Week 5: Political Strategies for Business

1. Week 5: Political Strategies for Business UBGA 107 The Political and Social Environment of Business

2. A few words about case analysis #1 • FOLLOW PROF. GERLACH’S FORM • In discussing issues, choose issues that affect your industry more narrowly than issues that affect you as much as many other industries • Examples: • Trial lawyers – Tort Reform, RPP • Manufacturing – Closing Tax Loopholes for Outsourcing, DPP • Labor Unions – DPP’s pro-union stance vs. RPP’s pro-right-to-not-join-union stance • Pharmaceuticals – DPP’s desire to bring down drug costs • Doctors/Medical Professionals – Tort Reform, RPP

3. Probably Too Broad • Education • Very important, but simultaneously affects many industries rather than a specific industry • Health Care Costs (as a primary issue) • Health care policies affect ALL industries in which employers help defray medical costs/insurance premiums • But you are welcome to convince me otherwise

4. Review • Analysis of Democratic and Republican Party Platforms • What are each party’s primary policies affecting business? • What are their major differences

5. Take away: • Issues are rarely as simple as they appear: • Tax Cuts  Rising Health Care Costs • Market-based solution  Governmental regulation • Pollution vs. health care • Are market failures removed? • Are governmental actions necessarily inefficient? • Protecting American Businesses  Protecting American Employees • Protecting legitimate claims  Encouraging frivolous lawsuits • Und so weiter

6. Today • Political Strategies for Business • Positioning in political space vs. legal space • What are the three basic types of political strategies? • The Political Strategies of Enron • What was Enron’s primary goal in engaging in political strategies?

7. An Edge to Enron’s Lobbying-- from LA Times • WASHINGTON — Jeffrey K. Skilling was visiting Capitol Hill to press the case for energy deregulation. It was September 1999, and Enron Corp. was the darling of Wall Street.Skilling, then the energy giant's president, had almost single-handedly imprinted his combative style on the company's lobbying culture, and he used it now: We're Enron. We're the economy. Buy it.But Joe Barton, a Republican congressman from Texas and ordinarily a fan of open markets, wasn't buying it. As chairman of a House Energy and Commerce subcommittee, Barton didn't think Enron had the votes then. Skilling told him he was wrong. So Barton kicked Skilling out of his office."There was no foul language, but he got so frustrated that he started telling me how to run my subcommittee," Barton recalls of their meeting."I told him I was no CEO of a Fortune 500 company, but I was not an idiot, and I knew he didn't have the votes. He told me I was wrong, that I was just being stubborn. I told him there was no reason to come see me again until things calmed down."By many accounts, that exchange with Skilling--who subsequently became chief executive of Enron but resigned in August, before the company's collapse--was typical of Enron's lobbying efforts. But while the brash and raw tactics ruffled feathers, Enron was generally successful in getting its way.

8. Grassroots Organizing • What are some examples? • Did Enron engage in any grassroots organization? If so, how?

9. Grassroots Organizing • Focus is on influencing voters • Letter writing • “bus-ins”; “fly-ins”; “knock-around” • Mobilization is key • May be directed at public officeholders or constituents • Special difficulties of business grassroots campaigns; rent chains • Effectiveness of grassroots campaigns: grassroots vs. astroturf (e.g, PMA)

10. Enron’s Grassroots Campaign • Enron did not appear to engage actively in grassroots campaigns • Why not?

11. Lobbying and Testimony • Definition and Examples • Did Enron engage in lobbying and participate in political testimony? If so, how?

12. Lobbying and Testimony • Lobbying: • Strategic communication of politically relevant information to public officeholders • Access important • Most prominent in highly regulated industries • Technical vs. Political Information • Supply and demand for information • Executives as effective lobbyists • Testimony • Congressional Hearings: to give information or mobilize public support

13. Legal Controls on Lobbying • US v. Harriss, 347 US 612 (1954) • 1995 Disclosure Act • 1978 Ethics in Government Act

14. Enron’s Lobbying Activities • Both at national and state levels • Dispatched Skilling, chief executive, to meet with utilities commissions, testify before statehouse committees and call on local politicians • Message: bring lower costs by ending utility monopolies • Called on then governor of Texas Bush to call then governor of Pennsylvania Tom Ridge • Lined up experts to testify; hired local lobbyists and joined consumer groups and some local utilities to present a united front for deregulation • Spent money to buy friends very quickly • Hired consultants with political connections, e.g., Ralph Reed; former utilities commissions officials in California • Skilling testified to the California utilities commission that deregulation could save $8.9 billion • Hired 83 lobbyists in Texas, bought advertisements in local papers, contributed to Laura Bush’s book fair. • Helped craft legislation; gave to both sides • Called Governor Jeb Bush of Florida

15. Electoral Politics • Definition and Examples • Did Enron engage in electoral politics? If so, how?

16. Electoral Politics • Monetary contribution to campaigns, political parties • Subject of your first case analysis • Tillman Act of 1907 • “Hard money” vs. "soft money." • Federal law has prohibited corporations from contributing to federal candidates since 1907. Labor unions have been barred from contributing to candidates since 1943. Soft money refers to contributions to political parties' "non-federal accounts" that fall outside the legal, "hard money" limits on contributions to federal candidates. • H.R. 2356, the "Bipartisan Campaign Reform Act of 2002” • prevent unions and corporations from making unregulated, "soft" money contributions

17. Enron’s Electoral Politics • Personal gifts from Lay to Bush • Contributed $1.9 million to more than 700 candidates in 28 states • e.g., Gray Davis -- $97,500; George Pataki -- $9,000; $29,350 to legislators in Michigan; $19,805 to legislators in Iowa

18. VIDEO DISCUSSION NOTES -- • ENRON'S OVERALL POLITICAL ACTIVITIES • 1. Enron was very active in the political process. • It was extensively involved in a wide range of lobbying activities. • It gave considerable money to Senate and House election campaigns. • It also provided free use of corporate planes to candidate Bush before the 2000 election. • 2. What Enron stood to gain from these activities: • $254 million tax rebate. • Influence over energy deregulation policies. • 3. As a result of Enron's bankruptcy, politicians were scrambling to do damage control. • Wide range of different Senate hearings into the bankruptcy: Governmental Affairs; Commerce; Health, Education, Labor, and Pensions; Banking. • Some politicians and political parties gave donations back. • 4. The bigger problem: Enron's widespread campaign donations and lobbying may have compromised the ability of politicians to investigate Enron.

19. VIDEO DISCUSSION NOTES -- • 1. Enron's gave widely to both Republican and Democratic candidates. • This was intended to "cover their bases." • Republicans were somewhat more likely to be beneficiaries. • 2. Enron increased its contributions in the 1990s. This was in anticipation of energy deregulation legislation, and is typical of any company that is subject to government regulation. • 3. Enron's election contribution strategy was twofold: • a. First, give to those "close to home" (ie, Texas). • b. Second, give to those who are on the appropriate Congressional committees -- especially energy and finance. • 4. Enron's contributions to candidates for the House were smaller than those for the Senate. This is because there are more members, so must be spread out. • 5. Enron's "soft money" donations to political parties were even larger than its "hard money" donations directly to candidates. • Note: "Soft money" donations to political parties are now prohibited as a result of campaign finance reform.

20. VIDEO DISCUSSION NOTES -- • 1. The Lobbying Disclosure Act of 1995. • This requires companies to report their lobbying activities if they spend more than a certain amount of time and money. • The law does not require details on specific meetings, but it does require companies to report on general issues they have lobbied on. • 2. Enron's lobbying activities were extraordinarily broad -- from energy to derivatives to needle exchange programs. • 3. An example of "the revolving door": a former top aide to Senator Lieberman worked as an Enron lobbyist. • This is emblematic of how Washington works. People move into the private sector and make multiples of what they made earlier. • Senator Lieberman later led some of the Enron hearings. Was his position compromised?