Public Policy- Relevant Topic for Businesses

Introduction

In recent years, the political environment has become more complex and dynamic owing to increased political action by constituents (Oliver & Holzinger, 2008, p. 504). Since 1945, most Western European countries started integrating social partners, employers’ and workers’ organizations in policymaking. Magone (2001, p. 15) concludes, that these have become more heavily involved in the legislative process in the areas of employment and social policy, particularly at a supranational level. These interest groups seem to have a closer relationship to national governments in Europe than in the United States. Some of the most important characteristics include continuing consultation with relevant economic and social partners, so-called tripartite agreements. The three relevant partners are the governments, trade unions and main business organizations. This paper aims to discuss the importance of corporate political strategies, thereby focusing on European countries.

The remainder of this paper is structured in the following way. Firstly, the influences of corporate political strategies on firm performance are examined. Secondly, strategies that can be used to influence public policy are presented and evaluated. Next, corporate political strategies are put into a wider societal-political context. Lastly, the paper is concluded by answering the problem statement.

Influences on Firm Performance

Levering Uncertainties

“Because government policies have significant effects on the competitive environment of firms, many firms are expanding their efforts to affect public policy decisions” (Hillmann & Hitt, 1999, p. 825). Governments and government policies present significant uncertainties for firms. The economy is influenced by a variety of government policies and public goods provided by the government. Figge (2018, p. 4-5) gives a range of examples, these include competition policy and fines, regulation on markets, products services and pollution, fiscal policy, subsidies and taxation but also education, infrastructure and health, legislative power, law enforcement and dispute settlement and economic stability. Thoughtful strategic political management can help firms levering these uncertainties and improving their competitive advantage and performance. It goes without saying that business who do not understand the political environment may be at a comparative disadvantage. Oliver & Holzinger (2008, p. 496) describe firm relations to governments as a way to earn economic rents by leveraging firms’ strategic assets and competencies in their respective areas of concern. This can be done in a variety of ways, aiming for favorable policy decisions such as tax cuts, infrastructure programs, barriers to entry or the setting of price levels. Researchers continually argue that large firms seem to gain higher rewards from political strategies, partly owing to their larger financial resources but also their importance to national interests.

Interdependence between interest groups and decision-makers

Public policy is a complicated process with various parties involved at different stages. A variety of interest group promotes their ideas to policymakers. By working collectively towards a common goal, businesses try to secure their own interests in maintaining and creating value. However, public policymaking usually works by making compromises to various opinions. Firms are more likely to engage in political strategies when they view political issues as conspicuous. However, those advantages are not limited to the politically active firms but can be understood as interdependence. While businesses need to access the policymaking institutions, these bodies demand information relevant to decision-making. Individual businesses and organizations are capable of providing expert knowledge of the market environment and external factors affecting industries.

Means to Influence Public Policy

Dynamic Capabilities

Oliver & Holzinger (2008, p. 505) mention two means by which firms can take advantage of political opportunities; firms can either actively influence their political environment or can actively comply with public policies or regulations, trying to derive as much value as possible. Further, they argue that in an increasingly complex and dynamic political environment, dynamic capabilities may allow firms to capitalize quickly on political opportunities and to generate unique sources of economic rent in a changing public policy. Consequentially, a firms’ dynamic capabilities play a big role in determining the effects of political strategies on firm performance and competitive advantage.

Approaches to Political Action

Businesses can use a variety of political tactics to make their voice heard. These include but are not limited to lobbying, advocacy advertising, constituency building, financial contributions, and coalition formation. Hillmannn & Hitt (1999, p. 825) present a model of approach, participation and strategy decisions to political actions. Firms need to first decide on their general approach to political action. The authors distinguish between the transactional and relational approach. The two approaches differ in length and scope of continued activity and exchange. While firms using the transactional theory only build a strategy to tackle issues after a public policy issue is developed, in contrast, firms using the relational approach pursue long-term political strategies by building relationships. The authors (Hillmann & Hitt, 1999, p.829) further argue that the use of relational approaches is growing for domestic and multinational firms. The second decision concerns two levels of participation, an individual action which is understood as a singular effort by individual companies, or collective action which refers to collaboration and cooperation of two or more firms, in a trade or business association, in the public policymaking process. After having decided on the approach and participation, businesses must decide on the specific strategies and tactics to tackle the process. Hillmann & Hitt (1999, p. 833) present three different forms of participation. Firms can either use an information strategy which tackles the general public or alternatively the financial incentive or constituency-building strategy that both focus on the political actors in the policymaking process.

Lobbying as a Corporate political Strategy

Lobbying is often perceived as the most present corporate political strategy. Gu©guen (2007, p. 117) describes four strategic options in European lobbying. While lobbying and public policymaking are essentially not the same, the two terms are often used interchangeably. While negative lobbying strategies oppose, block and refuse policies, they do not propose any credible alternatives and are therefore doomed to fail. Negative lobbying is regularly used in industries that depend on heavy subsidies from the governments. Defensive lobbying strategies try to defend the advantages that were gained but oppose evolution in the legislation. Gueguen (2007, p. 122) further argues that if defensive actions last for too long they also lead to failure. Several European trade associations use reactive lobbying strategies. Common behavior includes waiting, taking no action, and having no strategy. The most successful strategy seems to be pro-active lobbying grounded in strong personal involvement, strong convictions and focus on results. Moreover, pro-active lobbying strategies can either be hostile or friendly, targeting different stages of the decision-making process.

Public Policy in Corporatist and Pluralist Environments

As described earlier in the paper, businesses must make several decisions while formulating their public policy strategies. One of the most important factors that has not been mentioned so far is the system of interest intermediation. Magone (2011, p. 486) distinguishes between neocorporatist, a well-regulated inclusive system in which social partners work with the government and pluralism, which provides less-regulated competition between interest groups, and lobbying is understood as a major way to win influence. European countries, which mostly promote neocorporatist systems, seem to have a closer relationship with businesses, compared to the United States. Businesses in pluralist countries usually use more aggressive ways of making their voice heard and gaining influence. Magone (2011, p.486) further mentions the European social model, which includes continuing consultation, between main business organizations, trade unions and the government. Consequentially, these organizations and social partners have become central to the continuous development and implementation of policies. As the European Union is trying to integrate and seek common agreements, corporate public policies aim more at European decision-makers, compared to national governments before. During recent years, the supranational level has become the preferred point of contact.

Conclusion

As could be seen in this paper, public policymaking is a very relevant topic for businesses. It goes without saying that government decisions represent significant uncertainties and therefore have severe effects on firm performance and behavior. Consequentially, businesses try to shape public policy by levering these uncertainties and earn economic rents. Businesses can either actively influence their political environment or actively comply with regulations. Hence, they can use a variety of political tools to participate in the decision-making process, where lobbying is by far the most known political strategy. Most European countries promote neocorporatist systems with close relationships with various interest groups. As the European integration deepened, corporate political strategies have moved from national to supranational levels. European institutions, in contrast to the United States, conduct very open conversations with businesses as these need input for effective policy-making.

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