The Governance Challenges of Corporate Political Activity

Abstract

This article explains the rationale for study of the governance challenges of corporate political activity. The topic is important, especially in light of the U.S. Supreme Court’s 2010 Citizens United decision, but understudied to date. The authors review the literature bearing on this topic. The authors separate consideration of the topic into macro-level and micro-level issues. The macro level concerns the societal perspective. At this level, key research questions concern whether corporate political activity be allowed, and how it should be regulated. The micro level covers managerial and shareholder control over corporate political activity. At this level, key research questions include concern whether the firm should practice political activity and how to regulate practice through professional self-regulation, ethical guidelines, and corporate governance systems control. The remainder of this article contains focused summaries of the articles selected for this Special Issue. Each article is introduced and evaluated against the key research questions at the macro or micro levels of analysis.

Keywords

corporate political activity corporate governance governance dynamics Citizens United codes of ethical lobbying practice

The guest editors are proud to present this special issue on “The Governance Challenges of Corporate Political Activity,” which is largely the result of a colloquium hosted by Long Island University’s CW Post campus in May 2010.¹ Eighteen scholars were invited to present their papers over 3 days, and we received additional submissions to the call for papers after the conference was over. All selected articles went through several rounds of rigorous double blind reviews, for which we are indebted to all reviewers involved. (In appreciation, these reviewers are listed alphabetically at the end of this article.) This special issue is the third in a series of Business & Society special issues on corporate political activity following Wilts and Skippari (2007) and Dahan, Doh, and Teegen (2010), which came out of four IABS-sponsored international colloquia (respectively in 2004, 2006, 2008, and 2010).

Our aim with this special issue was to offer a venue to discuss an aspect of corporate political activity (CPA) that management scholarship has little explored so far, namely, the challenges to governance created by the regular, growing, and pervasive practice of CPA in democracies. CPA is defined as “corporate attempts to shape government policy” (Hillman, Keim, & Schuler, 2004, p. 837). This governance topic related to CPA is both current and important. Current insofar as public and private governance issues are an increasing concern of policy makers, managers, and scholars (Reich, 2009; Shell, 2004; Watkins, Edwards, & Thakrar, 2001). This topic emerges from a broad context of multiple corporate scandals of mismanagement and gaps in corporate governance (such as Enron) as well as government oversight (such as AIG and Bear Stearns), on top of the usual questions of improper relationships between corporate managers and policy makers (corruption or corporate wining and dining in politics; see Dal Bó, Dal Bó, & Di Tella, 2006; Drew, 2000; Nelson, Dulio, & Medvic, 2002; Stone, 2006). The issue of the governance of CPA has gained a renewed prominence as the first Obama administration made the improvement of ethical standards in policy making as well as stricter governmental oversight of business activities two of the top priorities of their agenda. For instance, President Obama reported in his 2010 State of the Union speech, “We’ve excluded lobbyists from policymaking jobs or seats on federal boards and commissions.” This token gesture did not fundamentally change the way the business of lobbying is conducted in Washington. Five years later, K Street has not perished under the Obama administration. It actually is alive and well. This topic is important not simply to the Obama administration but also to any democracy in general, as it questions the place that firms play in democracies, whether this place should continue, and how this place should evolve going forward.

So far, most management scholarship on CPA has focused on positivist and normative analysis focusing on the utility and effectiveness, thus the instrumentality, of engaging (or not engaging) in CPA (e.g., Lux, Crook, & Woehr, 2011). However, as organizations pay more attention to societal demands (Donaldson & Preston, 1995) and as society itself views organizations more critically (Crane, Matten, & Moon, 2008; Mitchell, 1997) due to an increased awareness of corporate malfeasance and misconduct, this dominant stance in scholarship becomes problematic. First, the stance ignores the social obligations firms have toward stakeholders and the external environment in general (Barnett, 2007; Friedman & Miles, 2002), including the public policy environment. Second, it helps managers ignore the ethical ramifications and by extension the governance dynamics associated with CPA. While ethical analysis of corporate conduct has become more popular in recent years, such ethical analysis is largely absent from CPA theorizing, with few exceptions. Given that ethical behavior is linked to improved corporate governance (Hawley & Williams, 1996) and that better governance can advance corporate conduct relative to the firm’s stakeholders (Jo & Harjoto, 2012), there is a strong need to explore governance dynamics in the context of CPA. At the core of this special issue’s general topic are two related fundamental questions. Should corporate political activity be allowed? And if so, how should it be governed? We propose to approach these issues at two levels of analysis, the macro and micro levels, leading to a two-by-two matrix (see Table 1), which captures the main research questions our call for papers encouraged scholars to consider. The macro level refers to the public control of CPA, such as through governmental regulations over lobbying practices. The micro level refers to the private control of CPA, such as through a company’s governance structure and reporting systems and through codes of ethical lobbying conduct.

Table 1.

Research Questions Related to the Governance Challenges of CPA.

	Should corporate political activity be allowed?	How should CPA be governed?
Macro level	Is CPA part of a healthy democracy or a source of perversion?	How regulated should CPA be?
Micro level	Is CPA part of the normal ways of doing business or is it motivated by managerial opportunism?	How strictly should professional self-regulation, ethical guidelines, and corporate governance systems control CPA?

We discuss below the key issues related to our general topic and current gaps in the literature, distinguishing between these two levels of analysis, namely, the macro and micro levels.

Macro Level: The Public Governance of CPA

The first unit of analysis is at the societal level. From a broad perspective, the fact that firms are increasingly active politically raises issues of public governance. Some scholars have described this development as the emergence of “private authority” as a substitute for the authority of public institutions in dealing with public issues (Cutler, Haufler, & Porter, 1999; Dahan et al., 2010; Hall & Biersteker, 2003). How does this phenomenon fit into a healthy democracy (Ostas, 2007)? Do firms have a legitimate right to influence public policy (Mitchell, 1997)? Is there a point where firms become excessively influential (Barley, 2007; Schuler, 2008)? What are the benefits and negative consequences to society of firms being involved in politics? While some scholars view corporate political activity as part of the emergence of a wider trend of civil regulation, complementing the shortfalls of state regulations or failing states (Dahan et al., 2010; Vogel, 2010; Wilson, 2003, pp. 159-162), others point to the disproportionate power of corporate interests (Coates, 2012; Schuler, 2008), leading to public decisions that do not benefit the common interest (Barley, 2007; Carney, 2006; Clawson, Neustadtl, & Weller, 1998; Faccio, 2002, 2010; Jackson & King, 1989), and ultimately to the economic stagnation and decline of nations (Olson, 1982).

It must be noted that national variations in perception of the legitimacy of CPA are substantial (Harsanyi & Schmidt, 2011; Lehne, 2001; Maxfield & Schneider, 1997; Schneider, 2004; Wilson, 2003). While some countries such as the United States (Epstein, 1969), Ireland, the United Kingdom, or the Netherlands have a long history of political advocacy by interest groups ingrained in the fabric of their democracies, other countries (including for instance Brazil, France, and Germany) have been much more reluctant to tolerate these activities, particularly by corporations. Ironically, the fact that interest group representation is not viewed as legitimate in some democracies has not led them to outlaw these practices but rather to turn a blind eye on them. In these countries, this attitude has led to a lack of legal framework that would bring this practice out in the open, and set legal standards of what can be and cannot be done. In that regard the U.S. framework could be a source of inspiration to many countries. It includes the 1946 Federal Regulation of Lobbying Act, which was replaced by the 1995 Lobbying Disclosure Act, complemented by the 1971 Federal Election Campaign Act (later amended in 2002 as the McCain-Feingold Act) as the main basis for the professional practice. After several bribery scandals, the relationship between public officials and lobbyists was more tightly regulated through the 2006 Legislative Transparency and Accountability Act and the 2007 Honest Leadership and Open Government Act as well as a host of court decisions over the years. Taken together, this regulatory framework establishes requirements of transparency (mandatory registry of professional lobbyists, mandatory logs of meetings between federal public decision makers and lobbyists, mandatory annual reports of corporate political donations, etc.) and sets limitations to methods of influence although the system has certain reporting flaws (LaPira & Thomas, 2013).

However, even political systems that have regulated interest group representation, such as the United States, the United Kingdom, or the community-level European Union, have a long way to go. For instance, in the United States most of the safeguards are only at the federal level, as regulations are sometimes much looser and vague in some states (Witko, 2005) or stricter in other states but likely to be challenged based on the U.S. Supreme Court’s 2010 Citizens United decision (DeNicola, Freed, Passantino, & Sandstrom, 2010), and the stricter federal rules can still be skirted (Nelson et al., 2002; Stern, 1992, pp. 196-219). Furthermore, the Citizens United decision eliminating limits on corporate campaign contributions has ignited a heated debate over the need for more, rather than less, rules to curtail the corporate financing of politics, or at least for mandated transparency (Bebchuk & Jackson, 2010; Coates & Lincoln, 2011; Hill, 2011; Torres-Spelliscy, 2011; Youn, 2011). In the United Kingdom, the British Parliament has been troubled by scandals of illegal influence peddling (e.g., the so-called “cash-for-questions” affairs), with little heart put into stricter enforcement (House of Commons, 2008). At the EU level, years of agonizing debates over needed lobbying reforms produced little else than a common lobbyist registry along with a Code of Conduct on June 23, 2011, which are both voluntary at this stage (European Parliament, 2003; Greenwood, 2011; Hauser, 2012). Last, while public regulations have failed to set proper boundaries to the traditional practice, new unethical methods have appeared, such as “astroturf lobbying” whereby an interest group such as a firm or trade association pretends to be supported by a large number of local constituents (“grassroots”), which are actually fabricated and thereby fake (Lyon & Maxwell, 2004). This type of deceptive practice is not strictly illegal, but it is clearly unethical and should be properly regulated (Young, 2009), as these new unethical methods will gradually undermine what little regulation already exists.

If the public governance of corporate political activities remains inadequate, can we expect private governance to do a better job at regulating the practice?

Micro Level: The Private Governance of CPA

The second unit of analysis to consider governance aspects of corporate political activity is at the firm level. Corporate political activity is part of a set of activities that most large firms perform routinely. As such, individual firms, trade associations, and lobbyists as professionals have created codes of conduct for their practice of governmental affairs (e.g., the American League of Lobbyists promotes its “Code of Ethics”; http://www.alldc.org/ethicscode.cfm). These attempts at self-regulation are a first step toward filling the gaps left by the public governance of corporate political activity. Much debate remains among professional and academic circles as to what “ethical” lobbying should look like (Christensen, 1997; Hamilton & Hosh, 1997; Keffer & Hill, 1997; McGee, 2008; McGrath, 2005; Nelson et al. 2002; Oberman, 2004; Ostas, 2007; Weber, 1996; Whawell, 1998).

In addition, the majority opinion in the U.S. Supreme Court 2010 Citizens United decision argued that corporate political activities can and should ultimately be assessed and controlled by corporate boards. This point can be described in a nutshell as the corporate governance of CPA. It raises governance-related questions, such as, in conducting CPA, what practices should be allowed by shareholders and which ones should be off limits for corporate managers? How much and often should governmental affairs officers report to their hierarchy and the board about their corporate interest representation activities? And ultimately, does CPA drive value for the firm and its shareholders? These questions are quite important because, as we will now argue, CPA happens to be an area that presents much opportunity for developing managerial discretion, creating a risk of abuses.

CPA as a High-Discretion Managerial Activity

Hambrick and Abrahamson defined discretion as “latitude of action” (1995, p. 1427); its obverse is constraint (Hambrick & Finkelstein, 1987, p. 374). According to Hambrick and Finkelstein (1987), the extent of managerial discretion depends on three sets of factors: environmental (such as industry characteristics), organizational (such as structure and processes), and individual (personal characteristics of the manager such as psychological traits and career). To Hambrick and Finkelstein’s (1987) initial list of sources of managerial discretion, Finkelstein and Peteraf later added a fourth determinant of managerial discretion, “the intrinsic characteristics of different managerial tasks or activities” (2007, p. 237), that is, some managerial activities offer more opportunities for latitude of choice than others (see also Peteraf & Reed, 2007, p. 1095, for a similar view). Given that CPA is a managerial activity, it is this later conceptual addition that is of particular relevance here. We now discuss this fourth source of managerial discretion, following Hambrick and Finkelstein’s (1987) suggested approach of considering a source holding the others constant (see also Finkelstein & Peteraf, 2007, p. 237).

Drawing on both the transaction economics and the agency perspectives, Finkelstein and Peteraf (2007, p. 239) identified three characteristics of managerial activities that will create discretionary opportunities or constraints for managers, namely, the degree of complexity, uncertainty, and observability of activities. All three contribute to determine whether a given managerial activity can be properly prespecified and monitored to be constrained by the manager’s hierarchy or principal, depending on the theoretical perspective (Peteraf & Reed, 2007, p. 1095). We discuss below each of these three characteristics as they pertain to CPA.

Degree of complexity

When a managerial activity is simple, it can be easily broken down into simple tasks, which can each be individually specified and closely monitored to ensure continued compliance. However, when a managerial activity is complex, it is not programmable and harder to monitor given the multiplicity of contextual factors as well as the many parallel and sequential tasks involved. Therefore, managerial performance becomes quite challenging to evaluate, as the contributing factors are too numerous to fully grasp.

As far as CPA is concerned, the public policy process is actually a very complex web of interactions, often over long periods of time (Baumgartner, Berry, Hojnacki, Kimball, & Leech, 2009; Baumgartner & Leech, 1998; Hart, 2004; Keim, 2001; Kersh, 1986, 2002). Firms can attempt to influence this process by using strategic combinations of various tactics such as financial contributions to electoral candidates, testimonies before legislative or regulatory committees, public relations and grassroots campaigns, and lobbying individual officials and so forth. (Epstein, 1969; Hillman et al., 2004; Keim & Zeithaml, 1986). Firms need to select their targets and the timing of these activities carefully. There is a long string of key decisions to be made, highly contingent on a firm’s internal resources and capabilities (Oliver & Holzinger, 2008) as well as its environmental conditions (Rehbein & Schuler, 1999), which explain the wide variance in corporate political activities even within a given industry at any point in time (Bonardi, Hillman, & Keim, 2005; Bonardi, Holburn, & Vanden Bergh, 2006). CPA is thus a nonmarket strategy area of intense and difficult decision making (Baron, 1995; Baysinger & Woodman, 1982), making it virtually impossible for shareholders and their boards to monitor CPA properly and evaluate performance. This condition is therefore a first reason why CPA should be considered a high-discretion managerial activity.

Uncertainty

According to Finkelstein and Peteraf (2007, pp. 240-241), uncertainty creates information incompleteness, which prevents contractual specifications covering all contingencies. Activity uncertainty may be due to many reasons, including (but not limited to) uncertainty over its sequential path (the chain of tasks and events is unpredictable), its mechanism (when causal ambiguity is at play), or its outcome (when all potential outcomes cannot be foreseen, it is quite difficult to specify an expectation ex ante and judge performance ex post).

In the case of CPA, this managerial activity is implemented in the political arena, where it is hard for outsiders to assess how it will unfold or to assess its actual impact on the public policy process (Hansen, 1991; Keim, 2001). Indeed, this process is inherently uncertain (Baysinger, Keim, & Zeithaml, 1985; Keim, 2001; Kersh, 1986, 2002; Wright, 1996). As summarized by Hart (2004, p. 55), “Politics is notoriously fickle. Momentum can shift rapidly and unexpectedly.” In other words, political agendas can change quickly, due to world or national events and the influence of the media. Therefore a process of public policy making that was well under way can be hijacked or aborted on short notice. The uncertainty of this process is also due to the high level of causal ambiguity of any public policy outcome (or lack thereof), which is the result of a massive web of interactions among a multitude of actors across an extended period of time (Baumgartner & Leech, 1998; Hansen, 1991; Kersh, 1986, 2002). Furthermore, it is difficult for firms, and in particular for boards that rarely include public affairs professionals or former elected officials, to predict what public policy makers will decide, and what their firm can reasonably hope to achieve by being involved, as policy making is a process including party, state, national, media, and personal influences (Hansen, 1991; Keim, 2001). Therefore specifying expectations for public policy outcomes ex ante, in-depth monitoring of the process and assessment of the actual outcome ex post are quite challenging to shareholders and their boards.

Observability

Finkelstein and Peteraf (2007, pp. 241-242) pointed out that some managerial activities lack transparency. The issue is twofold. First, shareholders and their boards may not have the opportunity to monitor directly the set of tasks required for a given managerial activity, as these tasks may be tacit or hidden for strategic reasons. Second, shareholders and their boards may not even be able to observe the activity’s alleged outcome.

Applied to CPA, observability can indeed be a significant challenge. While some political tasks can be easily observed, such as a CEO testifying before a Congressional committee, or a firm organizing a petition campaign, much of CPA is actually performed behind closed doors (Butler & Ribstein, 1995; Hillman & Hitt, 1999), making it opaque at best. U.S. campaign finance and lobbying disclosure laws require firms to submit information to the Federal Election Committee (FEC), but firms are not required to disclose to their shareholders how much they raise or how they used CPA monies. Neither the Federal Elections Commission (FEC) nor the Securities and Exchange Commission (SEC) mandates corporate disclosure of political spending directly to shareholders, or to corporate boards of directors, as it is considered an “ordinary” business decision (Torres-Spelliscy, 2010). Beyond electoral campaign financing, much of CPA relies on behind-doors interactions with officials (lobbying) in the form of give-and-take negotiations, which are typically kept confidential, if not secret. CPA is therefore a managerial activity where information asymmetries about the tasks performed reduce the transparency between shareholders and executives (Bloxham, 2011; BloxhamFreed, 2007; Hadani, 2012; Yu & Yu, 2011).

In addition to task unobservability, CPA may also face outcome unobservability. CPA’s outcomes are notoriously ambiguous. Given the frequent quick and unpredictable shifts in political and media agendas, as well as multiple simultaneous and opposing influence attempts on officials, it is often difficult to put the finger on what caused the final outcome of the public policy-making process. Van Schendelen (1998, p. 17) and Bouwen (2004, p. 474) pointed out that political influence cannot be reliably ascertained, which led Hart (2004, p. 55) to state that “there is ample room for credit claiming or blaming” [in CPA]. Managers involved in CPA could utilize this strategy to exaggerate their overall performance or avert criticism.

We conclude from this discussion that indeed CPA can be viewed as a managerial activity offering managers significant opportunities for discretion. It is important to note that the jury is still out on the firm effects of managerial discretion: many management scholars view managerial discretion as the opportunity for an executive to shine and deliver full potential added value for the benefit of the firm’s owners (Finkelstein & Boyd, 1998). However, other scholars see this phenomenon as a negative side effect of weak corporate governance, allowing abuses for the sole benefit of the manager (Cannella & Monroe, 1997; Finkelstein & Peteraf, 2007, p. 238; Kaiser & Hogan, 2007).

Having established that CPA is one of these high-discretion managerial activities that could lead to abuses, it follows that the private governance of CPA is crucial. This importance is especially true given mounting skepticism in recent scholarship that CPA improves the firm’s bottom line (Aggarwal, Meschke, & Wang, 2012; Ansolabehere, de Figueiredo, & Snyder, 2003; Coates, 2010, 2012; Coates & Wilson, 2007; Faccio, Masulis, & McConnell, 2006; Hadani & Schuler, 2013; Hersch, Netter, & Pope, 2008; Igan, Mishra, & Tressel, 2009; Lenway, Jacobson, & Goldstein, 1990; Lenway & Schuler, 1991; Snyder, Ansolabehere, & Ueda, 2004). There are two main explanations for CPA’s negative corporate outcomes (Porter, 2012). One is the so-called “arms race” whereby firms engage in political spending to keep up with their competitors, but no firm can generate a sustainable competitive advantage because the practice is too easily and quickly imitated by others (Gray & Lowery, 1997; McKay & Yackee, 2007). The other (and majority) explanation is actually weak corporate governance systems (DeNicola et al., 2010; Hadani, 2012; Mathur, Singh, Thompson, & Nejadmalayeri, 2013; Ozer, 2010), allowing executives to misdirect, overinvest, or take excessive risks in CPA, due to a self-serving bias such as preparing a post-CEO political career or ambassadorial appointment (Coates, 2012; You & Du, 2012) or sheer incompetence. For instance, in 2011, Teachers Insurance and Annuity Association–College Retirement Equities Fund (TIAA-CREF), a major American institutional investor, added a political influence section to its policy statement on corporate governance, which included the following statement: “Without effective oversight, excessive or poorly managed corporate political spending may pose risks to shareholders, including the risk that corporate political spending may benefit political insiders at the expense of shareholder interests” (TIAA-CREF, 2011, p. 27).

To minimize this danger, two corporate governance approaches of CPA emerge. The first approach is self-regulation of the activity through stricter ethical standards (McGrath, 2005). The second approach is tighter corporate governance policies. While the former is needed to delineate responsible practices (e.g., explicitly rejecting “Astroturf” lobbying or the corporate support of social issue advocacy, as the backlash risk is too great; Bai, 2012), there is little doubt that it will not suffice to curb potential managerial opportunism. The latter approach (articulated by the majority opinion in the U.S. Supreme Court’s Citizens United decision) assumes that shareholders in general and their board directors in particular (a) have enough available information about their firm’s political activities and its outcomes to monitor the practice; and (b) are able to make sense of this information to assess CPA’s efficiency and efficacy (Coates & Lincoln, 2011). There is much ground to challenge both assumptions. Regarding the first point, as discussed earlier, there is no legal requirement to report on corporate political spending to shareholders or directors. Furthermore, few proxy resolutions have been successfully adopted by general assemblies to mandate disclosure (Freed & Sandstrom, 2008). For example, during the 2012 proxy votes, only 13 corporations adopted a proxy resolution for disclosure of corporate political spending out of 51 proposals in this voting season (Freed, 2012). In addition, while any PAC and Super-PAC corporate donations must be publicly reported, corporate donations to so-called social welfare groups (designed to advocate on an issue rather than in favor or against any particular candidate) can remain secret to the public, shareholders, and directors (Bai, 2012). Thus any corporation that wishes to be active politically while keeping their shareholders and directors in the dark can continue to do so legally (see Bloxham, 2011, for recent corporate examples). Regarding the second point, there is at least anecdotal evidence for the lack of political skills among corporate executives, directors, and shareholders (Fleisher, 2002, pp. 379-380). For instance, Watkins et al. (2001) surveyed public affairs professionals for Fortune 100 firms and found that 77% of the respondents felt that their top executives have little understanding of their political environment and how it impacts their firms. These authors reckoned that this was a “dangerous state of ignorance” (Watkins et al., 2001, p. 10). In addition, having a director with extensive public service experience seating on the firm’s board is still the exception rather than the rule. There is evidence in Hillman’s (2005) empirical sample of 450 firms, as the median number of board members with a political background is 0.31 for a median board size of 7.91. Similarly, Etzion and Davis (2008) reported a small number of former government officials securing a corporate board directorship upon retirement from the public sector. It is therefore highly doubtful that tight corporate governance of CPA is, or even could be put, in place in most large corporations. This reality is why many scholars, as well as political and shareholder activists, have advocated a U-turn away from the Citizens United Supreme Court decision, instituting stricter, rather than looser, regulation of CPA, in particular regarding its transparency (Coates & Lincoln, 2011; DeNicola et al., 2010; Freed, 2007; Freed & Sandstrom, 2008; Torres-Spelliscy, 2011). Coates (2012) has recently summarized this point of view thus:

Contrary to the Supreme Court’s stated assumption, shareholders were not able to protect themselves from misuse of corporate funds for political purposes prior to Citizens United, and the risk of such misuse has increased as a result of the decision. (p. 659)

The selected four articles presented in this special issue further explore these important issues.

Overview of the Special Issue

If we refer back to our Table 1 that mapped out the main questions and levels of analysis, the articles selected in this special issue taken together offer broad coverage. Table 2 summarizes this coverage (all referenced articles are included in the present issue). Taken together, these four studies offer a rich mix between conceptual (Alzola; Scherer, Bauman-Pauly, & Schneider) and empirical contributions (Ozer & Alakent; Parker, Parker, & Dabros); between critical (Alzola) and hopeful views (Scherer et al.) of the place of CPA in democracies; and a variety of theoretical grounding: moral philosophy (Alzola), political science (Parker et al.), economics and agency theory (Ozer & Alakent), and Habermasian political philosophy (Scherer et al.).

Table 2.

Special Issue Contributions to the Research Questions.

	Should corporate political activity be allowed?	How should CPA be governed?
Macro level	Is CPA part of a healthy democracy or a source of perversion?	How regulated should CPA be?
	= Alzola	= Scherer, Bauman-Pauly, and Schneider
	= Parker, Parker, and Dabros
Micro level	Is CPA part of the normal ways of doing business or is it motivated by managerial opportunism?	How strictly should professional self-regulation, ethical guidelines and corporate governance systems control CPA?
	= Ozer and Alakent
	= Ozer and Alakent	= Scherer, Bauman-Pauly, and Schneider

Alzola (2013) proposes answers to the first set of macro-level questions. He moves away from the legalistic reasoning approach to CPA typically used by business ethicists who argue that (a) corporations are legal persons; and (b) every person has a constitutional right to free speech; ergo corporations must enjoy freedom of speech, including all political activities imaginable within the current legal limits. By coming from a different angle (viz., moral and political philosophy), Alzola articulates why CPA is an undesirable component of a democratic regime and unfairly biases the public decision-making process by allowing a subsection of society (shareholders of publicly listed companies) to enjoy disproportionate influence over this process. This opinion is obviously a critical point of view, but we think that it allows everyone interested in this issue to take a step back and look at the big picture with a fresh perspective. Although this opinion does have its supporters (Barley, 2007; Carney, 2006; Clawson et al., 1998), some will beg to differ, but in any case it is a voice worth having in this conversation together.

After Alzola’s sobering piece about the likely perversion of democracy by corporate lobbying, the Parker, Parker, and Dabros (2013) article offers a practical test of this proposition. Indeed, one of the alleged perversions of the democratic regime by corporate lobbying is the institution of a resource exchange between firms and public officials in a market-like fashion (Bonardi et al., 2005; Epstein, 1980; Keim, 2001, 2002; Keim & Zeithalm, 1986). Rather than being limited to campaign donations, the resources provided by firms can be quite diverse (Bonardi, 2008, 2011; Dahan, 2005a, 2005b; Keim, 2002; Oberman, 2008) and could conceivably include executive positions upon retirement from public service. The so-called “revolving door” phenomenon has been rarely explored in the management field, with the exception of Etzion and Davis (2008), who focused on government officials becoming board directors, in terms of private-sector employment. The Parker et al. study offers new insight because the authors look at former legislators who became lobbyists, not directors. Furthermore, they conclude that the supposedly cushy corporate job kickbacks for past favors are more a myth than reality. The real reason for former legislators to start a lobbyist career on retirement has more to do with the fact that it is the career that maximizes the value of their human capital. This is good news as a golden executive position in payment for granting unfair advantages in the past would have been second only to outright bribery as egregious behaviors sapping a democratic regime. Be that as it may, the authors’ conclusion is still compatible with a lesser evil, namely, that a former legislator’s corporate client gets ahead thanks to their lobbyist’s political access rather than on the merit of their policy proposals.

If CPA can generate firm-specific gains at the expense of the majority of citizens, at the individual firm level does it similarly risk creating benefits for a happy few (CEO or Top Management Team) at the expense of the majority of shareholders? Ozer and Alakent’s (2013) study shows the impact of corporate governance systems on CPA decisions. Specifically, they point out that corporate governance characteristics typically associated with stronger control over executives lead to a lower propensity to engage in CPA. This finding illustrates the general unease of shareholders with CPA, who question whether the practice is in the firm’s interest. This finding is in line with our previous discussion of CPA used to develop a CEO’s (or other executive’s) discretion, potentially for personal benefits, such as extended tenure, excessive compensation, and perks. This area of CPA scholarship has attracted much attention recently and promises to continue to be very active, as much remains obscure in the relationships between CEO/executive power/discretion, CPA decisions, and firm-level outcomes.

Finally, Scherer, Baumann-Pauly, and Schneider’s (2013) discussion offers an optimistic view of the future of democracy, when reforms of corporate governance systems to integrate more democratic features will enable firms to pursue CPA and corporate citizenship activities for the benefit of their shareholders and local communities alike. They point out that while it is easy to criticize the negative side effects of CPA for democracy, one must not forget that democratic regimes are far from perfect in practice either and that in many countries corporate interventions to organize local communities and help address social ills, thereby filling government gaps, are quite welcome. Thus they offer a more practical view of CPA going beyond an opposition on principle, to pragmatic ways of deliberations and governance that can allow CPA and corporate citizenship activities to make societal contributions.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The authors received no financial support for the research, authorship, and/or publication of this article.

Notes

In Appreciation to the Reviewers for This Special Issue

Emmanuel Adegbite (Durham University)

Tim Blumentritt (Kennesaw State University)

Jean Boddewyn (Baruch College, CUNY)

Kathy Getz (American University)

Jennifer Griffin (George Washington University)

J. Brooke Hamilton, III (University of Louisiana at Lafayette)

David Hart (George Mason University)

Gerry Keim (Arizona State University)

Ans Kolk (University of Amsterdam)

David Levy (University of Massachusetts, Boston)

Ian Maitland (University of Minnesota)

Steve McGuire (Aberystwyth University)

Jeremy Moon (Nottingham University)

William Oberman (Shippensburg University)

Daniel Ostas (University of Oklahoma)

Aseem Prakash (University of Washington)

Antje Vetterlein (Copenhagen Business School).

Author Biographies

Nicolas M. Dahan (PhD, CNAM) is associate professor of international business and strategy at Temple University, Fox School of Business, as well as a research fellow with Rouen Business School (Rouen, France). His main research areas include nonmarket strategies, in particular corporate lobbying as well as corporate social responsibility. He has previously published his work in various scholarly outlets such as Business & Society, Human Relations, Journal of Business Ethics, Journal of Public Affairs, and Long Range Planning, as well as the best paper proceedings of the Academy of Management annual conference.

Michael Hadani (PhD, Syracuse University) is associate professor of management at Saint Mary’s College of California, School of Economics and Business Administration. His research interests focus on the complex interaction between firms and government decision makers, specifically corporate political activities and their impact on legislative and firm outcomes. His research has been published in journals such as Business & Society, Journal of Business Research, Journal of Organizational Behavior, and Strategic Management Journal.

Douglas A. Schuler (PhD, University of Minnesota), is associate professor of business and public policy at Rice University’s Jones Graduate School of Business. His research and teaching focuses on corporate political activity, corporate social responsibility, and social enterprise. His research articles have been published in many top academic outlets, including the Academy of Management Journal, Academy of Management Review, Business and Politics, Business & Society, Business Ethics Quarterly, California Management Review, Journal of Management, and Strategic Management Journal.

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