Corporate Political Activity of Transnational Businesses

Leysan Kabirova,
School of Governance and Politics, MGIMO University

Abstract: The issue of studying corporate political activity is brand new in Russian academic scope; such phenomena as «GR» and «Lobbying» are mostly examined. The study aims to determine the essence of corporate political activity and its impact on businesses’ performance. The results suggest that corporate political activity of transnational companies helps firms to establish long-term relationships with the government, which allows businesses to effectively carry out some functions of public authority, as well as increase TNCs’ income in the long term. On this basis, the concept of CPA should be taken into account when designing business-government strategies.

Keywords: corporate political activity, transnational companies, GR, private-public partnership.

The study of the political activity of large-scale businesses is relevant in view of the fact that large business entities that carry out their entrepreneurial activity cross-border, unlike companies operating within national political systems, need to pay close attention to the political components[1] in their work due to the high degree of interdependence of TNCs and host states, as well as regional associations (EU, Mercosur, EurAsEC, etc.), while the political activity of large and international business cannot be consistently stable: despite the fact that, that there are attempts to build relations with public authorities on a long-term basis, the activities of businesses as importers, investors, producers of goods and services depend on economic and financial fluctuations, changes in political regimes, reforms and the adoption of other political decisions - that are any changes in the external environment. Realizing the need for permanent and long-term cooperation, TNCs are trying to use not only situational lobbying technologies, but also to build "strong bridges" in working with all branches of government and representatives of the public.

Describing the political activity of business, the term "corporate political activity", CPA is often used. Significant progress in understanding this phenomenon has been achieved thanks to the contributions of such scientific disciplines as strategic management, marketing, economics, sociology, finance and political science. [2]At one time, the collapse of the Soviet socialist system and the triumph of the market capitalism model served as an impetus for strengthening the role of political activity of business and studying forms and models of public-private partnership.[3] At the same time, business began to perform more and more actively some of the tasks of public authorities. In addition, the general nature of the "business-state" relationship has changed a lot recently. The emergence of new market economies, including those with an essential element of state capitalism, such as China or the Persian Gulf countries, demonstrates the need for a deeper understanding of business and government iterations in various institutional contexts.[4]  The study of the institutional environment of each individual state in which the corporation is going to operate is especially important for employees of GR departments of TNCs, where strategies for building relations with the government will differ significantly depending on the host states. Getz believes that the task of the corporate political activity is to create and maintain a certain set of external relations with stakeholders, to be able to influence the nature of political decisions, especially in relations with regulatory authorities and significant political institutions.[5] At the same time, CPA acts as the main method of achieving organizational goals and objectives.

Analyzing the political activity of corporations, it is worth paying attention to two key questions: "Does the firm have the ability and resources to carry out GR work at all?", "And will the firm act individually or in a coalition?"

Researchers B. Baysinger[6] and B.D. Keyllor[7] suggest that firms have three main types of motivation to engage in political activity:

1) To achieve corporate interests;

2) To influence public policy in order to make it more favorable to the strategic interests of the firm;

3) To influence public policy in such a way that it does not complicate the search for funds and resources for company's activity;

The main benefits that the firm receives as a result of the GR-work carried out by A. J. Hillman and M.A. Hitt include a reduction in environmental uncertainty and a reduction in transaction costs, which can lead to long-term and sustainable growth of the company, as well as its economic indicators.[8]  However, from Getz's point of view, it is difficult for corporations to compete with each other in the political space: as a rule, in order to receive certain privileges from the state, it is necessary to be able to offer something in return[9].  This may be financial support for government initiatives, PPP projects, social responsibility of business, provision of expertise, support in elections, and so on - everything depends on the institutional model of the state in which the company operates. Sometimes TNCs are able to influence the creation of certain business practices. For example, in developing countries, which include, for example, the BRICS member countries, there are certain institutional voids that allow TNCs to find new methods of influencing or exerting pressure on the political structures of the host state[10]. G. L. Kupryashin notes that in such conditions corporations, as a rule, tend to "build bridges" with the executive branch, since it is the bodies of this branch of government that are responsible for the implementation of the most important state decisions[11].

In G. Wilson's article "Corporate political strategies", the political scientist reports that American corporations rarely engage in political activities, with the only exception - the creation of internal corporate political action committees (Political actions committee (PAC)[12].  However, not all large organizations have such committees. According to Sabato's calculations, almost half of the largest TNCs do not have them[13].  At least one of the world's largest chemical companies DuPont, which is actively engaged in political activities, has not had such a committee for many years[14].  However, the company has been openly financing political activities since 1990. According to the latest report for 2019-2020 published on the Internet, the company, whose PAC is located in Washington, spent $108,490 to support political activities, of which $32,500 - to the Democratic Party and $ 33,000 – to the Republican. [15]

Scheme 1. Expenses of the DuPont Political Action Committee (PAC)

Source: Electronic resource - URL: https://clck.ru/UUsbx (Accessed: 10/16/2021)

Many supporters of the active use of corporate political activity believe that firms begin to engage in it only when they realize that their economic weight is already so great that it's time to bring their political influence into line with it.[16]

Corporations such as Google or Aliexpress, carrying out their activities on an international scale, undoubtedly face the external environment, and therefore it is necessary for them to have leverage over the political sphere in various states. Google is ready to provide significant financial support to those political parties and their candidates who share the organization's mission - to maintain the Internet space as a place of free and open communication.[17]

In the United States, the ability of companies to spend unlimited funds on political campaigns appeared after the precedent of "Citizens United v. FEC"[18], when on January 21, 2010, the U.S. Supreme Court lifted the previously existing ban on independent corporate spending on political campaigning of candidates, arguing its decision on the principle of "freedom of speech", which is one of the main pillars of democracy. [19]

In addition to creating a political activity committee business representatives can actively participate in trade associations or in so-called "umbrella" companies.

In short, CPA is expressed in the form of material, technical and informational support for political campaigns and politicians.

It is worth noting that in most developed countries (with the exception of the USA), the size of donations from businesses is limited by law.

In Russia, for example, according to Article 30 of Federal Law No. 95 "On Political Parties" donations from foreign legal entities, as well as, according to subparagraph "d", "Russian legal entities with foreign participation, if the share (contribution) of foreign participation in their authorized (pooled) capital exceeds 30 percent on the day of donation."[20]

That is why TNCs are learning to skillfully circumvent legislative regulation by providing so-called "soft money" to politicians, which is unregulated support.[21] However, such methods should be used carefully, since sometimes the size of sanctions can exceed the preferences received.

The question of corruption and political rent as methods of implementing corporate political strategy stands out. This always causes some concern on the part of the expert community. As a rule, corruption as a method is used in national systems with weak political institutions[22].  In the absence of strong institutions, informal networks and other informal models of relationships structure the political activities of firms. The role of informal networks is also at the heart of scientists' research on the phenomena of nepotism[23].  Scientists N. Khatri, E.Tsang and T.Bigley emphasize the important role that political and social cultures play in the prevalence and rootedness of the phenomenon of nepotism, understood in a broad sense as a social exchange, which leads to the disadvantage of a third party with even equal or superior opportunities than those in informal relationships of this kind[24]. According to a study conducted by B. Venard in 2009, in order to study the motives of the use of corruption by companies in Russia, the scientist came to the conclusion that this is largely due to the external environment: for example, firms acted from the logic that if their competitors behave in bad faith, then this automatically means an opportunity for companies to give bribes themselves. The phenomenon of corruption is also explained in the work by the isomorphism of coercion and competition[25].  However, it should not be concluded from this that there is a complete lack of institutional frameworks in developing countries.

Thus, the political activity of the corporation significantly affects its strategic interaction with all significant stakeholders. From the point of view of J. Fayerweather [26], coordination of positions and resolution of conflicts between political forces and the interests of an international company in the countries of origin and home, as well as establishing trusting relationships with representatives of various groups of the public are key elements of the company's strategy.

List of sources and literature:

1. Barron, A. (2010). Unlocking the mindsets of Government Affairs Managers: cultural dimensions of corporate political activity. Cross Cultural Management: An International Journal, 17. - pp. 101–117.
2. Calderón, R., Álvarez-Arce, J.L. and Mayoral, S. (2009). Corruption as a crucial ally against corruption. Journal of Business Ethics, 87. – p.324
3. Citizens United V& FEC. Официальный сайт избирательной комиссии США (электронный ресурс) / URL: https://www.fec.gov/legal-resources/court-cases/citizens-united-v-fec/ (дата обращения: 19.04.2021)
4. Dirk Holtbrügge, Anastasia Baron Market Entry Strategies in Emerging Markets: An Institutional Study in the BRIC Countries. Thunderbird International Business Review. Volume55, Issue3 - May/June 2013. – p. 239
5. DuPont. PAC spending report (электронный ресурс) / URL: https://clck.ru/UUsbx (Дата обращения: 19.04.2021)
6. Hillman, A.J., Keim, G.D. and Schuler, D. (2004). Corporate political activity: a review and research agenda. Journal of Management, 30. - pp. 837–857.
7. Fayerweather, J. International Business Management. N.Y. – Volume 11, Issue11, 1969 – рр. 10-11
8. G. Willson. Corporate political strategies. British Journal of Political Science, Volume 20, Issue 2, April 1990. – p. 281
9. Getz, K.A. (1997). Research in corporate political action: integration and assessment. Business and Society, 36. - pp. 32–72.
10. GR и лоббизм: теория и технологии: учебник и практикум / В.А.Ачкасова, М.Ф.Баширов, А.Б.Белоусов [и др.] ; под ред. В.А.Ачкасовой, И.Е.Минтусова, О.Г.Филатовой. — М. : Юрайт, 2015. – С. 86
11. Khatri, N., Tsang, E. and Begley, T. (2006). Cronyism: a cross-cultural analysis. Journal of International Business Studies, 37. – p.70
12. Sabato, PAC Power Inside: The World of Political Action Commities, p.164
13. Thomas Lawton, Steven McGuire1 and Tazeeb Rajwani2. Corporate Political Activity: A Literature Review and Research Agendaijmr_337 1..20/ International Journal of Management Reviews, Vol. *, *–* (2012). - pp. 20
14. Venard, B. (2009b). Corruption in emerging countries: a matter of isomophism. Management, 12. – p. 3
15. Willson G. Corporate political strategies. British Journal of Political Science, Volume 20 , Issue 2 , April 1990. – p. 281
16. Федеральный закон "О политических партиях" от 11.07.2001 N 95-ФЗ. Электронный справочник правовой документации «Консультант-плюс «(электронный ресурс) / URL: http://www.consultant.ru/document/cons_doc_LAW_32459/34ee63d469c7e5f886cf70dc8fcbdd80fec711c0/ (дата обращения: 09.04.2021)
17. Братерский М.В. Экономические инструменты внешней политики и политические риски. М.: ГУ-ВШЭ, 2010 - с. 231.
18. Купряшин Г.Л. Институциональные ловушки и кризисы государственного управления // Государственное управление. Электронный вестник. — 2017. — № 60. — С. 106.