Lerbinger O. Corporate Public Affairs. Interacting with Interest Groups, Media, and Government

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government intervention, they had no choice because the public de

manded action.

Public Opinion Sours. Public opinion survey findings conducted in

July 2002, after disclosures of Enron and other corporate scandals,

show how seriously public confidence in business was shaken:

• One third of Americans said they had “hardly any confidence” in

big-company executives—the highest proportion in more than

three decades.

This finding shows a decline from a June 1999

Gallup survey, which reported 74% of respondents as having con

fidence in business.

• 57% said they don’t trust corporate executives or brokerage firms

to give them honest information.

• 71% of Americans believe that profit-hungry businesses cut cor-

ners on service and overcharge customers, a finding that also af-

fects faith in the marketplace.

An earlier November1997 survey

showed the more positive view that 45% of Americans believed

“business tries to strike a fair balance between profits and the in-

terests of the public.”

At the time, this finding was a triumph for

business because in 1977 only 15% held this view—down from a

high of 70% in 1968.

• Two thirds think that big business has too much influence on the

Bush administration.

In a further blow, pluralities of Americans

now disapproved of the presence of prominent former executives

in the administration.

• 42% feel things are generally going in the wrong direction in this

country.

These post-Enron surveys give credence to the significant and dis-

turbing BusinessWeek/Harris poll finding, released in August 2000, that

74% of Americans believe big companies have too much political influ

ence over government policy, politicians, and policymakers in Washing

ton. Furthermore, 72% of Americans say business has too much power

over too many aspects of American life.

Rarely, said BusinessWeek,

have business and its leaders been held in such low esteem.

In answer

to its cover story title “Too Much Corporate Power?” in the September

11, 2000 issue, BusinessWeek appeared to answer yes. It is well to heed

its editorial comment—that although there has been the “triumph of

the market over the state,” there is an uneasiness with the powerful

institution of the corporation.

President Bush attempted to downplay the significance of the scan

dals by arguing that only a “few bad apples” were responsible for the

corporate crises. To dramatize this contention, the Justice Department

made a few high-profile arrests of top corporate executives. Television

viewers could see the 78-year-old former Adelphia CEO John Rigas es

352 I CHAPTER 13

corted from his home in handcuffs at 6 a.m. A Wall Street Journal edito

rial called such scenes “useful public theater.”

However, Americans

were not necessarily buying the President Bush’s “few bad apples” argu

ment and instead were agreeing more with economist Paul Krugman of

Princeton University, who believes the problems in business were sys

temic: “Executives seemed to have lost the sense that there are rules …

that there are things you don’t do.” SEC settlements with offenders

haven’t even required an admission of guilt, a practice the SEC is recon

sidering because it wants its settlements to include a degree of punish

ment serious enough to serve as a deterrent against future violations.

Public Tolerance. Americans’ confidence in business has eroded,

but despite this attitude, Americans have been amazingly tolerant of

corporate abuses. One likely reason is that they, too, were caught in the

wave of get-rich mentality that pervaded the 1990s. Over 50 million

Americans were shareholders who saw the value of their securities, in-

cluding 401(k) retirement funds, soar. High executive salaries were tol-

erated, if not condoned, because millions of people shared in high stock

values and someone was always known who “became a millionaire.”

The media seemed to cheer as the stock market reached new heights, and

they gave CEOs due credit, elevating some into celebrity status, which

seemingly entitled executives to high rewards similar to those accorded

to Hollywood stars and sports stars.

Another reason for public tolerance is that Americans are generally

satisfied with business’s economic performance: 68% of Americans rate

large U.S. companies favorably in “making good products and compet-

ing in a global economy,”

and the same percentage agree that “Ameri-

can business should be given most of the credit for the prosperity that

has prevailed during most of the 1990s.”

When the economy performs

well, positive attitudes dominate over the negative ones.

One critical test of whether the corporate scandals would affect the

course of political and economic events came in the November 2002

elections when Republicans won majorities in both houses of Congress.

Similarly, little reference to corporate scandals was made by the candi

dates in the Democratic primaries in 2004. Corporations must not be

come too sanguine, however, for a souring of the economy could erase

public tolerance and crystallize latent negative attitudes against them.

Big business must remind itself of BusinessWeek’s conclusion that it

lacks deep public support and is vulnerable on a number of specific is

sues, as reflected in responses to a question about how well corporations

do in caring about their stakeholders.

When business overreaches in its quest to increase its political

power—and, perhaps, even achieve dominance—it generates opposing

forces. Corporate power is balanced or contained by government, as

well as by the countervailing power of interest groups and the watch

dog function of the news media.

ASCENDANCY OF CORPORATE POWER I 353

GROWING CORPORATE INFLUENCE OVER GOVERNMENT

The campaign to get government off the backs of people created the po

litical climate that enabled business to whittle away at the role of gov

ernment. Reinforcing this mood was a December 1998 Gallup poll

showing that big government, not big business, was seen as “the biggest

threat to the country in the future”—64% of U.S. adults named big gov

ernment versus 24% for big business.

However, as strongly suggested

by a front-page Wall Street Journal story “Rising Anxiety: What Could

Bring 1930s-Style Reform of U.S. Businesses?,” public support for cor

porate America has seriously suffered because of corporate scandals and

the accompanying meltdown of stock values.

By more than two to

one, the poll’s respondents said the administration was more interested

in protecting the interests of large companies than those of ordinary

Americans.

Nevertheless, business has been succeeding in two areas that could

move it closer to marketplace dominance of economic affairs: (a) dereg-

ulating more industries and relaxing antitrust laws to allow greater

concentration of business, and (b) pushing for greater privatization of

government enterprises and activities. Although there has been a pause

after the corporate scandals, business has succeeded in both areas.

More Deregulation and Lax Antitrust Laws

The move toward greater deregulation of business has been a major cor-

porate objective, as demonstrated by Enron’s successful deregulation of

the energy industry. However, the publicized excesses of Enron and oth-

ers in causing the California energy crisis has convinced, if not forced,

Congress and the White House to support more regulation. Reform leg-

islation was the answer to these doubts. First, the long awaited cam-

paign finance reform bill (discussed in chap. 11) was passed, largely

because of disclosures of Enron’s reckless wielding of political influence.

Evidence had mounted that corporate campaign contributions led to ex

cessive deregulation in the energy and telecom industries. Second, the

Sarbanes-Oxley bill was passed to correct the systemic weaknesses ex

posed by the scandals. President Bush had no choice but to sign both

bills. At stake was public confidence in the American business system

and his administration. (Chapter 14 discusses the scope of these bills and

what business must do to reach a better balance of power with govern

ment so that public confidence in business will revive.) The big question

is whether this reform legislation will satisfy the public or whether a

fourth wave of antibusiness legislation is beginning, similar to several

previous waves since the end of the 19th century.

Lenient antitrust action has led to greater concentration of business.

With greater size, large corporations have been able to increase their po

litical as well as economic power. As commented on by Robert Reich, for

354 I CHAPTER 13

mer Labor Secretary in the Clinton administration, the real danger of

the new corporate giants is not their power to raise prices but to raise

political money.

This power adds to the triple advantage of corpora

tions of “extraordinary sources of funds, organization at the ready, and

special access to government,” said Scott Bowman. “Corporate execu

tives regularly exploit their privileged status and connections.… They

out-organize, they out-spend, they out-lobby, and they out-maneuver

their opposition.”

The pace of economic concentration has been quickening. In 1998,

mergers and acquisitions in the United States reached a high of $1.613

trillion, a 78% increase from the previous year. Blockbuster mergers

punctuated 1998: Travelers Group and Citicorp ($70 billion), Daimler-

Benz AG and Chrysler ($38.3 billion) , and Exxon and Mobil ($80 bil

lion).

The year 2000 started with the announcement of the biggest

merger of all: AOL’s acquisition of Time Warner for $156.14 billion.

Government lawyers and economists at the FTC and the Justice Depart-

ment’s Antitrust Division were overwhelmed. Although between 1991

and 1999 the number of merger proposals to be reviewed tripled—from

1,529 applications to 4,642—the number of FTC staffers barely in-

creased, from 313 to 347.

As pointed out in chapter 1, the significance of rising economic con-

centration of business is that it enables corporations to increase their

political power. The income and wealth resulting from economic con-

centration has helped big business enormously by enabling it to convert

economic power into political power. Money allows corporations to buy

the best lobbyist available; to make large political campaign contribu-

tions; to aid philanthropic organizations and their causes; to hire the

most talented public relations and public affairs professional to imple-

ment their proactive media relations strategies and other means, such as

advocacy advertising, to win public support; and to hire organizations

that mobilize public support and thereby compensate for its relative

lack of people power.

Creeping Privatization—Including the Military

The privatization movement—the selling of government assets and the

transfer of some traditionally government services to business—is a

wholesale change that restructures the relative strength of the public

and private sectors of society. It is a long-term means of shrinking gov

ernment and growing the private sector. Privatization is a barometer of

corporate success in strengthening marketplace economics and, indi

rectly, a measure of growth in corporate power.

In Britain, where a mixed economic system of free enterprise and so

cialistic industries existed after World War II, privatization led to the

growth of marketplace economics and strengthening of the private sec

tor, especially after Margaret Thatcher became prime minister in 1979.

ASCENDANCY OF CORPORATE POWER I 355

In the United States, there have been fewer government assets to trans

fer. One of the most prominent public corporations, created in 1933, is

the Tennessee Valley Authority (TVA). It was authorized to develop and

control the Tennessee River and its tributaries for several purposes: flood

control, the improvement of navigation, the generation of electric

power, and the creation of recreational opportunities.

Some members

of Congress would now like to see the TVA privatized. A more recent

candidate for privatization is the government’s uranium-enrichment

operations. To facilitate this possibility, Congress turned the agency that

ran the operation into an independent government-owned corporation,

called U.S. Enrichment Corporation.

Another form of privatization is when government subcontracts gov

ernment services to private companies. For example, in the United States

73% of local governments use private janitorial services and 54% use pri

vate garbage collectors. Prisons have been built and run by private com

panies; for example, in 1998 roughly 1 in 20 federal inmates was in a

for-profit prison.

The Internal Revenue Service has also started to

outsource debt collection to private firms, which it is authorized to do un-

der the American Jobs Creation Act passed in October 2004. When fully

running, private collectors will handle an estimated 2.6 million cases a

year. Critics foresee two problems: that call-center workers will not know

the law as well as IRS personnel and that they might overstep their

bounds by suggesting they have enforcement powers.

The subcontracting that has recently received the most attention is

the Pentagon policy of freeing troops for purely military missions,

which has triggered a boom in the outsourcing of work to private con-

tractors. Defense Secretary Donald Rumsfeld argues that the Army

should focus on what it does best and contract out the rest. Private con-

tractors have become a permanent part of the military machine, doing

everything from providing food services to guarding top U.S., Iraqi, and

Afghan officials.

P. W. Singer, a fellow at the Brookings Institution and author of Corpo

rate Warriors: The Rise of the Privatized Military Industry, estimates that

privatized military services constitute a $100 billion industry with sev

eral hundred companies operating in more than 100 countries. In the

United States, the big five private military contractors are Kellogg

Brown & Root (Haliburton), Fluor, Parsons, WashingtonGroup Interna

tional, and Perini. The extent of privatization is difficult to assess be

cause no central registry of contracts exists.

Singer estimates that private military contractors provide as much as

30% of the military’s services in Iraq—including reconstruction. Besides

feeding and housing troops, to which there is little objection, they em

ploy about 20,000 security workers; they train American troops; they

restore Iraqi policing; and they recruit police, pilots, and bodyguards for

overseas work funded by the U.S. government, including the guarding

of Afghan president Hamid Karzai. DynCorp International, a Texas

company with a $1 billion contract, is the largest security provider. The

356 I CHAPTER 13

contractors also maintain sophisticated weapons systems, because mili

tary technology is changing so quickly that the armed forces have to

call in technical support from civilians.

Furthermore, the sensitive task of interrogating prisoners at Abu

Ghraib prison was shared by military personnel and two private con

tractors: CACI International and Titan. Former Rear Admiral John D.

Hutson, now dean of the Franklin Pierce Law Center, expressed opposi

tion, saying, “I have a problem with people carrying weapons in an of

fensive way. And I have a serious problem with people in sensitive

positions, like interrogators.”

A special problem is that U.S. law and

international law have yet to catch up with the pervasive use of civilian

contracts supporting the military on the battlefield.

They aren’t sub

ject to court martial under the Uniform Code of Military Justice because

they aren’t members of the uniform military. Furthermore, contractors

appear to be operating with little or no supervision.

Even as many military functions are being outsourced, there will be

continuing debate over which activities associated with national de-

fense, considered a core government function in the U.S. Constitution,

are suitable for privatization. In the case of airport security, duties pre-

viously performed by the private sector were nationalized because of

national security considerations. The private sector had lost the confi-

dence of Congress because the 9/11 terrorists managed to pass through

security gates without any difficulty. Apparently, one side effect of 9/11

is that government was again in favor with the public as it dealt with

terrorism.

Nevertheless, a special privatized feature may be added to airport se-

curity: a Registered Traveler program that gives select preregistered air

passengers access to special security lines. Although the Homeland Se-

curity Department’s Transportation Security Administration initiated

the idea, private interests such as Verified Identity Pass in partnership

with Lockheed Martin are interested in running and marketing the pro-

gram. The select passengers would pay between $50 and $100 for mem

bership. Privacy advocates fear that passenger privacy would be further

invaded and that although the program is voluntary, more harassed

passengers might feel compelled to join the program.

POWER OF INTEREST GROUPS FLUCTUATES BUT ENDURES

Activists and noncorporate groups in society typically fret about their

relative political weakness in comparison with corporations, but their

power remains formidable. Taking the dark view, Beder argues that big

business has taken control of the democratic process so that it is now

dominated by corporate power rather than public opinion. She de

scribes how a unified business coalition defeated the Clinton adminis

tration’s health care reform efforts and succeeded in the passage of the

North American Free Trade Agreement (NAFTA). An important factor

ASCENDANCY OF CORPORATE POWER I 357

in both of these achievements was the high degree of cooperation

among different firms and industries, in small business as well as by

Fortune 500 companies.

Business spent between $100 million and

$300 million opposing the health care reforms—more than total

spending by all the presidential candidates in 1992.

Obtaining ap

proval for NAFTA cost business over $25 million in one of the largest

concerted PR and lobbying campaigns conducted by the Mexican gov

ernment and U.S. business.

Beder’s assessment, however, is overstated. Public membership in

various groups fluctuates, but they remain viable. Many public interest

organizations have faced a gradual decline in membership in the past 10

to 15 years. Common Cause, for example, shows a 7% drop in total reve

nue between 2000 and 2001, from $9 million to $8.4 million. However,

the group intends to continue to wage battles on such issues as whis

tle-blower protection and a push for free airtime for candidates.

Major

public interest groups are far from being powerless, as illustrated by

two groups: environmental and labor unions.

Environmental Groups

Major environmental groups have maintained their power and have

been able to influence both public policy and industry practices. At a

minimum they have been able to call public attention to attacks by both

government and corporations on existing environmental laws; more

ambitiously they have been able to make incremental improvements in

public policies when political conditions are favorable. Also important is

that environmentalists are slowly convincing corporations that accep-

tance of sound policies like sustainable growth is good for both the envi-

ronment and business. Collaborative efforts are producing results.

Those who had hoped the environmental movement would reach some

kind of maturity point and the end of its life cycle have been proven

wrong. Environmental disasters rekindle public interest in the environ

ment and strengthen the movement.

Political Arena. In the political arena, corporate successes have

largely depended on which political party is in power. Lobbying, along

with campaign contributions, play an important role—as they do for

environmental groups. Even when a Republican president, George Bush,

was in office, the auto industry suffered a resounding defeat when the

Clean Air Act Amendments were passed in 1990. These amendments

imposed strict deadlines on states and industry for compliance with na

tional air quality standards.

Another failure was the inability of sup

porters of the Republican initiative, Contract With America, to rewrite

environmental laws. The continuing policy dispute over global warm

ing shows although the business view has thus far prevailed, environ

358 I CHAPTER 13

mentalists are winning some arguments, even among some business

executives.

Environmentalists have also prevailed thus far in prevent

ing drilling in the Arctic National Wildlife Preserve.

Under George W. Bush’s administration, environmental policies be

came considerably more favorable to business. The aim has been to find

ways to ease what the administration considers excessive regulatory

burdens on business. Utilities, and their allies the coal producers, fared

exceedingly well. A Wall Street Journal article, “Mercury Issue Takes

Wing,” describes how the Clinton administration’s costly directive to

sharply reduce mercury emissions by requiring expensive equipment at

each of the nation’s 1,100 largest power plants was replaced by a more

modest plan. Mercury would no longer be regulated as a hazardous pol

lutant. The plan would require smaller reductions in emissions over a

longer period of time. It would also call for a market-based system that

would allow dirtier utilities to buy pollution credits from cleaner ones.

New appointees, all of whom worked in cases defending business

against EPA regulations, helped produce this change. Jeffrey Holmstead,

who represented GE in its legal battle with the EPA on the cleanup of the

Hudson River, became the top official in the EPA’s air-policy office. One

of his aides was James Connaughton, who headed the White House

Council on Environmental Quality under the first president Bush and

was on the legal staff of Latham & Watkins, a firm that represents cor-

porations in environmental disputes.

Environmentalists also lost out to other industries during the Bush

administration. In 2002, the automobile industry successfully fought

off the environmentalists’ objective of raising the Corporate Average

Fuel Economy standards (CAFÉ). The timber industry also gained a vic-

tory when the Bush administration decided to widen its planned over-

haul of a Clinton-era timber plan protecting millions of acres of Pacific

Northwest forests. No longer would federal land managers have to take

into account certain impacts on threatened fish habitat when they con

sidered timber sales.

In November 2003, BusinessWeek gave this scoreboard on the Bush

administration’s environmental record:

• Air quality: “The Bush plan will result in cleaner air—but not as

clean as the greens would like.”

• Water: “A big chunk of the nation’s wetlands, streams, and rivers

could be threatened. But little has happened yet.”

• Public lands: “The cumulative impact will be much less land.… It

could literally change the landscape.”

• Climate: Fred Krupp, president of Environmental Defense, is

quoted: “Looking forward, whether or not the President remains

in denial on global warming will have a dramatic impact on health

of the planet, on how the world views America, and on how envi

ronmentalists view Bush.”

ASCENDANCY OF CORPORATE POWER I 359

Environmental groups, especially large ones like Greenpeace and the

Natural Resources Defense Council, remain viable contestants in deter

mining public policy in political arena. Along with corporations, they

remain active in lobbying and electoral activities.

Corporate Practices. Equally important to political successes and

failures has been the growing influence of environmental groups on

business practices. One of the most remarkable changes in company at

titude is by the country’s top coal-burning utility, American Electric

Power. Whereas it once fought the idea of combating climate change, in

the late 1990s, the then-CEO E. Linn Draper, Jr. convinced the company

that instead of denying that global warming existed, it would prepare

for limits. Besides trying to accumulate credits for cutting CO

, it has

been exploring ways to burn coal more cleanly, investing in renewable

energy projects in Chile and retrofitting school buildings in Bulgaria for

greater efficiency. Scores of other companies have also been taking ac-

tion and seeing big benefits. Among them are DuPont, which has cut its

greenhouse-gas emissions by 65% since the 1990s; Alcoa, which is aim-

ing at a 25% cut by 2010; and GE, which is spending millions to develop

hydrogen-powered cars that don’t emit.

GE’s strategy is to dominate

the market for renewable-energy technologies. Its new $52 million re-

search center near Munich, Germany, will work on hydrogen fuel cells,

wind turbines, biomass fuels, and photovoltaics based on polymers.

A PricewaterhouseCoopers survey of 140 large U.S. companies finds

that the vast majority are moving to adopt environmentally cleaner and

“sustainable” business practices. Box 13.1 describes some of them, even

though 72% of the respondents say intentions are not yet followed

through in a “systematic manner.”

These business initiatives show that the environmental message is

getting through. However, collaboration has its limits. GM, which co

operated with CERES in reducing pollution at some of its factories—and

saved on energy costs and precluded expensive government-mandated

cleanups—nevertheless opposed environmentalists on the CAFÉ stan

dards that a Senate proposal sought to raise. Gas-guzzling SUVs and

pickups were simply too profitable to give up because of environmental

concerns. As Elizabeth Lowery, the company’s vice president for envi

ronment and energy stated, “We make cars and trucks, and we … run a

business.”

Despite disagreements when economics and environment

clash, some companies are “talking,” and environmentalists are

increasingly working directly with big corporations.

Conflicts between environmental groups and corporations will un

doubtedly continue in both the political arena and in confrontations or

collaboration between specific groups and specific industries and corpo

rations. Some corporations may seek dominance over environmental

groups but there is a rising realization that the consequences of environ

mental decisions are too great to be left to any notion of “victory” over

opponents. Consensus is growing among scientists, government, and

360 I CHAPTER 13

361

Box 13.1 Examples of Improved Corporate Environmental

Practices

1. ForestEthics, a San Francisco environmental group, was active in a

campaign to turn Home Depot and Lowe’s into supporters for

so-called green forest practices. These lumber retailers had been car

rying wood from ecologically rich ancient forest.

Home Depot, the nation’s largest wood retailer, which sells more

than $5 billion of lumber, plywood, doors, and windows a year, vowed

to stop selling wood from environmentally sensitive forests by the end

of 2002. On January 2, 2003, it delivered a report to more than 20 en

vironmental and government entities detailing its efforts. Rainforest

Action, a San Francisco-based group that led protests at Home Depot

stores 3 years previously, gave the company a solid B. The group

wants Home Depot to push their top suppliers out of the old-growth

wood trade.

ForestEthics next targeted paper retailers like Staples. One accom-

plishment: Staples distributed a letter to store customers that states,

“We work closely with our vendors to insure they do not sell Staples any

products made from old-growth forest.” The company, however, ad-

mits, “we have to take on good faith from our suppliers that they’ve re-

sponded accurately.” ForestEthics contends that Staples will carry

papers that include wood fiber from three “old-growth forest regions”:

the Canadian boreal forest, the interior of British Columbia, and Indone-

sia. Paper firms are gearing up for a public relations battle as activists

continue to exert pressure to place certain areas off-limits to logging.

2. Business has warmed up to the idea that factory waste water can be

reduced and made clean enough to drink and that toxic-free products

can be manufactured. Ford CEO William Clay Ford, Jr. hired a leading

guru of green growth, Bill McDonough, to lead a $2 billion renovation

of its Ford Rouge plant outside Detroit. Ford looked at it as “sound

business” rather than “environmental philanthropy.” Another com

pany, Steelcase, hired McDonough and his partner Michael Braungart,

a top European chemist and a founder of Germany’s Green Party, to

make an ecologically safe fabric for its subsidiary Designtex. They

managed to create a fabric that is so free of toxins that you can eat it!

(But showing business reluctance to deviate from past practices, the

only chemical company out of 60 invited to join the project was

Ciba-Geigy.) Nike is another convert. “It makes sneakers virtually free

of PVCs and is developing one that can biodegrade safely into soil,”

reports BusinessWeek. McDonough believes companies can in such

ways innovate their way out of regulation. In their book, Cradle to Cra

dle, McDonough and Braungart say that their eco-effective strategies

can take the sting out of such new regulations as the European Un

ion’s “end-of-life” legislation, which requires auto makers to recycle or

reuse at least 80% of their old cars by 2006.