Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding in each assigned textbook chapter.Your initial post should be based upon the assigned reading for the week, so the textbook should be a source listed in your reference section and cited within the body of the text. Other sources are not required but feel free to use them if they aid in your discussion.
Also, provide a graduate-level response to each of the following questions:
Select a corporation, labor union or other group that actively advertised for or against a federal candidate in the last election cycle. Prepare a written response that addresses the following questions: (1) Who did the group support? (2) Why did the group support this candidate? (3) What type of advertising did the group use? (4) What was the nature of the advertisement? (5) Was the advertisement consistent with the campaign strategy of the candidate? (6) What was the ultimate outcome of the election? (7) What impact will this spending have on a candidate’s future decisions?
Business & Society
Ethics, Sustainability & Stakeholder
Management
10th Edition
© 2018 Cengage
1
Chapter 11
Business,
Government,
and Regulation
© 2018 Cengage
2
Learning Outcomes
1. Articulate a brief history of the changing nature of the
government’s role in its relationship with business.
2. Appreciate the complex roles of government and business.
3. Identify the elements in the complex interactions among
business, government, and the public.
4. Identify and describe the government’s nonregulatory
influences, especially the concepts of industrial policy and
privatization.
5. Identify and describe the government’s regulatory influences
on business including the major reasons for regulation, the
types of regulation, and issues arising out of deregulation.
© 2018 Cengage
3
Chapter Outline
• The Pendulum of Government’s Role in Business
• The Roles of Government and Business
• Interaction of Business, Government, and the Public
• Government’s Nonregulatory Influence on Business
• Government’s Regulatory Influences on Business
• Deregulation
• Summary
• Key Terms
© 2018 Cengage
4
Business, Government,
and Regulation
Last decade swung the pendulum of
government involvement in business from
minimal to major player.
The relationship of government to business is
one of the most hotly debated issues
today.
Business and government need each other –
government is a major stakeholder with
which business must establish an effective
working relationship to prosper.
© 2018 Cengage
5
The Pendulum of
Government’s Role in Business
The areas in which government regulates change,
and its varying roles increase the complexity
of its relationship with business. Government
can:
•
•
•
•
Determine the rules of the game
Be a major purchaser with buying power that
can affect a business’s or industry’s chances of
survival
Strengthen some businesses and weaken
others
Create new businesses and industries through
subsidization and privatization
© 2018 Cengage
6
The Roles of
Government and Business
For effective management, government’s role as a
stakeholder must be understood.
What should be the respective roles of business and
government in our socioeconomic system?
If the role of business were simply production and
distribution of goods and services, business would
need little regulation.
But other goals exist—safe working environment,
equal employment opportunities, fair pay, clean
air, safe products—which business does not
automatically factor into the business decision
making process.
As a result, it falls to government to ensure those
goals are achieved.
© 2018 Cengage
7
A Clash of Ethical Systems
Business Beliefs
Government Beliefs
Individualistic ethic
Collectivistic ethic
Maximizes concession to
self-interest
Subordinates individual
goals and self-interest to
group goals and group
interests
Minimizing the load of
obligations society
imposes on the individual
(personal freedom)
Maximizing obligations
assumed by the individual
and discourages selfinterest
Emphasizes inequalities of
individuals
Emphasizes equality of
individuals
© 2018 Cengage
8
Interaction of Business,
Government, and the Public (1 of 2)
Government-Business relationship –
•
•
Government influences business through
regulation, taxation, and more.
Business influences government by
lobbying, and more
Public-Government relationship –
•
•
Public influences government through
voting and forming special interest groups.
Government influences the public with
politicking, public policy formation, and
other political influences.
© 2018 Cengage
9
Interaction of Business,
Government, and the Public (2 of 2)
Business-Public relationship –
• Business influences the public through
advertising, public relations, and other
forms of communication
• The public influences business through
the marketplace, or by forming special
interest groups.
© 2018 Cengage
10
Interaction Among Business,
Government, and the Public
© 2018 Cengage
11
Government’s Nonregulatory
Influence on Business
Two major nonregulatory issues –
Industrial policy • Concerned with the role of government
in a national economy.
Privatization • Whether current public functions (e.g.,
public education, public transit, social
security, fire service) should be turned
over to the private (business) sector.
© 2018 Cengage
12
Industrial Policy
Industrial policy –
Every form of state intervention that affects
industry as a distinct part of the economy.
A current trend toward stronger industrial
policy is likely to continue while the world
economy works to recover from the global
financial crisis.
© 2018 Cengage
13
Privatization
Privatization –
The process of changing a public organization
to private control or ownership.
The intent is to capture the discipline of the
free market and a spirit of entrepreneurial
risk-taking.
Two functions a government might perform:
•
•
Producing a service
Providing a service
© 2018 Cengage
14
The Privatization Debate
Pro-Privatization Government has no comparative advantage in
many functions.
Government is less efficient and less flexible.
Anti-Privatization Some activities cannot be effectively handled
by the private sector.
Privatization works best when the pursuit of
profits does not work against broader
social goals or public policy.
© 2018 Cengage
15
Other Nonregulatory
Government Influences on Business
Government is:
•
•
•
A major employer
A standard setter
One of the largest purchasers
Government influences business by:
•
•
•
•
•
•
The use of Subsidies
Transfer payments
Loans and loan guarantees
Taxation
Monetary policy
Moral suasion
© 2018 Cengage
16
Government’s
Regulatory Influence on Business
Government Regulation has become the most
controversial in the business-government
relationship, affecting every aspect of how
business functions.
Most people agree that some regulation is
necessary to ensure that consumers and
employees are treated fairly, and not exposed to
hazards, and to protect the environment.
However, businesses also think that regulation
has often been too extensive in scope, too costly,
and burdensome in terms of red tape.
© 2018 Cengage
17
Regulation – What Does It Mean?
Regulation The act of governing, directing according to rule,
or bringing under the control of law or
constituted authority.
A federal regulatory agency •
•
•
•
•
Has decision-making authority
Establishes standards
Operates principally on domestic business
Has members appointed by the president
subject to Senate confirmation
Has its legal procedures governed by the
Administrative Procedures Act
© 2018 Cengage
18
Reasons for Regulation
Most regulation arises out of a market failure.
© 2018 Cengage
19
Types of Regulation (1 of 2)
© 2018 Cengage
20
Types of Regulation (2 of 2)
© 2018 Cengage
21
Comparison of
Economic and Social Regulation
Economic Regulations
Social Regulations
Focus
Market conditions;
economic variables
People in roles as
employees, consumers
and citizens
Affected
Industries
Selected (railroads, aeronautics,
communications)
Virtually all industries
Examples
CAB
FCC
Reregulation (e.g., Financial
Stability Oversight Board)
EEOC, OSHA,
CPSC, EPA
Current Trend
© 2018 Cengage
Reregulation (e.g.,
Consumer Financial
Protection Bureau)
22
Issues Related to Regulation Innovation may be affected –
When corporate budgets must focus on “defensive
research” certain types of innovation are less likely to
take place.
New investments in plant and equipment
may be affected –
To the extent that corporate funds must be used for
regulatory compliance, they are diverted from more
productive uses.
Small business may be adversely affected –
Federal regulations can have a disproportionately
adverse effect on small firms because of the (lack of)
economies of scale.
© 2018 Cengage
23
Deregulation Represents a counterforce
– aimed at keeping
the economy in balance. A continual striving
for the balance of freedom and control for
business will be best for society.
Purpose of Deregulation –
• Intended to increase competition with
hopes for greater efficiency, lower prices,
and enhanced innovation.
© 2018 Cengage
24
The Changing World of Deregulation
Deregulation which began in the 1980s had
mixed results.
Some prices fell, but more competitors were
unable to compete with the dominant
firms.
The savings and loan industry crisis cost the
government a $124 billion bailout.
Repeal of the Glass-Steagall Act caused the
global recession that began in 2008.
The dilemma is how to enhance competition
without sacrificing applicable social
regulations such as health and safety
requirements.
© 2018 Cengage
25
Key Terms
• collectivistic ethic of
government
• conservatorship
• deregulation
• direct costs
• economic regulation
• excessive
competition
• federalization
• indirect costs
• individualistic ethic
of business
© 2018 Cengage
•
•
•
•
•
•
•
•
•
•
•
induced costs
industrial policy
market failure
natural monopoly
negative externalities
privatization
regulation
reregulation
social costs
social goals
social regulation
26
Business & Society
Ethics, Sustainability & Stakeholder
Management
10th Edition
© 2018 Cengage
1
Chapter 12
Business
Influence on
Government and
Public Policy
© 2018 Cengage
2
Learning Outcomes
1. Describe the evolution of corporate political participation,
2.
3.
4.
5.
6.
including the different levels at which business lobbying occurs.
Discuss corporate political spending, and the arguments for
and against it.
Describe the different types of political action committees
(PACs), in terms of their historical growth, and the magnitude
of their activity.
Describe the agency issues involved with corporate political
spending and some of the contexts where these might arise.
Discuss the issues of corporate political accountability and
disclosure.
Outline the types of strategies for corporate political activity.
© 2018 Cengage
3
Chapter Outline
• Corporate Political Participation
• Business Lobbying
• Corporate Political Spending
• Political Action Committees
• Political Accountability and Transparency
• Strategies for Corporate Political Activity
• Summary
• Key Terms
© 2018 Cengage
4
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.
© 2018 Cengage
5
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
© 2018 Cengage
6
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.”
© 2018 Cengage
7
Organizational Levels of Lobbying
© 2018 Cengage
8
Professional Lobbying:
What do 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
© 2018 Cengage
9
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.
© 2018 Cengage
10
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.
© 2018 Cengage
11
Trade Associations
• Established by individual industries to help
businesses in the same industry to interact
with each other and benefit from those
interactions.
• Association-level lobbying is common.
• Sometimes find themselves battling each
other in attempts to lobby Congress.
© 2018 Cengage
12
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)
© 2018 Cengage
13
Coalitions
• Form when distinct groups or parties
realize they have something in common
that might warrant their joining forces for
joint action.
• Standard practice for firms interested in
accomplishing political goals or influence
public policy.
• Can provide cover for a company wanting
to push their own agenda without its
name attached.
© 2018 Cengage
14
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.
© 2018 Cengage
15
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.
© 2018 Cengage
16
Top 10 PAC Contributors
to Federal Candidates
• Honeywell International
• AT&T, Inc.
• Lockheed Martin
• National Beer Wholesalers
• National Association of Realtors
• Northrup Grumman
• Credit Union Nation Association
• Blue Cross/Blue Shield
• International Brotherhood of Electrical
Workers
• American Bankers Association
© 2018 Cengage
17
The Impact of Super PACS
• Super PACS have facilitated outside spending in
politics, and the effect has been huge.
• By the end of January 2015, the top three
presidential candidates had raised over $388
million, their Super PACs had raised over $100
million.
• Super PACs are still new so their full effect is
not yet known, but sums of money that large
will certainly have a profound impact.
© 2018 Cengage
18
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.
© 2018 Cengage
19
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.
© 2018 Cengage
20
Political Accountability
and Transparency (2 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.
In 2016, $4.88 million in dark money expenditures
had been made in the year before the election.
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.
© 2018 Cengage
21
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)
© 2018 Cengage
22
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.
© 2018 Cengage
23
Key Terms
•
•
•
•
•
•
•
•
•
•
•
501(c)(4)s
527 groups
Ad hoc coalitions
Astroturf lobbying
Carey committees
Citizens United v.
Federal Election
Commission
Coalitions
Company lobbying
Connected PAC
Cyberadvocacy
Dark money
© 2018 Cengage
(1 of 2)
• Golden Rule of Politics
• grassroots lobbying
• Independent
expenditure-only
committee
• Leadership PAC
• lobbying
• Nonconnected PAC
• Political accountability
• Political action
committees (PACs)
• Political corporate
social responsibility
(PCSR)
24
Key Terms
•
•
•
•
•
•
•
•
•
•
(2 of 2)
Political involvement
Revolving door lobbyists
Sectoral trade associations
Shadow lobbying
Stealth lobbying
Speechnow v. Federal Election Commission
Super PACs
Trade associations
Transparency
Umbrella trade associations
© 2018 Cengage
25
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