By Doug Pinkham
Public Affairs Council President

January 6, 2011

Large, diversified companies - especially those that are tightly regulated - are more likely to be politically active, right?

While everyone in public affairs knows this to be true, it took a major study analyzing 78 research projects on corporate political involvement to prove the point. What's newsworthy is that the study, "Mixing Business with Politics: A Meta-Analysis of the Antecedents and Outcomes of Corporate Political Activity," made another important conclusion - firms become more profitable when they become politically active.

In the study, published in this month's Journal of Management, researchers at the University of Tennessee (Knoxville) and the University of South Florida say companies that lobby or contribute to political campaigns "enjoy about 20 percent higher performance."

The authors conducted a "meta-analysis" of studies from the past 40 years to identify reasons why businesses are politically active, including a company's size, level of regulation, amount of government sales and extent of foreign competition.

The study creates a profile of companies most likely to be involved in politics. In addition to the characteristics listed above, the study also concludes that:

• Firms facing foreign competition are not more likely to use lobbying and campaign contributions to push for protectionist policies. The authors suggest that both the business community and government have increasingly embraced "free-market perspectives."
• Companies in rapidly growing and slow-growing markets show roughly the same levels of political involvement. The researchers had assumed that firms in mature industries would put more resources into public affairs because they had fewer options for capital investment, while high-growth companies would devote fewer resources. But that's not the case.

As companies expand, cope with new regulations and increase their business dealings with government, they strengthen their public affairs capacity. It's clear that CEOs understand this is important to their firms' success.

Perhaps I should end this post now so we can all feel validated by our friends in academia. But then you wouldn't get the full story.

It seems the view that corporate political involvement is inherently corrupt has become such a powerful media narrative that academics are using it to draw attention to their research.

A press release on the study from the University of Tennessee (Knoxville) notes that its findings are more relevant than ever because of the U.S. Supreme Court's decision in last year's Citizens United case.

"There will be more corporate political activity because donations will be subject to less scrutiny and transparency; thus it will be more difficult to track down the source of corporate political activity," said T. Russell Crook, one of the authors. "Given this, we think that the Supreme Court ruling means that corporations and politicians will develop closer relationships than ever before."

Since the Supreme Court forbade corporations and unions from coordinating with candidates on independent expenditures for campaign advertising, it's a stretch to say that corporations and politicians will have closer relationships.

But Crook didn't stop there.

Policymakers, managers, journalists and citizens alike should be concerned when corporations step up their political involvement, he said. "We do not believe that this activity is illegal, but this activity constrains natural market forces and is thus undesirable. And with the new Supreme Court ruling, it is only going to get worse."

What got worse was the way the media reported on the "Mixing Business with Politics" study. As has been the case during the past 12 months, Citizens United was the hook that got the attention of news editors.

Scripps Howard News Service, for example, reported the study's key findings, but mischaracterized the impact of the court decision. "Before the Citizens United decision, corporate political spending was constrained by requirements that campaign donors be publicly identified," wrote reporter Roger Harris. (In fact, the Supreme Court upheld the constitutionality of disclosure and disclaimer rules.) He then quoted shareholder activist Bruce Freed, who argued that political activity actually hurts profits. "Political spending does pose serious risks for companies," said Freed.

If you follow coverage of corporate public affairs in the national news media, these are familiar narratives. And given the level of public distrust for politics and corporate America, they are not surprising.

But they do make one wonder what the story would have been had researchers concluded that political involvement was a total waste of money, rather than a strategy for business success.

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