Updated: Sep 18
Thomas Lyon is the Dow Professor of Sustainable Science, Technology and Commerce at Michigan’s Ross School of Business. He is the author of ‘CSR needs CPR: Corporate Sustainability and Politics’. Elizabeth Doty is the director of the Corporate Political Responsibility Task Force (CPRT) at the University of Michigan’s Erb Institute. Their research explores how businesses can engage responsibly with politics and society. In this article, they argue that trade associations like the Confederation of British Industry or the US Chamber of Commerce can play a constructive role in the political arena so long as they stick to the four guiding principles of Legitimacy, Transparency, Accountability and Responsibility.
Many would agree that in normal times, there is a sensible division of labor between business and politics. Business people take the “rules of the game” as fixed and work to provide better products and services within those rules. Politicians work to shape the rules of the game for the best interests of their countries and citizens. Each sector stays in its lane and focuses on what it does best.
There are two problems with this happy, simple view of things. First, companies seldom refrain from influencing the rules of the game when they see an opportunity for private gain, such as tax breaks, tariff exemptions, regulatory requirements that will burden rivals, or generous subsidies that may benefit an industry but undermine the promise of competitive markets. This is why there are factions across the political spectrum calling for business to stay out of politics altogether. Second, these are not normal times. We are nearing dangerous tipping points with respect to climate change, inequality, the stability of international organizations such as NATO, and public support for market-based democracy broadly. This is why other voices call for companies to step into the political sphere to help solve shared societal issues, and compensate for a government that has been unable to do so.
In light of these twin problems, business has entered a new and treacherous era in which it faces both powerful pressures to become more proactive and the risk of powerful backlash for doing so. A recent survey of companies by The Conference Board found that “Ninety-eight percent of respondents describe today’s political environment as challenging for companies, with 78 percent describing it as very or extremely challenging—up from just 47 percent in 2021.” The associated report, “Avoiding the Tragedy of the Commons: Improving the Political Environment for US Business,” recognizes that there is a great need for responsible corporate political engagement in support of a livable climate, a peaceful rules–based global order, equitable access to resources, and democratic systems. It also emphasizes that these cannot be successfully pursued without collaborative action on the part of the business community. Yet, a proposal for collaborative business action, say through trade associations, inevitably raises echoes of Adam Smith’s famous observation that “Businessmen seldom gather without the conversation quickly turning to collusion and a conspiracy against the public.”
Can businesses successfully collaborate to support needed public goods while avoiding both the appearance and the reality of collusion for private gain? From a legal perspective, general counsels always warn managers to scrupulously avoid antitrust violations, but the U.S. Supreme Court has consistently and vigorously defended the rights of companies to come together to advocate for public policy changes. In United Mine Workers v. Pennington, 381 U.S. 657, 670 (1965), the Court wrote that "[j]oint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition." This unequivocal support for coordinated political influence (even when it is used to thwart competition!) gives companies wide latitude to work through associations of peers to influence government decision-making.
In terms of how they use that latitude in practice, trade associations may go in either direction: sometimes they advocate for public goods and sometimes just for private gains. Historically, companies have often worked together through “peak associations” such as the Chamber of Commerce, the National Association of Manufacturers, and the Confederation of British Industry (CBI) – and, at times, they have advocated for public policies that promoted competition, increased economic opportunity, or helped to build trust in public institutions. For example, in 1974 following the Watergate scandal in the US, the Committee for Economic Development proactively and clearly outlined business’ role in restoring confidence in the US electoral system, and more recently, has outlined solution briefs for “pro-market/pro-society” policies that enable widespread trust and prosperity.
In recent years, however, trade associations appear to be confronting serious “moments of truth.” In April, 2023, the CBI collapsed due to internal failures around sexual harassment that seriously undermined its ability to engage with government as the UK navigates Brexit. In 2017, eight key members left the Grocery Manufacturers Association, some citing “philosophical differences” over GMO and nutritional labeling. And the US Chamber has lost some marquee members over its opposition to climate policies aligned with the Paris Agreement and its support for tobacco, oil and gas or other industries viewed as “paying to play,” as Alyssa Katz details in The Influence Machine. Though these examples differ in the details, taken together, they illustrate the potential for associations to fall into a “bodyguard” business model---using their political clout to protect the narrow short-term interests of selected members, rather than supporting a competitive, dynamic economic system that enables broad-based benefits and long-term well-being.
Is there a viable guide for business’ engagement in trade associations and policy-making that can support these shared needs, while respecting Adam Smith’s caution and the risks of the “bodyguard” model? If so, what does it look like?
We have spent the last two years building the Corporate Political Responsibility Taskforce (CPRT) at the University of Michigan’s Erb Institute, working with corporate members and external experts to craft the Erb Principles for Corporate Political Responsibility. Though they were designed primarily with an eye to the challenges facing individual companies, we believe these Principles offer a powerful starting point for responsible collaborative business action through trade associations. In this short post, we begin to explore how the Erb Principles can be expanded for this broader purpose.
The Erb Principles have four pillars: Legitimacy, Transparency, Accountability and Responsibility.
Legitimacy establishes the conditions under which companies have a legitimate basis for engaging on a political issue. Trade associations also have an obligation to think through the legitimate basis for their engagement, especially since they are such large players in the influence process. This principle accepts that companies and associations need to justify the basis on which they use resources and voice to influence the public sphere—but takes as a given that climate and democracy are legitimate issues for companies to engage with because they are of such consequence and companies are positioned to make an enormous difference. Associations would also have a reason to engage because they have commitments to support those larger environments or know they have contributed to a problem. A key element of Legitimacy is ensuring that a company, or a trade association, is not coercing its members in political affairs. In our view, the renewed CBI’s Guiding Principles, committing to transparent decision-making processes, democratic and evidence-based approaches to policy positions help strengthen the Legitimacy of the association’s mission to “speak for businesses of all sizes and sectors across the whole economy, in every UK region and nation.”
Transparency is crucial if companies want to avoid the appearance and the reality of collusion, to communicate their goals, strategies and outcomes in a way that fosters trust and stakeholder choice. There is a time and place for Chatham House-style discussions, but these need to be carefully complemented by open deliberations. Indeed, to overcome recent scandals, dangerously low trust in civic institutions and the perception of undue influence by special interests we believe trade associations will do better to adopt a strategy of open communication about their political influence approaches. One example is the recent Sustainable Food Policy Alliance letter on reducing plastic pollution, in which members explain their perspectives and the rationale for extended producer responsibility, demonstrate consistency with their global positions, and outline how government can reduce barriers.
Accountability requires companies to act in a manner consistent with their stated purpose, mission and values, and their existing commitments to stakeholders – including their stated business goals. If companies are to deliver on their commitments to stakeholders, those stakeholders need to be brought into conversation with the companies themselves. Yet for some smaller firms, this might be unduly burdensome. An association is uniquely positioned to convene businesses of all types and sizes to review, validate, and if aligned, support actions crafted by its leadership. The principle of Accountability suggests that it may be difficult for trade associations to speak credibly without partnering with other stakeholder groups, and this should be considered in communicating both process and outcomes.
Responsibility calls for companies to first, do no harm, and also to actively stand up and support the fundamental systems on which their long-term flourishing, and that of society and the planet, depend. At the firm level, we hold that companies have a fundamental obligation to be “net positive” - championing healthy markets, supporting and protecting healthy democracy, contributing to civic discourse based on science and avoiding adverse impacts on the environment and human rights. This is where scaling up CPR is absolutely central, and trade associations have a crucial role to play. Simply put, no individual business has the time or political capital to ensure that the economic system rewards companies for solving problems and not for creating them. Circling back to the Tragedy of the Commons, companies individually lack incentives to advocate for the policies they would all benefit from.
When we turn to scaling CPR, associations have a unique obligation and vantage point to think about what conditions most align with flourishing to the degree they understand them, and use their clout to advocate those. The positions taken by business groups need to be clearly and publicly articulated, in written form, to avoid the risk that companies drift away from their commitments over time as conditions change.
In our view, the adoption of Principles for CPR that are adapted to associations' unique needs might enable these groups to shift from "bodyguards" to "groundbreakers" and overcome this Tragedy of the Commons. By coordinating to make the playing field for competition as level as possible, and aligning private rewards with the public good, they can again become enablers of the promise of capitalism.
We recognize that the opportunities for responsible collaboration are likely to differ from country to country depending on the formal rules and the informal norms of each country. Drawing on its history and norms, German businesses in Saxony have formed an association specifically focused on responding to anti-democratic threats, believing democracy is always vulnerable to being attacked and recognizing their shared interest in its preservation. Similarly, business leaders in Israel have been taking a stand in support of democratic institutions of late, a mobilization that may have been facilitated by prior collaborations around innovative technologies. But although countries like Germany have a long history of collaboration between industry groups and government, the US likes to maintain an illusion of separation between business and government that is violated in practice due to the lack of transparency around corporate lobbying and the legalized unlimited use of money in politics in the wake of Citizens United. However, when the US election results were in question in 2020, American businesses – and its peak associations in particular – stepped forward clearly and decisively for stability and respect for the rule of law. The challenge now is whether such trade associations can do so when the need is less acute. We believe the Erb Principles for CPR offer a useful starting point for articulating that commitment.