Pros and Cons of Lobbying

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Introduction

Corporate social performance (CSP) refers to the outcomes of corporate social responsibility (CSR) initiatives. These initiatives may include the practices and principles that businesses employ in their relation with certain stakeholders, such as communities, organizations, or institutions. The economic and political sphere has become more integrated with the growth of globalization, and businesses have consequently become more politically active in their CSP initiatives.

In this essay I will provide an overview of the concept of CSP and how this relates to CSR, as well as the types of CSR programs businesses often engage in. I will look at the ethical considerations of CSP and how this relates to the corporate political activity (CPA) of a company. In this vein, I will refer to the Chinese business world as a case study and how “window dressing” becomes a disingenuous form of political activity. Thereafter, will we look at how CPA emerges as either one of two theories, namely nonmarket strategy theory or as political CSR theory. In order to expand on the concept of CPA, I will discuss the increasing responsibility businesses have to engage in CPA initiatives, as a form of CSR. I will consider common lobbying strategies that businesses employ as a form of CPA.

Overview Lobbying Strategies in Corporate Social Performance (CSP)

CSP is a term closely related to corporate social responsibility (CSR), corporate citizenship, and corporate social responsiveness. CSP refers to the outcomes of business activity in relation to stakeholders. CSP is essentially a criterion that measures the results of business conduct in terms of its CSR (Wood, 2009:50). CSP can there for be measured by the extent to which a business’s social responsibility measure up to the expectations of relevant stakeholders.

Since the 1960s, there has been increasing pressure on business undertakings and its consequences on a larger scale or on external stakeholders. CSR can emerge as a variety of internal or external pressures. Internally, CSR can emerge as a result of commitments by executives or investors. Externally, CSR can emerge because of government requirements or, more broadly, in order to improve social credence (Weaver, Trevino & Cochran, 1999). CSP is often advanced by way of environmental programs, charity initiatives, community development, and welfare plans. A common similarity amongst CSR programs is the establishment of initiatives that creates sustainable development.

Research on the CSP of businesses indicates two conflicting theories with regards to business conduct and relations to both shareholders and stakeholders. United States businesses, on the one hand, organizes corporate governance towards “shareholder wealth maximization” and profit maximization (McGuire, Dow & Argheyd, 2003, p. 341). On the other hand, CSR theories concentrate on the necessity for businesses to prioritize the business’s interactions to “a wider range of implicit and explicit stakeholders” (et al., 2003, p. 341). A business’s governing processes and direction can influence its CSP development, but a study by McGuire et al. (2003) indicates that financial incentives and corporate governance does not affect preemptive CSP measures as much as commonly expected.

Ethics of CSP: The Politics of “Window Dressing”

Businesses act on pressures to integrate CSR initiatives in many different ways. Incentives for advancing business CSP ultimately comes down to the ethical standpoints of the corporate governance. Business may, for instance, engage in meaningful CSR practices; these practices are incorporated into the regular and everyday routine of the business and advance real social good. These CSR initiatives are integrated into the way in which the business runs; it influences business decision-making and policies and often have special units dedicated to its advancement (Weaver, Trevino & Cochran, 1999).

On the other hand, businesses may engage in CSR programs that are often labelled as “window dressing”. These programs are disingenuous initiatives and can be easily separated from business administration. “Window dressing” initiatives are questioned for its actual effectiveness in advancing social good. These initiatives are not incorporated into the organization of a business, is marginalized from business operations, and serve as a smokescreen or frontage – most often with the purpose of avoiding CSR regulatory policies and maximizing profit (et al., 1999).

Chinese companies serve as a good example of “window dressing” CSR. The Chinese corporate world is well-known for its widespread utilization of cheap labor, sweatshops, and environmental pollution. CSP of many Chinese businesses have therefore been called into question and labelled as mere “window-dressing” CSR programs. In recent years, external pressure has forced many companies into advancing CSP, incentivizing companies to improve the poor image of Chinese companies internationally. The government has therefore predominantly participated in enforcing ethical policies, such as inserting CSR requirements into Chinese Company Law and requiring state-owned enterprises to abide to certain CSR standards (Lin, 2010).

The lack of CSR in Chinese companies started with the massive increase in economic growth since the 1980s. Radical profit maximization objectives, as well as incentives for foreign investment, aggravated the issue of a growing “culture of corporate irresponsibility” (Lin, 2010, p. 91). This culture disregarded the CSP of businesses and came at terrible environmental and social costs – such as widespread poverty as a result of cheap labor and unfair labor practices, as well as air pollution and water pollution that has led to countless deaths.

Most notably, a lot of research indicates that this lack of CSR embedded in the Chinese business culture is closely related to the political atmosphere of the country, particularly its commitment to a traditional communist economic model. The political influence of the communist government’s intervention in its economy has been a major determinant of the lack of CSP in the corporate climate. Furthermore, the effects of the environmental degradation and unfair labor practices has led to social unrest and instability.

Regardless of the variety of CSR policies that the government has implemented, there is a shortcoming of implementation measures taken by most businesses. This shortcoming is a consequence of the political activity of the country and the government’s stance on CSR which leads to “mandatory CSR initiatives [that are] largely unenforced” (Lin, 2010, p. 96). Equally, the majority of Chinese businesses CSP is constituted by “window dressing” type practices that are made possible by the government’s lack of enforcement.

Corporate Political Activity: Nonmarket strategies & political CSR

The Chinese case study is a good example of how the government in a country can assist the operations of businesses by allowing for disingenuous or a lack of CSR, thereby directly affecting the political activity in a country. The demarcation between the political domain and the corporate domain has become increasingly blurred, especially as businesses have become more involved in the political activity.

Corporate political activity (CPA) refers a variety of actions that businesses can take in order advance CSR objectives. These actions can be described as political strategies that businesses undertake, including activities such as lobbying, hosting political fundraisers, and contributing to political campaigns and advertising (Lock & Seele, 2018). Businesses may engage in CPA for two reasons: firstly, in order to advance economic or profit-making objectives by means of nonmarket strategies or, secondly, to engage in CSR activities and thereby gain a political voice on certain public issues.

Lock and Steele (2018) notes that it is important to distinguish between two theories that describes the political activity that businesses engage in. These two theories are nonmarket strategies and political CSR – both theories are common in their activities, but their theoretical foundations are different and quite contradictory. Both, for instance, are grounded in the principles of a liberal market economy and both assume a stakeholder approach (that is, the prioritization of stakeholders and CSP). Main difference between these two theories are the manners in which businesses manage political CSR initiatives.

The nonmarket strategy theory suggests that a business’s CPA is instrumental and strategic by nature. Nonmarket strategies concentrate on the value and benefit that political actions will bring the company, through means of CPA and its role in CSP. Lock and Seele (2018, p. 3) states that “the firm is not seen as a political, but an economic actor outside of the political realm”. Nonmarket strategies are therefore quite like “window dressing”, in that the company’s efforts are taken for its own benefit and not for the benefit of social good.

The nonmarket strategy theory is thus a business-centered approach, as it clearly separates the company from political and social responsibilities. Nonmarket strategies include CSR ventures such as lobbying (with the purpose of influencing public policy), grassroots campaigns (that are intentionally visible), and astroturfing (a marketing strategy that is disguised as activism).

Political CSR theory claims that a company and its organization is integrated into the social and political world. Political CSR recognizes increasing globalization and the resulting synthesis that arises between the economic and political domains. Furthermore, political CSR is more than “merely complying with stakeholder expectations” (et al., 2018, p. 3). The business is embedded in the social, political, and economic world, and thus recognizes its responsibility to take on social challenges. As opposed to nonmarket strategy – that removes companies from the political domain and uses political activity as instruments – political CSR initiatives allows for businesses to become actual political actors.

Political CSR is grounded by a belief in deliberative democracy; that is, the notion that economic, political, and social actors should be equally as involved in the decision-making on public issues. Political CSR ventures include self-regulation that, in turn, leads to multi-stakeholder initiatives. Self-regulation emerges in the company’s corporate governance and its organizational structure.

Responsibility to engage in Corporate Political Activity

Smith and Korschun (2018) states that in the increasingly globally politically polarized world that we live in, citizens have growing expectations for businesses to become involved in and speak out against social issues. CPA nonetheless runs the risk of disappointing social actors and consumers that, in turn, will risk a company’s financial performance. The decision to ethically engage in political activity should be made by considering the extent to which “the issue is materially important to the company’s financial performance and how relevant it is to stated corporate values” (Smith & Korschun, 2018).

A business’s success rests on its profit maximization, and a business should naturally then engage in CPA if a political issue affects its economic performance. The strength of the position a business should take against a political issue is subject to two considerations: firstly, the relation between the political issue and the business’s financial performance and, secondly, the relation between the political issue the business’s values.

The Effects of Lobbying on Business Performance

Engagement in CPA can raise a lot of uncertainty in the corporate governance of a company, especially if one considers the prospect of alienating stakeholders or customers that could result in decreasing financial performance. Lux, Crook and Leap (2012) notes that there is a strong relationship between the CPA of a business and its performance. Research indicates, for instance, that lobbying efforts in the US have advanced business performance by way of government manipulations.

These lobbying efforts are nonmarket strategies that directly favor the business’s economic performance. These strategies manipulate public policy or government officials to facilitate the business’s objectives. Four common US lobbying strategies include: financial appropriations, policy maintenance, policy change, and policy creation (Lux, Crook & Leap, 2012, p. 309).

Financial appropriation is types funding that the government designates to assist companies in making profit. These types of designations can take the form of tax subsidies, grants, tenders or federal contracts. Policy maintenance is CPA that is aimed at maintaining current laws and policies, often by way of impeding proposed bills or “threatening legislation” from being drafted into law (et al., 2012, p. 309).

Policy change CPA efforts occurs when businesses modify current laws or policies in favor of things such as profit-making objectives or competitive advantage. Walt Disney, for instance, directed CPA towards influencing US copyright laws in 1976. Disney’s lobbying efforts, in the form of $6.3 million, were aimed at extending the copyright on the Mickey Mouse character from 1984 to 2003. These efforts led to the US Congress permanently modifying copyright law and Disney to maintain copyright over Mickey Mouse.

Policy creation are rare forms of CPA efforts, but it can yield the greatest benefits for businesses. The creation of new policies or laws are also rarely accepted by governments, since new policies are likely to affect many stakeholders. Furthermore, new policies or laws are likely to meet a lot of resistance since these consequences may go beyond business benefits.

CPA by businesses can always run into many risks that can, in turn, be disastrous to business performance. These risks may include, for instance, the damaging of the company’s image or reputation. Furthermore, businesses invest large sums of money into CPA activities, but these investments do not always bring about the needed policy outcomes. Investment risks may result in negatively affecting the financial performance of a business.

The “free-rider” risk can also have consequences on the business’s performance. Competitors may become “free-riders” to policy modifications that were brought about by other businesses. This could negatively affect business performance by allowing competitors to gain equal, or possibly even more, advantage (et al., 2012).

The Corporate Exit as CPA

Kuo and Means (2018) argues that research is most often focused towards businesses exerting their “voice” in political matters and policy, and not as much on the political act of the corporate “exit”. “Voice” CPA efforts are active measures such as lobbying, funding political campaigns, or advertising. These efforts, as discussed in the previous section, can also take the form of manipulating public policy or government officials.

The corporate “exit”, on the other hand, is the process of businesses withdrawing investment or refusing to participate in certain political affairs. A corporate exit, or even the threat of one, can have serious implications on political processes. Businesses may, for instance, exert this influence in retaliation to certain laws or attempt to send a political message. In terms of CSR, businesses may object to social injustices and exit in order to show support for social issues. In another vein, businesses may circumvent complicity with legislation or public policy that they disagree with. The corporate exit is often overlooked in CPA research, but it can be a significant and effective measure of CPA that can influence the political sphere to an equal extent that active or lobbyist CPA can (Kuo & Means, 2018).

Conclusion

Engagement in political matters has a direct effect on a business’s performance. While there are many risks in getting involved in or speaking out against political matters, businesses are increasingly required by stakeholders to become socially responsible actors. Business can engage in political activity by way of lobbying, political advertising, influencing public policy, or by withdrawing from certain situations. On the one hand, businesses may engage in CPA in pursuit of profit maximizing objectives. On the other hand, businesses may become involved in political activities in order to become more socially responsible and to speak out on political matters.

Political activity has become an increasingly CSR method that businesses engage in, especially if one considers the overlap of the economic and political spheres. Many stakeholders have started expecting businesses to participate in politics and campaign for social issues – especially businesses with a great deal of authority, such as transnational corporations.

References

Kuo, S.S. & Means, B. (2018). The Political Economy of Corporate Exit. Vanderbilt Law Review, 71(4):1293-1332.
Lin, L.W. (2010). Corporate Social Responsibility in China: Window Dressing or Structural Change. Berkeley Journal of International Law, 28(1):64-100.
Lock, I. & Seele, P. (2018). Politicized CSR: How corporate political activity (mis‐)uses political CSR. Journal of Public Affairs, 18(3):1-9.
Lux, S., Crook, T.R. & Leap, T. (2012). Corporate political activity: The good, the bad, and the ugly. Business Horizons, 55:307-312.
McGuire, J., Dow, S., Argheyd, K. (2003). CEO Incentives and Corporate Social Performance. Journal of Business Ethics, 45(4):341-359.
Smith, C.N., & Korschun, D. (2018). Finding the middle ground in a politically polarized world. MIT Sloan Management Review, 60(1).
Weaver, G.R., Trevino, L.K. & Cochran, P.L. (1999). Integrated and Decoupled Corporate Social Performance: Management Commitments, External Pressures, and Corporate Ethics Practices. The Academy of Management Journal, 42(5):539-552.
Wood, D.J. (2010). Measuring Corporate Social Performance: A Review. International Journal of Management Reviews, 12(1):50-84.

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