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58. Mil Geyelin, “Tort Bar’s Scourge: Star of Legal Reform Kindles Controversy
But Collects Critics,” Wall Street Journal, October 16, 1992, p. A1. Peter
Huber has written two influential books on the subject: Liability: The Legal
Revolution and Its Consequences, and Galileo’s Revenge: Junk Science in the
Courtroom.
59. Estimates by the Rand Institute for Civil Justice and Tillinghast, an insur
-
ance industry and business consulting firm. Ibid., p. A6.
60. Peter H. Stone, “Trial Lawyers on Trial,” National Journal, July 12, 2003, p.
2250.
61. Ibid. Also see Stephen Wermiel, “Courting Disaster: The Costs of Lawsuits,
Growing Ever Larger, Disrupt the Economy,” Wall Street Journal, May 16,
1986, p. 1.
62. Jonathan Rauch, “The Parasite Economy,” National Journal, Vol. 24, April
25, 1992, pp. 980–985.
63. Fay, op. cit.
64. William S. Stavroupoulos, “Tort Reform: Excessive Litigation by Trial Law
-
yers,” Vital Speeches, Vol. 64, April 1, 1998, pp. 362–365.
65. In another industry, three English law firms, in the aftermath of the U.S.
McDonald’s hot coffee suit, are readying lawsuits against McDonald’s for
“bloodcurdling burns” suffered by around half a dozen customers. See “Dis-
sent Under the Golden Arches,” Lawyer, February 24, 1998, p. 15.
66. Heidi Dawley, “And Now, Mad Plaintiff Disease,” BusinessWeek, November
10, 1997, pp. 66, E16.
67. Bill Richards and Barry Meier, “Widening Horizons: Lawyers Lead Hunt for
New Groups of Asbestos Victims,” Wall Street Journal, February 18, 1987, p.
1.
68. Bowers, op. cit.
69. Mike France, “The Litigation Machine,” BusinessWeek, January 29, 2001, pp.
115–123.
70. See Stuart Auerbach, “Views of Lawyer Advertising Argued Before Md. High
Court,” Washington Post, December 2, 1977, p. C1.
71. Daniel B. Moskowitz, “Lawyers Learn the Hard Sell—and Companies Shud-
der,” BusinessWeek, June 10, 1985, p. 70.
72. Ibid.
73. Ibid., p. 71.
74. Richard B. Schmitt, “Thinning the Ranks: Diet-Pill Litigation Finds Courts
Frowning on Mass Settlements,” Wall Street Journal, January 8, 1998, p.
A1.
75. Richard B. Schmitt, “Feeding Frenzy: Trial Lawyers Rush to Turn Diet-Pill Ills
Into Money in the Bank,” Wall Street Journal, October 24, 1997, p. A6.
76. Ibid.
77. Ibid.
78. Fay, op. cit.
79. Stone, op. cit., pp. 2250–2252.
80. Mentioned in Carol Marie Cropper, “Jury in CSX Case Sent Angry Message
with a $3.4 Billion Stamp,” New York Times, September 15, 1997, p. D1.
81. John M. Broder, “Stares of Lawyerly Disbelief at a Huge Civil Award,” New
York Times, September 10, 1997, p. 1.
82. See Andrea Gerlin, “A Matter of Degree: How a Jury Decided That a Coffee
Spill Is Worth $2.9 Million,” Wall Street Journal, September 1, 1994, p. A1.
Also, “McDonald’s Coffee Award Reduced 75% by Judge,” Wall Street Jour
-
nal, September 15, 1994, p. A4.
342 I CHAPTER 12
83. Ken Silverstein, Washington on $10 Million a Day (Monroe, Me: Common
Courage Press, 1998), p. 103.
84. Peter H. Stone, “Grass-Roots Group Rakes in the Green,” National Journal,
Vol. 27, March 11, 1995, p. 621.
85. Stone, op. cit. Also Silverstein, op. cit., pp. 103–126.
86. Brooks Jackson, “Proposals to Curb Damage Awards in Lawsuits Lead to
Flood of Lobbying Efforts on Both Sides,” Wall Street Journal, April 9, 1986,
p. 64.
87. Ibid., p. 113.
88. Thomas B. Edwsull, “Unwise Product Liability Reform,” Los Angeles Times,
July 7, 1998, p. B6.
89. Jim VandeHei, “Bush’s Cherished Tort-Reform Plans Survive Enron—
Barely,” Wall Street Journal, March 14, 2002, p. A20.
90. “Tort Reform: A Little Here, A Little There,” BusinessWeek, January 20, 2003,
p. 60.
91. Mike France, “How to Fix the Tort System,” BusinessWeek, March 14, 2005,
pp. 70–78.
92. Ibid.
93. “Tort Reform,” Impact, the newsletter of the Public Affairs Council, January
2003, p. 2.
94. Christine B. Whelan, “U.S. Chamber of Commerce Takes Tort-Overhaul
Campaign to TV,” Wall Street Journal, August 27, 2002, p. A4.
95. Gregory L. Burden, “Up in Smoke,” ABA Journal, June 1989, News Section,
n.p. Also see Silverstein, op. cit., p. 113.
96. Robert Kuttner, “Phony Litigation ‘Crisis’” Washington Post, June 24, 1994,
p. A27. Also see Robert Kuttner, “Don’t Make It Harder to Sue,” Washington
Post, June 24, 1994, p. A27. Nexis. The $4 billion figure includes all insur-
ance premiums paid by business to cover possible damages and actual dam-
ages collected by injured consumers and all legal fees.
97. See “Press Coverage of the Administration of Justice” in chapter 10, The First
Amendment and the Fourth Estate, 6th edition, by T. Barton Carter, Marc A.
Franklin, and Jay B. Wright (Westbury, N.Y.: The Foundation Press, 1994),
pp. 474–516.
98. Budd, op. cit.
99. This principle is emphatically stated by John Budd who says, “There has to
be recognition of the absolute need for intimate synchronization with the
lawyers heretofore considered adversaries.”
100. See Kathy R. Fitzpatrick and Maureen Shubow Rubin, “Public Relations vs.
Legal Strategies in Organizational Crisis Decisions,” Public Relations Review,
Vol. 21, Spring 1995, pp. 21–33.
101. Discussed in Lukaszewski, op. cit., pp. 371–393.
102. Budd, op. cit.
103. Lerbinger, op. cit., pp. 188–190.
104. Lukaszewski, op. cit., p. 381.
105. Ibid., p. 383.
106. Ibid., op. cit., pp. 380–384.
107. Budd, op. cit.
108. Ibid.
109. See Lerbinger, op. cit., p. 277.
110. “A Total War Against the Corporation,” op. cit.
111. Budd, op. cit.
112. These reminders are mentioned by Komisarjevsky, op. cit., pp. 38–39.
LITIGATION COMMUNICATION I 343
113. Susanne Roschalb, “Does Television Belong in the Courtroom?” USA Today
Magazine, November 1994, p. 69.
114. Pat Dawson, “Amy Grossberg, Woman Accused of Killing Newborn, Loses
Lawyer Because He Broke Court’s Gag Order With Interviews,” NBC News
Transcripts, July 4, 1997.
115. “Free Speech Inc.: When Companies Defend Themselves,” Impact, the news
-
letter of the Public Affairs Council, February 2003, p. 4.
116. Lukaszewski, op. cit., p. 389.
117. Komisarjevsky, op. cit., p. 41.
118. Ibid., p. 390.
119. Richard B. Schmitt, “Witness Stand: Who Is an Expert? In Some Court
-
rooms, the Answer is ‘Nobody,’” Wall Street Journal, June 17, 1997, p. A1.
120. Bruce Rubenstein, “Trend Toward Pre-trial Rejection of Evidence Emerges;
The Junk Science Debate Sharpens,” Corporate Legal Times, June 1998, p.
34.
121. David G. Savage, “High Court Limits ‘Junk Science’ Claims,” Los Angeles
Times, December 16, 1997, p. A29.
122. Ibid.
123. Joseph F. Sullivan, “In Lawsuits, How Much Should the Courts Keep Se-
cret?,” New York Times, March 3, 1991, p. E6.
124. Lerbinger, op. cit., pp. 219–220.
125. Sullivan, op. cit., p. E6.
126. Ibid.
127. Ibid.
128. Paul M. Barrett, “Silent Partners: When Lawyers See Fraud at a Company,
What Must They Do?” Wall Street Journal, August 22, 1997, p. A1.
129. Ibid., p. A8.
130. Elyse Tanoute, “Does Corporate Funding Influence Research?” Wall Street
Journal, January 8, 1998, p. B1.
131. Ibid.
132. Harry W. O’Neill, “They Can’t Subpoena What You Ain’t Got,” AAPOR
News, Vol. 19, Winter 1992, p. 4.
133. Richard B. Schmitt, “Chrysler Bites Back at Class Action Lawyers,” Wall
Street Journal, March 27, 1996, p. B1.
134. Ibid.
135. Tim Bryant, “Chrysler Wins Case Against 2 Lawyers; Clayton Pair Must
Pay Company $850,000, St. Louis Post-Dispatch, September 15, 1998, p.
B2.
344 I CHAPTER 12
V
Dominance Versus
Competition
All the public affairs strategies to produce a favorable sociopolitical en-
vironment for business must be assessed from two perspectives: (a) Has
corporate power relative to government, interest groups, and the media
given corporations the upper hand? (b) Are there long-term unintended
consequences in the amassing of this power corporate power?
Chapter 13 examines corporate power strategies from the first per-
spective and asks such questions as these: Are corporations gaining
dominance over government? How much vitality do countervailing in-
terest groups possess? Are the media still able to serve as society’s
watchdog? The model of the economic marketplace is applied to the po-
litical arena by asking to what extent competition exists and whether
significant information is available to allow citizens to make rational
and wise decisions.
The inherent danger in the exercise of corporate public affairs cam
-
paigns is that victory is always sought. Every effort is made to win a
battle. Winning becomes an addiction, and, like all addictions, there is
blindness to long-term consequences—over whether the war is also
won. Grand strategies may be talked about, such as reducing the role of
government in the economy and society. However, the real war should
be to preserve a market economy and democratic society. People must
feel that their standard of living is rising and that freedom is promoted.
Talking about maximizing profits, increasing the rate of return on in
-
vestments, and improving the price–earnings ratio is fine for investors
but doesn’t inspire public support for our free enterprise system.
A survey of crises over the two decades shows an alarming rise in
“crises of management failure.” The number has risen so rapidly that a
345
book, The Crisis Manager, found it necessary to divide these crises into
three subcategories: crises of skewed values, crises of deception, and cri
-
ses of misconduct.
1
Enron and other corporate scandals illustrate each
of these types of scandals. They also demonstrate the need to distinguish
between a free market economy and laissez-faire. There must be a role
for government, as well as professional societies and the institutions of
society. The excesses of “unbridled capitalism” must be avoided
Chapter 14 ventures into the controversial question of how corporate
behavior can be modified to increase the chances for “sustainable capi
-
talism” and the long-term viability of our economic and political sys
-
tem. Some answers are found by applying the economic model of
competition to the political marketplace. For example, it is argued that
the very interest groups that so often represent the “opposition” should,
with few exceptions, be kept alive.
Chapter 15 examines ways in which corporations can help to ad
-
vance the public interest. By accepting corporate social responsibility
and moving up in the pyramid of social responsibility the new expecta-
tions of Americans and citizens all over the world can better be satisfied.
Making reforms in corporate governance structure and practices is an-
other way to address the public interest; for example, by adding a con-
cern for more stakeholders beyond the often singular concern with
investors. Finally, establishing and maintaining healthy stakeholder re-
lationships can further promote the formation of socially conscious or-
ganizations. Adopting these changes may restore public confidence in
business and enhance the reputation of business.
Renewed corporate concern for their reputations is a healthy trend
that shows promise. It extends thinking beyond the narrow bottom line
and considers the larger force of public opinion, which summarizes the
feelings and thoughts of corporate stakeholders and society at large.
Much of the focus is on the behavior of CEOs because their reputation
accounts for 50% of their corporation’s public standing.
ENDNOTE
1. Otto Lerbinger, The Crisis Manager: Facing Risk and Responsibility (Mahwah,
NJ: Lawrence Erlbaum Associates, 1997).
346 I PART V
Chapter 13
Ascendancy of Corporate Power
The grand strategy of business has been to curb the growth in power of
three challenging forces: interest groups, media, and government. Fore-
most, business has sought “to get government off our backs.” To accom-
plish that paramount goal, business has also had to arrest the growth of
consumer, environmental, and other interest groups, which had suc-
cessfully achieved legislative gains, as the steep rise in regulations in the
1960s and 1970s shows. Because of the pervasive influence of the media
on public opinion and political decision makers, business has endeav-
ored to tame the news media.
Corporate executives seek stability in their sociopolitical environ-
ment so they can pursue their mission of producing products and ser-
vices at a profit. They invoke the economist’s caterus paribus—“let all
other things remain constant”—when they want to concentrate on
business problems and opportunities. However, during the turbulent
1960s and 1970s, these “other things” have moved dynamically, upset
-
ting comfortable assumptions and routines. Some semblance of equilib
-
rium had to be reestablished.
To accomplish this goal, top management assigned public affairs
managers the responsibility to regain control over the sociopolitical en
-
vironment. To this end, public affairs managers designed new method
-
ologies to scan and monitor the external environment. They formulated
the process of issues management that extended environmental moni
-
toring into issue analysis, strategy formulation, and issue implementa
-
tion. They developed new ways of dealing with interest groups, the
media, and all three branches of government, especially legislative. This
book has catalogued the resultant strategies and tactics. However, the
impact of corporate success in achieving power must be assessed—
whether public opinion is becoming more anxious about corporate
power and whether anger will lead to pressures for extreme reforms.
347
CORPORATE GAINS IN POLITICAL POWER: THE BIG PICTURE
The results of the corporate public affairs counteroffensive have been
impressive. “Big business, in league with small business, roundly de
-
feated the public-interest coalition and organized labor in a series of
confrontations in the late 1970s,” said Scott R. Bowman, author of The
Modern Corporation and American Political Thought.
1
Another scholar,
David Vogel, reported in his book Fluctuating Fortunes that by 1978
business had “clearly regained the political initiative and defeated many
of the regulatory measures hard won by public interest activists.”
2
Re
-
ferring to corporate dealings with environmentalists, Sharon Beder in
Global Spin wrote that corporations, “alarmed by the gains environ
-
mentalists made in the 1960s and 70s, are fighting back and winning
the public relations and policy wars.”
3
She elaborated on how “corpora
-
tions have used their financial resources and power to counter gains
made by environmentalists, to reshape public opinion and to persuade
politicians against increased environmental regulation.”
4
Business further advanced its grand design during the Reagan and
Bush administrations, both of which were lax in enforcing existing
laws. Furthermore, they discouraged new legislation by requiring pro-
posals to pass rigorous economic tests. Even when Republicans lost the
presidency to the Democrats in 1992, their message was soon echoed by
the new president, Bill Clinton. Although during his first term of office
Clinton attempted to increase the role of government through his health
care reform proposals, he changed his tune at the beginning of his sec-
ond term in 1996 when he grudgingly declared in his State of the Union
address that the “era of big government” was over.
With George W. Bush’s victory in the 2000 presidential election, corpo-
rate influence in government reached its zenith. His vice president, Dick
Cheney, was the former CEO of the major energy corporation Haliburton,
and his appointment of many former corporate or probusiness executives
indicated that marketplace economics would prevail and the role of gov
-
ernment would further be reduced. One indication of heightened corpo
-
rate influence was Cheney’s invitation to energy companies to help shape
the administration’s energy policy. Their executives met more than 30
times with top officials. In contrast, environmental organizations were
relegated to hasty phone calls and two low-level meetings in 2001. Nei
-
ther Cheney nor Energy Secretary Spencer Abraham granted the request
of the head of New York-based Environmental Defense, Fred Krupp, to
meet with the so-called Green Group, which represents 30 of the nation’s
largest environmental organizations.
5
Cheney’s meetings with the en
-
ergy task force have become controversial. Both Judicial Watch, a public
interest law firm, and the Sierra Club have sued the energy task force, of
-
ficially called the National Energy Policy Development Group, saying it is
obliged to disclose the role of energy corporations and lobbyists in devel
-
oping its recommendations.
6
However, the Court of Appeals for the Dis
-
348 I CHAPTER 13
trict of Columbia Circuit unanimously rejected the suit and ordered a
lower court to dismiss the case.
The theme of excessive corporate power is increasingly reflected in re
-
cent literature. Atlantic Monthly senior editor Jack Beatty contends in
his Colossus: How the Corporation Changed America, that the corporation
has evolved into the dominant institution in the United States, arguing
that most scholars have vastly understated its role in shaping the econ
-
omy and society.
7
Another book, Kevin Danaher and Jason Mark’s Citi
-
zen Challenges to Corporate Power, ominously states: “A new
rebelliousness haunts the world. With each day, more and more people
are challenging the institutions that exert control over our lives. The
new rebels have set their sights on that force which during the last gen
-
eration has nearly supplanted the nation-state as the possessor of true
power: the transnational corporation.”
8
SCANDALS REVEAL EXTENT OF CORPORATE DOMINANCE
That corporate influence had gone too far was brought to public atten-
tion in December 2001 when the bankruptcy of Enron implicated the
Bush administration. Jonathan Chait wrote in The New Republic, “Put
simply, the administration is subservient to economic pressure groups
to an extent that surpasses any administration in modern history.”
9
An-
other critic of corporate power, Kevin Phillips, accused Republicans as
being “too friendly to corporations, too inclined to give them a regula-
tory pass, too likely to be permissive to their misdeeds.”
10
Four Dangers of Corporate Dominance Exposed by Scandals
Public disclosures about Enron’s false financial reporting and executive
misdeeds were soon followed by a torrent of reports about other corpo
-
rate scandals, all of which added to the impression that corporate domi
-
nance was becoming a reality. USA Today published a “rogues gallery” of
“The 5 Biggest” companies whose executives were facing or had settled
charges in financial scandals in 2001. Besides Enron, it listed Imclone’s
Samuel Waksal, Adelphia Communications’ John Rigas, Tyco Interna
-
tional’s Dennis Kozlowski, and WorldCom’s Scott Sullivan.
11
The list
grew. In 2002, some 250 American public companies restated their
earnings, compared with only 92 in 1997 and 3 in 1981.
12
The growing number of corporations that were emboldened to en
-
gage in unethical and often illegal conduct, exemplified by Enron, dem
-
onstrated the symptoms and dangers of corporate dominance: (a)
enormous political influence, (b) economic power to manipulate some
energy markets, and (c) control over financial disclosure, and (d) self-
enrichment by a small group of company insiders.
ASCENDANCY OF CORPORATE POWER I 349
Political Influence. “Enron is a story about big dollars that influence
public decisions,” said Representative Christopher Shays (R-Conn.).
13
Its
tremendous growth depended heavily on political influence. Its primary
objective was to break up monopoly control of energy markets by local
utilities and to change the rules so energy would be deregulated. The
company sought these changes on both the national and state levels.
Enron’s former chief executives Kenneth L. Lay and Jeffrey Skilling fre
-
quently met with utilities commissions, testified before statehouse com
-
mittees, and called on local politicians. To facilitate access and influence
on the national level, the corporation and its executives contributed al
-
most $5.88 million to political war chests since 1989.
14
Enron’s return on its political expenditures was highly favorable. As
stated by Albert R. Hunt in the Wall Street Journal, “Few special interests
got more access or results than Enron: legislative favors, a lax oversight
of its risky financial derivatives, tax breaks, unsurpassed input into the
Cheney energy legislation drafting process and most of what it wanted,
and reportedly even veto authority over regulatory appointees.”
15
It
also escaped enforcement of existing laws, as demonstrated in its
manipulation of energy prices in California.
Market Power. In one of the most brazen violations of social respon-
sibility and blindness to inevitable public outrage, Enron, Duke, El Paso,
and other energy traders have been accused of blatantly manipulating
the market for electricity and natural gas in California and other western
states. Power prices in California rose tenfold in late 2000. During a
4-month period ending in February 2001, electricity sold on California’s
wholesale electric market cost $16.68 billion—more than double the cost
of electricity for all of 1999. The state spent nearly $20 billion to keep the
lights on before the Federal Energy Regulatory Commission (FERC) inter
-
vened to impose price caps on western power markets.
16
FERC was slow, however, in the early days of the energy crisis. When
complaints of manipulation were made in July 2000, 2 months after
the crisis began, it began a tepid investigation. Its staff report in Novem
-
ber 2000, according to the Wall Street Journal, said “investigators were
unconvinced that sellers purposely were withholding supply and pur
-
suing bidding strategies designed to exploit weaknesses in market
rules.” Without actually analyzing power-plant outage data or bids, the
FERC blamed insufficient power supplies, poor market rules and weak
infrastructure for the peak prices. Later, however, it reported that it
found “epidemic” efforts by big power suppliers to manipulate electric
-
ity and natural gas markets (natural gas is an important fuel for power
plants) during California’s 18-month-long energy crisis in 2000–2001.
Corruption of Financial Information Infrastructure. Blatant decep
-
tion and fraud by corporate officers in Enron and other scandal-ridden
corporations exposed how the exercise of corporate power both inter
-
350 I CHAPTER 13
nally and externally corrupted the financial information infrastructure
on which the efficient and ethical functioning of the economic system
depends. Enron used all the tools of “creative accounting” to inflate
earnings and to conceal debt (e.g., the notorious off-books partner
-
ships). Its exercise of internal authority was so strong that it was able to
muzzle its own employees, who were afraid of losing their jobs. All
seven of the components of this supposedly failsafe system were com
-
promised: corporate accountants, auditors (e.g., Enron’s Arthur
Andersen), lawyers, boards of directors, security analysts and invest
-
ment banks, the New York Stock Exchange, and the SEC (see chap. 14 for
discussion of the seven components).
Enron was aided by a mystique hyped by the business media. It was
portrayed as what a modern company should look like, stressing inno
-
vation, risk management, and intangibles. Smart employees were its
key assets. Its highly admired top executives, Kenneth Lay, Andrew
Fastow, and Jeffrey Skilling were filled with “weening ambition.” They
created a “cowboy culture” in which everything was pushed to the lim-
its: business practices, laws, and personal behavior. They “lived large,”
drove fast cars, and spent big money at clubs.
17
The resulting portrayal
of its financial condition satisfied Wall Street and investors.
Self-Enrichment. Instead of serving in their fiduciary responsibility
of benefitting stockholders, the new goal of Enron’s top managers—the
CEO, CFO, and other insiders—was to enrich themselves through high
salaries, generous benefits, and, most of all, stock options. Kenneth Lay
received $152.7 million in payments and stock in the year leading up to
the company’s collapse. His take in 2001 was more than 11,000 times
the maximum amount of severance paid to laid-off workers.
18
The ratio
of the pay of corporate CEOs to the hourly wages of production workers
rose to 419 in 1999 from 93 times in 1988.
19
Some top executives added
to their riches by accepting tempting initial public offerings from their
investment bankers in return for cooperation. Others continued to reap
rich rewards even after they were dismissed by their boards. After plead
-
ing guilty to criminal charges in connection with Enron’s special-pur
-
pose entities, CFO Andrew Fastow admitted as part of his plea, “I also
engaged in schemes to enrich myself and others at the expense of
Enron’s shareholders and in violation of my duty of honest services to
those shareholders.”
20
Impact of Scandals
The steady flow of news about corporate and executive abuses resulted
in a major loss of public confidence in business and consequent passage
of the Sarbanes-Oxley corporate reform legislation to correct the fail
-
ures of the system. Even though the Bush administration and Republi
-
can-controlled Congress were ideologically opposed to more
ASCENDANCY OF CORPORATE POWER I 351