Corporate Political Behavior

Why Corporations Do What They Do in Politics

Robert Healy

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781317814788
• Edition: 1
• Topic: Economía
• Subtopic: Economía política

Corporate Political Behavior centers on why corporations do what they do in politics. The text draws upon insights from the author's forty years of government and political experience—insights placed within an operating framework grounded in the political science and strategic issue management disciplines.

Robert Healy argues that corporate political behavior results from the interplay of behavioral drivers—commercial objectives, competitive political advantage, corporate political culture and leadership—and behavioral enablers—political capital, corporate political reputation, corporate campaign financing, and corporate political clout. This interplay all functions within a three-world environment: market, non-market, and internal corporate. The book examines how these factors structure a firm's political positioning, its business-political strategies, and its political behavior as it seeks to attain its marketplace goals. The text features in-chapter side bars— events, or circumstances or political happenings of which the author either knew or participated—along with longer mini-cases in which the author also participated or was consulted. Each chapter concludes with a summary and takeaway points.

Corporate Political Behavior will be applicable to courses in political science and in business school courses on strategic issue management, policy construction, corporate agency and corporate strategy, as well as of interest to corporations and practitioners.

1
Conditioner: The Governed Market System and its Boundaries

The governed market system concept of Lindblom origin is a derivative concept— an economic and political construct that pleases neither the free market purist nor the governmental true believers. The governed market system is an inherent conflict generating notion as markets and polities interact in ghost ways with each other. It is a corporate political behavior conditioner as governmental authority continues its upward trajectory of system intervention.

An important governed market system sidetrack, boundaries, helps frame the relationship between government and firms as a series of expanding and contracting fence lines separating the operational spheres of government and business. Boundaries can be loose or tight, expansive or narrow, and floating or stationary. Boundaries are impacted by events, political election outcomes, governing philosophies, and private–public system alterations. Boundaries are reviewed through time with particular attention to the business scandals of 2001–2003 and the financial meltdown of 2008.

Overview: Markets and Government

Washington hotel conference rooms look remarkably alike. Beige walls, crown molding, slightly worn rugs, tables and chairs jammed together, white linen coverings, water glasses, and possibly a few hard rock candies.

Seen one. Seen them all. Except for the Top of the Hay Adams Hotel. The beige walls are there along with white tablecloths and tight seating. Maybe even hard rock candy. But … the view! The view is Washington breathless. Looking across La Fayette Square is the White House with the Washington Monument directly behind and Jefferson Memorial in the distance. The Capitol is blocked by an office building; still, most visitors to the Top of the Hay think they can see it anyway. Even for the most jaundiced of Washington residents, it is picture snapping time.

Not so for this group. Fifty CEOs and senior vice presidents are anxiously waiting to hear about the “World of Washington.” Every Washington luncheon speech follows the same format—words from the “Wise,” then questions for the “Wise.”

The opening remarks left a couple of the CEOs reaching for the water glass— “You really should learn to love your government because you really don’t have a choice.” Heads shook. Chairs rocked back. The talking continued with comments about the role of business and politics, how to hot-wire the firm for political success, observations about upcoming elections, issues, congressional dysfunction, and alleged White House bias. “They are conducting a war on business,” one attendee said with definitive assurance. That is the heart of the matter—business’s eternal cry—too many regulations, too many rules, too many laws, and too many unfriendly politicians.

A question. Will it ever reverse? Will government ever leave us alone? It is called Ronald Regan’s lament: “Government is not the solution to our problems; government is the problem.” And its companion: “Markets, left to themselves, achieve the most efficient outcomes” (Money Magazine 2009: 60). Related expressions such as “get the government out of business,” “let the free markets operate,” or “why can’t the government be run like a business” are well-known staples of corporate discourse.

It is a question that shows convenient executive memory loss. It ignores economic and political history, forgets about long meandering boundary shifts between government and corporations, and never remembers the corporate scandals. It believes that there are no firms that want tax credits or subsidies or fail-safe bailouts. It is, as Lindblom writes, an irony born of “conflict between markets and governments, between business and political authority with all the trials ‘exaggerated’.” Business people often predict dire consequences from regulations “they know they can accept if they must” (Lindblom 1982: 326). It is, by most, an irony unrecognized.

The “government is the problem perspective” assumes that markets can solve all economic and social problems—job creation, poverty, inflation, growth—if “business is governed by the laws of supply and demand, not restrained by government interference, regulation, or subsidy. It is a system where prices and quantities of the things we buy are unencumbered by artificial barriers or constraints” (Genetski 2011). Markets can do all of this because societal economic transactions are guided not by government fiat but by an invisible hand that moves in ways so complex that no one individual or government can understand what is done let alone how it is done. The invisible hand reinforces value beliefs in freedom and liberty—values that prosper only if markets are unfettered and centralized governing authorities are ruthlessly checked.

Markets or government? If that is the great debate, then for firms, the operational reality is close to settled law. Markets and government.

It is not that markets are not free and it is not that governments never intervene. It is just that the economic system in the United States has evolved into something less than ideal from a purist viewpoint but one that provides a measure of comfort, protection, and direction for those on the receiving side of supposed market inefficiencies or market failures. It is an economic and political system in which the market and the polis both cooperate and clash. It is a system that allocates goods and services using market signals amid government guidance (Shiller 2010). It is an economy in which the invisible hand has been partially displaced by a very visible hand: a “political system that establishes a set of restraints, duties, and opportunities that is unparalleled in the market” (Collins & Butler 2003: 53).

There may be markets and there may be a government but there is only one governed market system.

The Governed Market System

If the current United States economic system is neither pure inducement nor pure command, neither free market nor state directed, then, what is it? How does it shape corporate political behavior? Stone (1997: 32) and Boddewyn (2003) have both noted that markets do not exist in isolation; markets are embedded within an ongoing functioning polity. To sustain each other, markets and polity must reach a rough behavioral equilibrium that balances opposites: conflict and cohesion, coercion and consent, competition and cooperation, autonomy and interdependence, specialization and amalgamation, integration and disintegration, collectives and individuals, and private interest and the public interest. Reaching equilibrium among systemic contradictions necessitates an authority mechanism that is market based yet strong enough to intercede if necessary (Lindblom 2001). That is the basis of the governed market system: “The market system is not, however Adam Smith’s laissez-faire, not a market system tied to a minimal state. In our time, it is a governed market system, heavily burdened or ornamented with what old-fashioned free marketers decry as interferences” (Lindblom 2001: 8).

While the market system is directed and controlled by a system of inducements, the governing system is directed and controlled by a system of commands. The market system organizes or coordinates activities not through government planning but through multiple interactions of buyers and sellers in the form of mutual transactions. The governed market system is a hybrid, Lindblom argues, in which government and political policy making institutions set the rules and the regulations while the markets set the exchange mechanism, provide the inducements, the motivations, and allocate goods and services (Lindblom 2001: 4).

An Interlude: Defining The Corporation …

Corporations can vary, among other indices, as to size, products made, or economic value. Cisco Systems is a corporation as are Florida Land and Title, San Diego Electric and Gas, Bryans Road Auto and Tire, and Joe’s Rolling Steaks, Inc. While it is unlikely that Joe’s Rolling Steaks will achieve the magnitude of a Cisco Systems, a 1793 definition of a corporation applies to it as well as to Cisco:

A collection of many individuals united into one body, under a special denomination, having perpetual succession under an artificial form, and vested, by policy of the law, with the capacity of acting, in several respects, as an individual, particularly of taking and granting property, of contracting obligations, and of suing and being sued, of enjoying privileges and immunities in common, and of exercising a variety of political rights, more or less extensive, according to the design of its institution, or the powers conferred upon it, either at the time of its creation, or at any subsequent period of its existence.

(Kyd 1793)

Corporations are hardly new to economic or political America. In the United States, the corporate form dates from colonial days as Massachusetts under its charter was a corporation (Handlin & Handlin 1945). In the late 1700s, Boston textile entrepreneur Francis Cabot Lowell used the corporate model so his company, the Boston Manufacturing Company, could acquire the financial backing it needed to grow. Lowell created the first American public company in which friends and investors received shares in his firm and in return, Lowell received cash from those friends and investors (Rosenberg 2010).

All corporations have a minimal and analogous legal construction:

• Limited Liability. Under most corporate chartering laws, the stockholders (shareholders) of a corporation have no individual liability for a corporation’s debts, obligations, and generally actions.
• Shares. Shares or stock in a corporation represent a unit of ownership in that company.
• Management. Aside from the firm’s managers (whether a large company or small company), there is a board of directors operating under bylaws responsible for all corporate activities.
• Artificial Person. Corporations generally have rights, protections, privileges, liabilities, and responsibilities under the law just as natural persons do. This notion, often called legal personality, means that corporations can enter into contracts, take on debt, make operating decisions, seek mergers and acquisition, own property, sue and be sued, and pay taxes.

Governed Markets and Government Intervention: Reach and Scope

Just how much and why the current governed market system has de facto emphasized the “governed” as opposed to the “market” answers a question posed by Christy (1996: 1154): “What is the appropriate balance between government and markets in achieving desired economic objectives?” If the system is a governed market one, then for firms whatever happens within that system becomes as much a matter of politics as it does economics.

Governing decisions are often outcomes of political clashes involving a wide range of participants. Not all decisions are final. Not all decisions are zero-sum. Not all decisions are government made only. Not all are favorable or negative for business. The choosing is different, writes Christy, involving both the invisible and visible hand. “It is not an all-or-nothing proposition. Rather than being a pure choice between markets or governments, it is usually a choice between degrees of one or another mode of allocating resources” (1154).

Undeniably though, the governed aspects of the three worlds continue to accelerate. Accounting for the growth of the governed has spawned a cottage industry among scholars and commentators (Watkins et al. 2001: 3, 5; Mack 2001: 13; Prechel 2000). Why this government expansion? Holcombe’s (2005: 95) literature review suggests three different growth expansion models:

• The budget maximization model is based on the notion that the more revenue collected, the more government received. The only constraint on government growth is a formal constitution (as in some state constitutions requiring balanced budgets) or legislative laws (as in taxing and spending legislated limits).
• The rational-choice model declares that size of government reflects what citizens want as expressed by voting. Thus, a version of this model links growth to voting franchise expansion—people vote themselves “redistributive benefits” (98). Female voters, for example, want pay equity and are successful in legislating it, creating an enforcement apparatus.
• Path dependency—the ratchet hypothesis—says that governments respond to the crises by ratcheting up expenditures; after the crisis passes, expenditures do not fall but remain above their post-crisis levels. A ratcheting up can apply to spending of all kinds—environment, healthcare, energy sources, or defense spending (101).

A case can be made that an “all of the above” theory would be an acceptable explanation. For firms though, the governed market system is more than a theory or a concept. It is an operational reality. Gale and Buchholz argue that government policies can vary the size of markets, change the structure of markets, and change the cost structure of competitors and entire industries (Gale & Buchholz 1987: 31). Lindblom put it bluntly:

The state is the largest buyer: it has a long shopping list, including a military force, highways, and the services of police officers and bureaucrats. It is a mammoth supplier as well … keeping agricultural pieces high to aid farmers … it taxes not simply to raise revenue but to curb some industries like tobacco … it is a gigantic borrower and frequent lender … it collects enormous funds to disperse through social welfare programs …

(Lindblom 2001: 8)

The “operational realities” built from Gale and Buchholz’s argument and listed below demonstrate the range of areas where firm political behavior can be molded by government policy or action:

• Governments establish the fundamentals of economic growth through fiscal and momentary policy (Lesser 2000: 73, 89).
• Governments set the legal framework and provide the operating rules for corporate market activity. Laws such as Sherman Anti-Trust or securities rules and regulations through the Securities and Exchange Commission are two examples (Baron 2010: 269). Governments can and do intervene with markets become noncompetitive (de Marzo, Fishman & Hagerty 2005).
• Governments can help create new industries with significant impact on populations and the economy. It can limit what industries can produce and in some cases outlaw products (Ryan 2010). Through direct purchases, government procurement, and indirect mandates, government can subsidize industries, expand industries or contract them.
• Governments can change the structure of whole markets through tax deductions such as the home mortgage deduction or the extra financial burden placed on corporations to capture polluting emissions (Amtower 2010).
• Governments can influence the negotiating power between private buyers and sellers.
• Governments can block corporations from entering markets, even on a worldwide scale (Alexander 2009).
• Governments can enforce societal values on enterprises via laws, for example, the regulation of food safety, drug safety, or clean air, or clean water values (Fiorino 2006).
• Governments provide the international and domestic national security that allows private companies to function both at home and abroad without constant fear of armed corporate-targeted conflict.
• Governments are the ultimate last resort responding to “acts of god” or terrorism (White 2011).

With the potential for such a profound behavioral impact on a firm, it is little wonder that companies have adapted to the governed market system and learned to use the political process to further their own commercial objectives. For business, the government of a governed market system can be in the best of circumstances an ally. In the worst of circumstances, it can be a deadly nightmare, collapsing boundaries and crushing the firm’s commercial life.

Throughout American economic and political history, it has been both.

Boundaries of Governed Market System: Dynamic and Interpretive

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Table of contents

• Cover
• Title
• Copyright
• Dedication
• CONTENTS
• Preface
• In Memoriam
• Acknowledgments
• Introduction: Explaining Corporate Political Behavior—Three Platforms
• 1 Conditioner: The Governed Market System and its Boundaries
• 2 Conditioner: Managers, Shareholders, and the Implicit Bargain
• 3 Conditioner: Three Worlds and Three Firms
• 4 Driver: Commercial Objectives—Goals and Politics
• 5 Driver: Competitive Political Advantage—Getting the Corporate Edge
• 6 Driver: Corporate Political Culture—The Way We Practice Politics (Or Don’t)
• 7 Driver: Corporate Political Leadership—Get ’Er Done
• 8 Enabler: Political Capital—Corporate Accounting of a Different Kind
• 9 Enabler: Political Reputation of a Firm—The Right “Buzz”
• 10 Enabler: Political Money—It’s About the Cash
• 11 Enabler: Corporate Political Clout—Illusive but Real
• 12 Political Positioning (1)—The First Four Keys: Policy, Elections, Aspirations, Globalism
• 13 Political Positioning (2)—The Fifth Key—Mobilization: Political, Issue, and Advocacy Management
• 14 Political Positioning (3)—Strategies, Objectives, and Tactics
• 15 Conclusion—The Enigma of Corporate Political Behavior
• Bibliography
• Index