Political Contributions by Corporations: Political Influence Is For Sale - Essay Example

Political Contributions by Corporations: Political Influence is For Sale Introduction That political contributions are made by corporations is beyond question; the more interesting issues concern whether corporations expect certain favors in return for such contributions, whether certain favors are in fact granted, and the implications for the American public. A careful examination of Enron and its political involvement through the mechanism of political contributions would appear to suggest a number of fairly reliable conclusions. First, Enron expected a variety of favors and preferences, both domestically and internationally, and these favors ranged from the deregulation of energy to political appointments. Second, the evidence suggests that in many cases the desired political favors have been and are granted. More specifically, the data demonstrates a correlation between political contributions and benefits allocated among corporations. Finally, with respect to the effect of this link between political contributions and favors granted, the literature suggests some positive characteristics as well as some negative characteristics. Some corporations, for instance, have been granted special access to international markets that generates profits and some employment benefits for Americans whereas some corporations have abused the benefits conferred upon them to the detriment of Americans more generally. This paper will examine the case of Enron because this case is illustrative of the many issues surrounding political contributions by corporations; to be sure, the Enron case is one of extremes, not experienced in all cases, but these extremes demonstrate the dangers inherent in unregulated or poorly regulated systems for dealing with political contributions by corporations. In order to better understand these dangers, this paper will discuss the conceptual framework through which political contributions are made, the factual background of the Enron case, the outcomes that resulted from Enron's political contributions, and the fundamental ethical issues implicated as well the consequences for Americans individually and collectively. To be sure, there is much to be learned from the Enron debacle. Topical Focus: Purchasing Influence From a conceptual framework, scholars have approached connections between corporations and politicians in a variety of ways. Some, for example, have examined how connections to politicians affect a corporation's underlying valuation or stock prices (Faccio and Parsley, 2006). The research has found a correlation between certain connections, whether in the form of lobbying or direct political contributions, and this data is well-known by corporations and corporate decisions makers. Because the value of stock prices can be sustained or increased, to some degree, by pursuing political connections, corporate executives are keen to align themselves with some or many politicians. In addition, scholars have also approached the connections between corporations and politicians by noting which corporations have been bailed out with government funds during periods of economic distress, and the extant of the political contributions made by these bailed-out corporations; interestingly enough, the data demonstrates that corporations with stronger political connections, whether in the form of lobbying or political contributions, are more likely to receive governmental bailouts than corporations with less substantial political connections (Faccio, Masulis, and McConnell, 2006). Two other areas of inquiry, of particular relevance in the Enron case, are how connections between political contributions by corporations to politicians affect its export business and its corporate sales through government contracts (Agrawal and Knoeber, 2001) as well as the ability of such corporations to secure certain tax benefits at the state or federal level (Gupta and Swenson, 2003). A review of the literature, therefore demonstrates that there are many important reasons for corporations to establish relationships with politicians. As will be elaborated on below with reference to Enron, these political connections may be created with local politicians, state politicians, federal politicians, and even with political appointees. The benefits sought, and often achieved by the corporations are as varied improving stock values, securing different types of tax benefits, gaining access to export markets, being awarded lucrative government contracts, and even receiving preferential treatment regarding government bail-outs in times of local or national economic distress. What is fascinating about the Enron case is not any government benefit when viewed in isolation; quite the contrary, the amazing fact about Enron is that it was able to secure virtually every favor and benefit imaginable, from local and national politicians, through carefully calculated programs of lobbying, political fundraising, and political contributions. That, ultimately, Enron was denied a comprehensive federal bailout had more to do with the potential political repercussions to its political lackeys rather than anything else. In order to understand how Enron exploited the use of political contributions as an essential corporate tool, it is necessary to examine Enron's historical and philosophical use of political contributions. Enron Case Study: Factual Background and Outcomes Enron sought political influence, it did so through intensive lobbying and political contributions, and this purchased political influence conferred upon Enron a vast array of domestic and international benefits. Given the scope of the influence purchased, and the breadth of the benefits secured, it is almost impossible to overstate the magnitude of the debacle; indeed, as pointed out by Boje and Rosile, corporate management scholars at the University of New Mexico, Enron is more than tragedy; it is epic theatre. Epic theatre is not one narrator on one stage; it is a multitude of simultaneous theatric performances, collectively negotiated by inquiry participants (reporters, regulators, analysts), narrating while wandering in an unstable labyrinth of networked stages. Narrators of the Enron epic (in contrast to tragic) grasp together a wider cast of characters, interlace more historical incidents, and suggest broader systemic changes to capitalism and democracy (2003: 2). The "multitude of simultaneous theatric performances" referred to relates specifically to political connections; more particularly, Enron's corporate executives planned and executed deliberate fundraising, lobbying, and political contribution programs as an integral part and cost of the corporate business. Enron had grown from a small energy services company to become the seventh largest corporation in the United States of America; as a consequence, its ultimate bankruptcy became the largest corporate bankruptcy in American corporate history. The main focus of this essay, the relationship between a corporation's political contributions and benefits received from those politicians, helps explain how a small Texas corporation was able to achieve such drastic growth; it also helps to explain why this growth was unsustainable. At the federal level, Enron was involved in fundraising and making political contributions for two decades before it collapsed; it was intimately involved, for instance, in the election of George H. W. Bush. The relationship originated while Bush was still Vice-President and Enron's Chief Executive Officer, Kenneth Lay, increasingly ventured to Washington D.C. regarding issues of natural gas and energy policies and regulation. Early on, Lay organized thousand-dollar-a-plate dinners to raise funds for Bush Senior, he invested in George W. Bush's early oil business, and Lay as well as Enron made political contributions (Phillips, 2004: 155-156). At that time, in the early to mid-1980s, Enron was not one of Bush Senior's top one hundred donors; however, Enron was beginning to learn how to purchase political influence and they had specific favors and benefits in mind when engaging in fundraising efforts and making political contributions. The specific outcomes sought by Enron, in the beginning, as outlined by Phillips, included Ambitions to make Enron into the first great international utility, pipeline, and trading company, and energy company that involved three initial objectives: (1) negotiating and then constructing a huge electricity cogeneration plant in England (Teeside), where the Conservative government of Margaret Thatcher was deregulating gas and electricity; (2) arranging chemical and pipeline contracts in Argentina; and (3) opening up access to loans and insurance from the World Bank, the U.S. Export-Import Bank, and the Overseas Private Investment Corporation (OIC) (2004: 156). Enron's behavior is consistent with the theoretical and conceptual frameworks mentioned hereinabove relating to giving of political contributions. First, Enron held fundraisers and made political contributions to a presidential candidate, Bush Senior, whom they thought would best be able to help them attain very specific domestic and international objectives; significantly, in the beginning at least, Enron was not even a top one hundred donor and yet they secured all of the aforementioned objectives. Enron was granted the chemical and pipeline contracts by Argentina after Bush Senior intervened personally during negotiations; in addition, they secured "$56 million in loans and insurance for a chemical plant in Argentina. Ratification of a project by OPIC's board of directorssent an important signal to the private sector financial markets: Enron had government backing (It would in fact become one of OPIC's biggest clients)" (Phillips, 2004: 157). Enron also secured the electricity plant rights in England and, in a short time, gained access to loans and insurance by the World Bank and other sources of financing. The lesson is sobering. It is sobering because, despite not being a top donor of political contributions at the time, Enron still managed to accomplish all of its initial major objectives both domestically and internationally. Enron increased its fundraising activities and made more political contributions. In turn, it secured more corporate benefits. Enron influenced the Energy Act of 1992 in significant ways, it persuaded Bush Senior's administration to twist India's arm to gain electricity concessions in India, it was chosen to organize a G-7 Summit in Houston, Texas, Kenneth Lay was named to the President's Export Council, and Enron started whispering about energy and utility deregulation in the United States of America (Phillips, 204: 157-158). A modest beginning had been transformed into unbelievable corporate benefits. Eventually, with Bush Senior's first term winding down, Kenneth Lay was named a co-chairman of Bush's reelection committee and Enron donated more than $250,000 to Bush in addition to organizing fundraising. Bush lost, which led to another step in the evolution of Enron as a political contributor. This step involved diversification of political contributions both in terms of party and in terms of political allegiance. In short, everyone was eligible for a part of Enron's growing wealth so long as they advocated policies and legislation in Enron's favor. Having seen its influence diminish with Bush's defeat, Enron became determined to cover all possibilities in order to maintain leverage and influence in the political process. To this end, as noted by McCoy, Washington wasn't the only place Enron flexed its political muscle. The energy-trading giant, whose sudden fall from Fortune 500 to bankruptcy court protection has set a benchmark for corporate collapses, doled out campaign contributions to state officials and candidates from coast to coast as the company battled for local deregulation laws. The spending, directed to Republicans and in lesser measure to Democrats, totaled at least $1.88 million since 1998, according to an analysis this month by the National Institute on Money in State Politics the study showed Enron gave to candidates in at least 32 states the past three years. The dollar and recipient totals are almost certainly higher, because the data don't include every state nor the most recent contributions (2002: n.p.). Again, the methods, the goals, and the outcomes were predictable and based upon prior practices and experience. What was new was the scale of the political influence being purchased, the scope of the politicians willing and ready to accept political influence in exchange for favorable treatment on issues of importance to Enron, and the unprecedented speed in which Enron became America's seventh largest corporation from a minor concern fairly recently. Enron made political contributions to Republicans and Democrats alike; Enron made political contributions to local and state politicians in states and regions where Enron sought energy and utility deregulation legislation; and, Enron was involved in federal elections as well as elections in more than thirty two states. The corporation's efforts were truly pervasive and staggering in historical and financial terms. Similarly, the outcomes were also predictable. Enron got, for the most part, exactly what it wanted. Energy was deregulated in many states, including California, and legislation and political appointments influenced by Enron's needs and desires. Enron even began to bend the rules governing political contributions in order to maintain its influence. In Nevada, for example, citizen groups began to express concern that corporations like Enron were exerting too much influence on local politics to the detriment of local and state interests. Nevada state law imposed limits for making political contributions with respect to elections in Nevada; Enron, however, found ways to circumvent these laws. As noted by Vogel, While state law does not allow PACs to contribute more than $10,000 to a candidate, Morandi said the law permits political parties to form as many PACs as they want. David Brown amassed $62,119 because he collected $10,000 donations from two Republican organizations, $9,800 from a third and lesser amounts from others. During a news conference, alliance leaders said that Reliant Energy and now-bankrupt Enron contributed most of their combined $47,000 in contributions after legislative candidates won their 2000 races. Both companies then had plans to build power plants just north of Las Vegas (2002: n.p.). Thus, not only did Enron make political contributions directly, but it also manipulated and skirted election rules and regulations. They arranged for multiple political action committees to be established so that they could make even greater political contributions, the desired outcome was permission to build power plants, and the scheme was working until Enron's bankruptcy. Even a gentle reading of the literature and the evidence is damning. Both Enron and the politicians engaged in a sort of private commerce, political contributions for political influence, that put private corporate interests above those of the people and the states. Politicians at all level were culpa able, from local political officials all the way up to the President of the United States. This raises ethical issues at so many levels that the problem would seem difficult to solve; after all, if politicians are willing to place the interests of private donors ahead of their own constituency then incentives would run against the public interest. Incentives need to be changed. In addition, corporations like Enron know that they can purchase political influence. About this there can simply be no doubt. The result is that corporations can increase shareholder value through political means rather than through traditional business practices. Where the foundation of a business is more politically-oriented than financially sound, it would appear that the corporation would be more vulnerable when exposed to economic realities. That Enron became bankrupt, under these circumstances, is hardly surprising. In the final analysis, Enron demonstrates the vulnerability of elections laws and systems in which political contributions made by corporations are not heavily regulated. The damage that can result is severe and pervasive. The interests of citizens, of municipalities, of states, and even of the country can be subordinated in order to satisfy the narrow ends of a single corporation. Sadly, as politicians make laws, it is highly doubtful that matters will change. References Agrawal, Anup, and Knoeber, Charles R. (2001). "Do some outside directors play a political role" Journal of Law and Economics 44, 179-198. Boje, David M. & Rosile, Grace A. "Life Imitates Art: Enron's Epic and Tragic Narration." Management Communication Quarterly, Vol. 16, No. X, 2003, pp. 1-41. Faccio, Mara, Masulis, Ronald M. & McConnell, John J. (2006). "Political connections and corporate bailouts" Journal of Finance. Faccio, Mara, & Parsley, David C. (2006). "Sudden deaths: Taking stock of political connections." Working Paper, Vanderbilt University. Gupta, Sanjay, and Swenson, Charles W. (2003). Rent-seeking by agents of the firm, Journal of Law and Economics 46, 253-268. McCoy, Kevin. "Enron's contribution trail looks like U.S. road map." USA TODAY January 27, 2002. Phillips, Kevin. "The Enron-Halliburton Administration" in American Dynasty: Aristocracy, Fortune and Deceit in the House of Bush, pp. 149-177. Penguin Books: London (2004). Vogel, Ed. "Soft money contributions thwart state law, group says." Las Vegas Review-Journal. January 29, 2002. Yu, Frank and Yu, Xiaoyun. "Corporate Lobbying and Fraud Detection." New York University Stern School of Business Discussion Paper, August, 2007. Retrieved August 4, 2008 Read More