incentives strategy Businesses provide incentives to influence government policymakers to act in a certain way  Constituency-building strategy Businesses seek to gain from other affected organizations to better influence government policymakers to act in a way that helps them

9 - 8 Business Strategies for Influencing Government Figure 9.2

9 - 9 Promoting an Information Strategy  Lobbying  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  Direct communications with policymakers  Businesses invite officials to participate in activities that will improve government officials’ understanding of management and employee concerns  Expert witness testimony  Businesses provide facts, anecdotes, or data to educate or influence government leaders at public forums like congressional hearings

The Business Roundtable  One of the most effective organizations for promoting direct communication between business and policymakers  Organization of CEOs of leading corporations  Studies various public policy issues and advocates for laws it believes foster vigorous economic growth and a dynamic global economy  Considers issues like corporate governance, education, health care, and civil justice reform

Top 10 Industry Group Lobbyist Expenditures Elections Figure 9.3

Promoting a Financial Incentive Strategy  Political action committees Independently incorporated organizations that can solicit contributions and then channel those funds to candidates seeking political office  Economic leverage Occurs when a business uses its economic power to threaten to leave a city, state, or country unless a desired political action is taken

Political Action Committee Activity Figure 9.4

Promoting a Constituency Building Strategy  Stakeholder coalitions  Businesses try to influence politics by mobilizing various organizational stakeholders to support its political agenda  Advocacy advertising  Advertisements that focus on a company’s views on controversial political issues  Public relations  Could be politically charged comment in a speech by senior executive or a public relations campaign  Trade associations  Coalitions of companies in the same or related industries—to coordinate their grassroots mobilization campaigns  Legal challenges  Business seeks to overturn a law after it has been passed

Levels of Business Political Involvement Figure 9.5

Campaign Finance Reform  In 1990’s critics feared the growing amount of money pouring into elections would become a corrupting influence  Public outcry resulted in calls for Campaign Finance Reform legislation passed in 2002  Largest provision was ban on soft money  Unlimited contributions to the national political parties by individuals or organizations for party-building activities  $470 million in election  Have been series of legal challenges to 2002 reforms

Top Soft Money Contributors to both Political Parties, Figure 9.6

Global Challenges to Business Political Action  Critical that managers be aware of the opportunities for and restrictions on business involvement in the political processes in other countries  Other governments struggle with same issues as U.S. - participation in the political environment, campaign financing, and maintaining a fair ethical climate throughout the public policy process  Has resulted in campaign finance reform in many other countries, as shown on next slide

Campaign Financing Reform Abroad  Limits on expenditures  Contribution limits  Disclosure regulations  Bans against certain types of contribution  Bans against certain types of expenditures  Measures designed to encourage donations  Subsidies in-kind  Public subsidies

Campaign Finance Reform or Just Politics As Usual in Canada?  In 2003 the Liberal Party in Canada introduced a sweeping political campaign finance reform bill, C-24, aimed at “making the electoral system more transparent and fair by reforming significantly the rules on financing of political participants.” It included a controversial proposal to ban corporate and trade union donations to political parties or leadership contests.  C-24 supporters argued the old law, the1974 Election Expenses Act, had failed in its goals. In 2001, 95 of the top 100 donors to the Liberal Party were businesses. Bombardier, a Canadian firm, donated more than $140,000 to the Liberal Party and received more than $100 million in government contracts. People were increasingly concerned that business and other powerful groups simply had too much influence in politics. Exhibit 9.C

Campaign Finance Reform or Just Politics As Usual in Canada?  The new law effectively banned political donations from corporations and unions, and limited contributions by individuals. To compensate for the loss, C-24 increased the amount of public financing available to political parties. At the time, individuals were eligible for a 75% tax credit for donations up to $200. The new law doubled this to $400.  The proposal met with strong skepticism and concerns. Democracy Watch, an independent, nonprofit advocate for democratic reforms, believed that the new bill made a good start, however, it argued that the bill did not go far enough and contained too many loopholes to be truly effective. Canadian Alliance leader Stephen Harper commented, “The central idea proposed is that we replace corporate and union contributions …with forced funding from taxpayers…this solution is worse than the problem.”  Despite the opposition, C-24 was passed and “came into force” on January 1, Exhibit 9.C (cont.)