How and when should companies get involved in the political process?

What are the political responsibilities of corporations? They should not be confused public responsibilities. Milton Friedman addressed the latter famous essay written half a century ago. say, engages in open and free competition without deception or fraud.’

But what about? political responsibility? What are the obligations of companies to participate in political processes? The same essay provides some clues to Friedman’s thinking. First, he made it clear that it was the corporate leaders no act as a “legislator, executive, and lawyer” using corporate resources to “control inflation, improve the environment, fight poverty, and more.” He noted that we have “developed constitutional, parliamentary and judicial provisions” to control these functions.

Second, Friedman made it clear that businesses must “stay within the rules of the game” in order to make a profit. Presumably, he was referring not only to rules about “fraud or fraud” but more broadly to rules that call for respecting property rights, honoring contracts, and avoiding negligent behavior toward employees and customers.

So far so good. But this leaves one important question unanswered. who makes the rules? Or more specifically, who decides how broad rules like property rights and open competition apply to specific cases like environmental protection or rail safety or some other issue? Although Friedman didn’t quite come out and say it, he hinted at a division of labor in which government is left to make the rules, while corporations go about making profits as they see fit within the rules.

They don’t work that way, though, today or maybe ever. Instead, we find corporations up to their elbows in the rulemaking process at every level. They contribute to the campaigns of elected officials, lobby regulatory agencies, and do what they can to influence the selection of judges. The result is a system where businesses themselves are often the first to set the rules. When business writes the rules, bad things happen. Companies can manipulate regulations to hinder their competitors. They can give themselves tax breaks or increase their profits at the expense of public safety and the environment. Economists throw around terms like “rent-seeking” or “state capture,” but whatever we call them, this corporate behavior erodes faith in government and the democratic process.

It would be simplistic to call for a return to a strict division of labor, where corporations go about their business and leave the rules to government. First of all, there was never such an arrangement that we could go back to. Moreover, the right to petition the government for redress of grievances is written in black and white in the Constitution, and that right extends to citizens as entrepreneurs and corporate leaders. We need something more subtle than division of labor. We need a set of principles that guide and evaluate business participation in politics.

Recently, the Erb Institute at the University of Michigan released just such a collection Principles of corporate political responsibility (CPR). They’re not the first attempt to do this, but they’re certainly more comprehensive than anything to date. Although they are not a silver bullet, the principles have the potential to make a significant contribution, both by clarifying the meaning of political responsibility and by providing a benchmark for determining who acts responsibly and who does not.

Erb CPR principles do not take sides in the debate public responsibility. They are designed to appeal equally to the staunchest Friedmanite and the most progressive advocate of corporate ESG. What they do is set some broad guidelines for the political activities of corporations, regardless of their views on the primacy of shareholders and stakeholders.

The Erb CPR principles have three components.

The first is a broad definition of political activity. Their definition goes beyond political spending from corporate coffers to include lobbying, participation in the development of laws and regulations, support for nonprofit organizations, and participation in all forms of public discourse.

Second, the CPR defines four criteria for evaluating political action: It is the main standard responsibility, which is defined as compliance with the rules of fair market play. That means companies have a responsibility to compete based on the price and quality of their products, not by tweaking laws and regulations in ways that hurt competitors. And their political participation should not undermine this responsibility of healthy competition. They are also expected to respect established science, a duty that is especially important when it comes to issues such as climate change and limiting exposure to hazardous chemicals.

As part of their overall commitment to political responsibility, corporations that sign the Erb Principles are expected to commit to three additional specific standards.

Legitimacy means that political activity reflects the views of the company, not individual managers or officials; that they comply with relevant laws; and that they do not pressure employees, shareholders, or other stakeholders to take positions they would not voluntarily approve.

The next one is coming responsibility, which means aligning political activities, including actions taken through trade associations and other third parties, with the company’s stated commitments, goals and values. A company should not say one thing and quietly support another.

Is the final standard transparency, which means open and honest communication about corporate political activities, including the provision of good faith information and expertise to all levels of government as needed to support effective policymaking.

Erb’s principles, of course, do not have the force of law. However, they include clauses that ensure they are treated as little more than a blank statement that can be signed and forgotten. For this reason, Erb requires corporations that join in supporting his principles to formally adopt one of three policies: CPA-Zicklin Model Rules of Conduct for Corporate Political Spendingis Global Responsibility Initiative Standard 415 on Public Policy, or a publicly stated policy prohibiting the use of corporate treasury funds for election-related expenditures. Each of these requires the company to take specific, observable measures to support CPR.

In general, the Declaration of Principles and the specific governance measures that support them offer a set of objective standards against which corporate political activity can be judged. Suppose, for example, that a fossil fuel company campaigns for state lawmakers who promise to make it harder for competing clean energy providers to build transmission lines, or that a transportation company lobbies for lax safety standards that would protect it from lawsuits. negligence, or that the fast-food chain is participating in the development of regulatory rules that would make it easier to block workers from taking new jobs with competitors. These are not fictitious cases. Can they be judged on the criteria of responsibility, legality, accountability and transparency? If not, then the companies in question can at least be called for violating the rules of the game, not only publicly, but also by their own shareholders.

The balance between free market capitalism and constitutional democracy is always a delicate one. CPR principles can help to harmonize the two and allow for a much clearer dialogue about the participation of companies in the democratic process. When corporations behave irresponsibly, illegally, unaccountably, and opaquely, capitalism and constitutional democracy are effectively at war. Without a ceasefire, there will be mutual assured destruction.

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