Hiding in the Crowd: Firms’ Lobbying Tactics when Stakeholder Scrutiny is High

• In Event: Business Influence around the World

Abstract

Consumers, investors, and employees increasingly scrutinize firms’ political conduct on salient topics, such as environmental protection, labor rights, and data protection. This paper explores how firms may adjust their lobbying strategy in response to this pressure.

By developing a formal model of virtue signaling by firms, I argue that stakeholder pressure may lead firms to adjust how they lobby. Specifically, those with popular positions may choose to lobby directly. In contrast, those with unpopular positions may lobby through a business association, such as the Automobile Manufacturers Association or the US Chamber of Commerce. Associations can provide a veil of anonymity, as it is difficult to attribute a specific policy position to an individual member. Among other findings, I show that this logic can lead to a sorting equilibrium, in which firms with unpopular positions dominate within associations and those with popular positions lobby individually. This sorting could help explain the otherwise puzzling observation that associations often appear misaligned with individual industry members on salient issues, such as climate policy.

I then empirically test whether firms get blamed less when they lobby through an association by examining the case of climate policy in Europe. I describe how newspapers talk about individual firms’ and associations’ lobbying through quantitative text analysis of German and English language media reports. Further, I use a survey experiment among German consumers, retail investors, and environmental activists to test how stakeholders attribute blame.

Author

• Christina Luise Toenshoff, Stanford University