CHAPTER 8: Business government relations

Key learning objectives

* Understanding why sometimes governments and business collaborate and other times work at arm’s length from each other * Defining public policy and the elements of the public policy process * Explaining the reasons for regulation * Knowing the major types of government regulation of business * Identifying the purpose of antitrust laws and the remedies that may be imposed * Comparing the costs and benefits of regulation for business and society * Examining the conditions that affect business in a global context

Business-government relations

* Government cooperates with businesses for mutually beneficial goals. * -Influenced by a nation’s values and customs differs in countries.

* Their goals can range from one of cooperation to one of conflict, with various stages in between. It is constantly changing.

* Companies operating globally may find governments whose legitimacy or right to be in power is questioned.

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The ability of a government leader or a group of leaders to maintain political power can be influenced by businesses’ actions. (i.e boycotting economic relations with a country, or decide to withdraw operations from a country)

Government’s public policy (PP) role

* A plan of action undertaken by government officials to achieve some broad purpose affecting a substantial segment of a nation’s citizens. * PP inputs: External pressures that shapes a government’s policy decisions and strategies to address problems. * PP tools involve a combination of incentives and penalties to result in behavior that will achieve PP goals.

Types of PP

* Economic and social

A) ECONOMIC

* Fiscal policy * Patterns of government taxing and spending that are intended to stimulate or support the economy * Monetary policy * Policies that affect the ss, dd, and value of a nation’s currency * Affects the buying power of money, the stability and value of savings, and the confidence of citizens and investors about the nation’s future. This in turn, affects the country’s ability to borrow money from other nations and to attract private capital.

* Other policies include * Trade policies * Taxation policy * Industrial policies [directing economic resources towards the development of specific industries]

B) SOCIAL

* Advanced industrial nations have developed elaborate systems of social services for their citizens * Developing economies have improved key areas of social assistance (health care, education) * Healthcare has been the focus for concern on the international front and for national and state lawmakers.

Government regulation of business

* Reasons for regulation * Market failure: Marketplace fails to adjust prices for the true costs of a firm’s behavior * Negative externalities: Spillover effects when the manufacture or distribution of a product gives rise to unplanned/unintended costs * Natural monopolies * Ethical arguments: such as safe working conditions * Types of regulation * Directly or indirectly imposed. * Economic and social

A) ECONOMIC

* Aim to modify the normal operation of the free market and the forces of supply and demand. * Includes regulations that * Control prices or wages * Allocate public resources * Establish service territories * Set the number of participants * Ration resources * Antitrust regulation: prohibit unfair, anti-competitive practices by businesses. May not engage in predatory pricing. * Remedies for anti trust regulation * Large fine * Structural remedy: Breakup of monopolistic firm * Conduct remedy: Agreement that offending firm will change its conduct, often under govt supervision * Intellectual property remedy: Disclosure of info to competitors.

B) SOCIAL

* Aimed at such important social goals as protecting consumers and the environment and providing workers with safe and healthy working conditions. * Some are regulations which only apply to certain businesses, i
i.e Consumer protection laws for businesses producing and selling consumer goods. * Includes regulations which apply to all businesses * Pollution laws * Safety and health laws * Job discrimination laws

Effects of regulation

* Cost-benefit analysis * Financial revenue from regulation * However, takes people to administer, monitor and enforce.

* Continuous regulatory reform * Levels of regulatory activity tend to be cyclical and dependent on politics * Deregulation: Scaling down of regulatory authority * Reregulation:Return to increased regulatory activity

* Areas where deregulation has occurred in recent years * Commercial airlines * Railroads * Financial institutions

Regulation in a global context

* As patterns of international commerce grow more complicated, governments recognize the need to establish rules that protect the interests of their own citizens

* International regulation in general occurs when there is a growth of exiting, yet often conflicting, national regulations of a product, or the product itself is global in nature, thus requiring international oversight and control * Sometimes national leaders resist the notion of international regulation; yet at other times, international regulation is welcomed or at least accepted as necessary

CHAPTER 9: Influencing the political environment

Key learning objectives

* Understanding the arguments for and against business participation in the political process * Knowing the types of corporate political strategies and the influences on an organization’s development of a particular strategy * Assessing the tactics businesses can use to be involved in the political process * Examining the role of the public affairs department and its staff * Analyzing how the problem of money and campaign financing in the American political system affects business * Recognizing the challenges business faces in managing business–government relations in different countries

Business as a political participant

Question of whether and to what extent, business should legitimately participate in the political process.

Many business executives and managers see their role in the political process as vital to the progress (and possibly survival) of their company

Arguments for and against political involvement by business

Stakeholder groups

* Interest groups, representing varying concerns and populations, have a voice in the political process * Labour unions in the US * Ad hoc coalitions where diverse business organizations and interest groups band together in support or opposition to a specific legislative or regulatory initiative.

Influencing the business-government relationship

* Stakes are too high for businesses not to be involved in the political process * Hence, companies must formulate a corporate political strategy * Involves the activities taken by organizations to acquire, develop, and use power to obtain an advantage, like further a firm’s economic survival or growth.

Corporate political strategy

Activities taken by organizations to acquire, develop and use power to obtain an advantage.

* Three strategic types * Information strategy * Businesses seek to provide government policymakers with information to influence their actions * Financial-incentives strategy * Businesses provide incentives to influence government policymakers to act in a certain way * Constituency-building strategy * Businesses seek to gain from other affected organizations to better influence government policymakers to act in a way that helps them

Business strategies for influencing the govt

Political action tactics- Promoting an information strategy

* Lobbying *** * Lobbyists communicate with and try to persuade others to support an organization’s interest or stake as they consider a particular law, policy, or regulation * Businesses sometimes hire former government officials as lobbyists and political advisors. This circulation of individuals between the business and govt is called the revolving door and carries potential for abuse. * Need for greater transparency

* Direct communications * Businesses invite officials to participate in activities that will improve government officials’ understanding of management and employee concerns

* Expert witness testimony * Businesses provide facts, anecdotes, or data to educate or influence government leaders at public forums like congressional hearings

Political action tactics- Promoting a financial incentive strategy

* Political action committees * Independently incorporated organizations that can solicit contributions and then channel those funds to candidates seeking political office * Businesses have found PAC contributions to be one of the most effective political action tools.

* Economic leverage * Occurs when a business uses its economic power to threaten to leave a city, state, or country unless a desired political action is taken

Political action tactics- Promoting a constituency-building strategy

* Stakeholder coalitions * Businesses try to influence politics by mobilizing various organizational stakeholders to support its political agenda

* Advocacy advertising * Advertisements that focus on a company’s views on controversial political issues

* Trade associations * Coalitions of companies in the same or related industries used to coordinate businesses’ grassroots mobilization campaigns

* Legal challenges * Business seeks to overturn a law after it has been passed

Levels of political involvement

To be successful, a business must think strategically about objectives and how specific political issues and opportunities relate to these objectives.

Ranging from level 1 to 3

Managing the political environment

* The role of the public affairs department is to manage the firm’s interactions with governments at all levels and to promote the firm’s interests in the political process * 8 of the 10 most frequently performed activities by public affairs officers and departments involve a political action tactic and attention has increased for most of these political activities in recent years. * More than half of the senior public affairs executives sit on the corporation’s strategic planning committee

Business political action: A global challenge

* Critical that managers be aware of the opportunities for and restrictions on business involvement in the political processes in other countries * Other governments struggle with same issues as U.S. - participation in the political environment, campaign financing, and maintaining a fair ethical climate throughout the public policy process * Has resulted in campaign finance reform in many other countries

Controlling corruption in politics

Reforms have been focused on the following themes: * Limits on expenditures * Contribution limits * Disclosure regulations * Bans against certain types of contribution * Bans against certain types of expenditures * Measures designed to encourage donations * Subsidies in kind * Public subsidies