Does Corporate Lobbying Compromise Democracy… and Capitalism?
By Holly Testa, Director, Shareowner Engagement
The dictionary definition of lobbying is "an organized group of people who work together to influence government decisions that relate to a particular industry or issue." Lobbying would therefore seem to be a cornerstone of democracy in action. If numerous groups that reflect the rich diversity of opinion held within society are effectively represented, governmental policy will be better informed and more reflective of the collective will of the people.
But what happens when the lobbying power of one type of stakeholder supersedes that of all others?
Corporations Controlling the Conversation
Corporations have long attempted to influence public policy and legislation, but until relatively recently, other influences also had a prominent place at the table. The last few decades, however, have seen the landscape change. Companies are on lobbying spending sprees at the state and federal levels, both directly and via trade associations and " think tanks." Other interests cannot compete, as evidenced by the following recently presented in the Washington Post:
- Of the 100 organizations that spend the most on lobbying, over 90 represent business.
- Lobbying expenditures grew from an estimated $200 million in 1983 to $3.24 billion in 2013, with business accounting for more than 80 percent of all lobbying.
- Often, the goal of corporate lobbying is to maintain the status quo by "keeping an issue off the agenda."
- Other interests that represent the breadth and depth of public opinion-for example, labor unions and consumer groups-are estimated to spend just $1 on lobbying for every $34 that businesses spend.
- The number of organizations with Washington representation more than doubled between 1981 and 2006, from 6,681 to 13,776.
- The Government Accountability Office (GAO) and the Congressional Research Service (CRS), which provide nonpartisan policy and program analysis to lawmakers, employ 20 percent fewer staffers than they did in 1979.
A recent Washington Monthly points out some obvious consequences to this drastically changed landscape:
"Given limited time and nearly unlimited demands, policymakers have to choose who and what to pay genuine attention to. The loudest, most insistent voices have an advantage. Those who can saturate Washington by funding the most research, hiring the most lobbyists, and paying for the most elites to write op-eds highlighting and supporting their perspective are going to stay at the front of the crowd. Everyone else will recede into the background."
Congressional and agency staffers are increasingly inundated with viewpoints and messaging that favors specific corporate interests to the virtual exclusion of any other viewpoint. In fact, Lee Drutman, author of The Business of America Is Lobbying, points out that in his interviews with 60 corporate lobbyists, none of the lobbyists identified the leading opposition on any of their issues as a union or public interest group.
Corporations Become Lawmakers
Corporate lobbyists don't just influence policies and legislation-they actually write the draft legislation that may eventually get passed into law. When considered in the context of companies generally seeking to defend the status quo-which may, or may not be of benefit to broader society-the unfair advantage afforded to corporations is clear.
The American Legislative Exchange Council (ALEC), for example, brings together lawmakers and corporations to write and advocate for model legislation at the state level. This particular organization is of particular concern to responsible investors because of their persistent efforts to block governmental support of the necessary transition from a fossil fuel to a renewable energy economy. This shortsighted agenda might be profitable for companies entrenched in the fossil fuel paradigm today, but in the long-run, such action compromises society and the economy as a whole. Unfortunately, less well-resourced but vital voices are often drowned out.
Case in Point: Diluting the Dodd Frank Act
The financial meltdown of 2008 led to the relatively rapid passage of the Dodd Frank Act in the face of vehement opposition from the financial industry. Since then, banks have been working to delay the act's implementation and to reverse some of its provisions. In December of last year, they had a spectacular success.
The New York Times broke the widely publicized story of a provision, substantially written by Citigroup (over 70 of its 85 lines), that became law as part of a "down to the wire" $1.1 trillion spending bill. This provision repealssection 716 of the Dodd Frank Act, which required banks to move some of their riskier credit derivatives trades into a separately capitalized unit. Tom Hoenig, the vice chairman of the Federal Deposit Insurance Corp., called section 716 an important step in "pushing the trading activity out to where it should be conducted: in the open market, outside of taxpayer-backed commercial banks."
According to Arthur Wilmarth, a professor of law at George Washington University "Wall Street's determined lobbying on Section 716 provides compelling evidence that Wall Street's business model depends on the ability of large financial conglomerates to keep exploiting the cheap funding provided by their 'too big to fail' subsidies… Shame on Congress if it allows megabanks to continue to pursue the same business strategy that brought us the financial crisis."
Unlike with the Affordable Care Act which has lobbying influences on both the supporting and opposing sides,Wall Street has no major influence standing in opposition to its lobbying efforts with regard to Dodd Frank.
First Affirmative Calls for Disclosure and Transparency
Lee Drutman notes that we have entered a period where "the only possible policy changes on economic policy issues are those changes that at least some large corporations support." But, he also cautions us to avoid seeing lobbying through an "overly simplistic" lens and to view the system in its entirety in order that we can determine how to make it fairer.
First Affirmative has joined forces with other institutional investors who share our concerns about shareowner dollars being potentially wasted on purchasing short-term temporary advantages at the expense of long-term value creation. We believe that disclosure is an essential characteristic of good corporate governance and that it allows investors to make better informed decisions about the companies in which they invest, and how those companies are contributing to upholding an open democracy.
It's important to note that companies sometimes play both sides of an argument or interest-sometimes unwittingly-which can lead to reputational damage as we referenced in our post, Disclosing Secret Corporate Political Spending Does Not Hinder Free Speech.
We therefore ask corporations that spend significant money on lobbying to improve disclosure of their spending policies and practices as a matter of good governance.
Posted: October 27, 2015