Stakeholder management and the effect of
reputation on lobbying
Julien Pflüger (11834919)
College of Economics and Business, University of Amsterdam
BSc Business Administration - Specialization Management in the Digital Age 6013B0510Y: Bachelor's Thesis and Thesis Seminar Management in the Digital Age
Supervisor: Václav Ocelík MSc June 22, 2020
Abstract
While lobbying has long been connoted with ethically questionable activities of large corporations in an attempt to influence the public decision-making process, it is also an inherent part of Western democracies such as the U.S., for instance to be able to benefit from the expertise of industry leaders and professionals. This paper explores whether a company’s reputation, as assessed from a stakeholder and, more specifically, employee perspective, impacts or even reduces a firm’s lobbying expenses relative to its revenue. This concept is statistically analyzed through a linear regression and a moderation analysis, and uses the 2019 data of 98 firms of the S&P500 index. Although the two suggested hypotheses are derived from the existing literature about Corporate Political Activity (CPA) and stakeholder theory, the results do not provide any significant evidence supporting them. In other words, the employer reputation does not seem to financially affect a company’s lobbying expenses.
Statement of Originality
This document is written by Julien Pflüger who declares to take full responsibility for the contents of this document.
I declare that the text and the work presented in this document are original and that no sources other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents.
Table of content
Introduction p. 4
Literature review p. 5
Stakeholder theory and corporate reputation Reputation in CPA
Research gap and hypotheses formulation
Methods and Data p. 12
Sample
Variables and measures Analytical plan Results p. 13 Descriptive statistics Correlation Assumptions Analysis Discussion p. 17 Research implications
Limitations & future research
Conclusion p. 20
References p. 21
Introduction
Lobbying has long been connoted with the corruption and bribery of political leaders by large corporations in order to benefit from more favorable public decisions. Arguably the main reason for this negative image of lobbying is the reoccurring appearance of scandals around the topic in the news. One particularly noteworthy example of unethical lobbying practices in recent U.S. history can be found with Jack Abramoff. Indeed, the former republican lobbyist was involved in several scandals, of which the major one was exposed in 2005 around the overbilling of his Native American clients at that time. After having pled guilty, among other crimes, to bribing public representatives during his 2006 trial, he was finally convicted, followed by Robert Ney, a former republican congressman who was involved with the lobbyist in the “Indian lobbying scandal”.
Undoubtedly, such cases receive great attention by being strongly mediatized and thereby ultimately impact the general public opinion about political activities carried out by corporations, lobbying and, more generally, Corporate Political Activity (CPA). However, lobbying has an actual purpose in the U.S.’, but also other countries’ public policy and political decision-making process. In reality, such practices serve multiple purposes. For instance, one of the main objectives of lobbying is to enhance institutions to take more educated decisions by allowing specialists and experts from different industries to filter and deliver first-hand, practical information. Furthermore, lobbying activities for example in the U.S. are enabled because of the participatory nature of the democratic system, hence allowing firms to enter the political arena and be involved in the decision-making process.
Having discussed the general image and purpose of lobbying, Corporate Political Activity itself has been described as the actions firms take with the intent to influence their political environment and the resulting policy-making in their favor (Hillman, Keim & Schuler, 2004). While there are several different sources of political assets and resources a company can use when engaging in CPA, the one that this paper will look at is a company’s reputation (Baron, 1995; Dahan, 2005), considering that it represents an attractive alternative or at least a complement to traditional political resources such as finances (Dahan, 2005).
Despite some research having already been conducted on the influence of reputation on CPA, the quantitative assessment of this proposed impact remains largely unexplored. Furthermore, there seems to be a lack in differentiating between specific sources and measurements of reputation, in other words taking into account the differences that exist in reputational assessments based on the perspective of specific stakeholder groups.
The purpose of this paper is to analyze the extent to which the reputation of an organization as an employer impacts that company’s CPA, more specifically its lobbying intensity, and whether the size of this company as measured in number of employees moderates the aforementioned relationship.
The empirical analysis of the impact of corporate reputation on lobbying intensity, focusing on one specific stakeholder group, could have interesting implications for managers. First, as stated before, using reputation when engaging in CPA could represent an attractive alternative or complement to using financial resources, i.e. potentially reducing the direct costs involved with such activity.
Second, by further researching and understanding the different sources of reputation, it could be interesting to assess the relative political impact of reputations built through different stakeholder groups. That way, a company might more accurately and effectively target those stakeholder groups that matter the most, depending on the firm or industry but also on the political issue addressed.
This paper will start by reviewing the existing literature in order to establish a theoretical framework and formulate specific hypotheses based on the latter. Afterwards, a quantitative analysis with the statistical software SPSS will be presented regarding the previously established concept, and the results as well as the limitations thereof will be discussed. Finally, the article will conclude by formulating recommendations for potential future research.
Literature review Stakeholder theory and corporate reputation
In contrast to a pure shareholder perspective of company value and performance, also referred to as the Friedman doctrine, the stakeholder theory suggests that a company’s and thus its managers’ primary focus should not only lie on maximizing profits for its shareholders. Instead, they should focus on taking all stakeholders’ interests into consideration as well as aiming to create and maximize the value for them (Freeman, 1984; Freeman & McVea, 2001; Jensen, 2002). As the name reveals, the organization’s stakeholder lies at the core of this theory, a stakeholder being generally defined as “any group or individual who can affect or is affected by the achievement of the organization‘s objectives” (Freeman, 1984). The underlying belief is that emphasizing stakeholder management and the
relationships between a company and its primary stakeholders can result in the creation of a competitive advantage and an increased financial performance (Freeman, 1984; Hillman & Keim, 2001), as well as an improved market valuation (Henisz, Dorobantu & Nartey, 2014).
Of course, there are many ways in which a company can manage its stakeholder relations, a factor that is particularly depending on each stakeholder group’s preferences or needs. For instance, focusing on customers as stakeholder group, a potential approach to create or enhance value for them is to emphasize quality-management in order to provide them with better products or services (Garvare & Johansson, 2010). If, on the other hand, the focal point lies on employees, raising the perceived value they receive can be achieved by bettering the company’s labor policies regarding for example medical or safety benefits (Galbreath, 2006).
Besides increasing a firm’s financial performance, well-maintained stakeholder relationships can also enhance a company’s corporate reputation (Garcia-Castro & Francoeur, 2016). More specifically, and focusing on a specific group that belong to a firm’s primary stakeholders (Hillman et. al, 2001; Cortini, 2009), employees can be beneficial for reputation and are considered to be “the conduit through which reputation is managed“ (Cravens & Oliver, 2006, p. 297). This argument is based on the assumption that employees are the main link to external stakeholders. For example, Cravens and Oliver (2006) argue that reputational damage frequently appears to be the results of immoral activities of the company’s staff. Additionally, the authors explain that employees that are in direct or indirect contact with external stakeholders, such as customers or suppliers, need to be conscious about their actions, as those can impact their employing firm’s public perception and reputation.
This view about employees being, to a certain extent, liable for a company’s repute is further supported by Jackson (2004), who explains that every internal stakeholder plays a role in the creation and upkeeping of the firm’s reputation. Indeed, the researcher reasons that every individual’s behavior mirrors the entire company’s renown. Because of this, Jackson advocates the necessity to recompense and foster stakeholder behavior that promotes the firm’s reputation.
Consequently, committing to stakeholder relations can ameliorate corporate reputation (Hillman et. al, 2001), an argument that is also consistent with several other publications. For instance, researchers suggest that a company’s reputation with employees can influence its reputation with other stakeholders, such as with the broader public (Hillenbrand & Money, 2007). Thus, it can be inferred that their perception of their company, hence employer, and in a more general sense, their satisfaction, are key factors in influencing the general reputation of
a company from an external observer’s perspective. Ultimately, employees perceiving that their employer offers them adequate, satisfactory value can help their company in creating and maintaining a positive corporate reputation.
Reputation in CPA
Having discussed stakeholder theory and the key role that employees play in reputation management, this next section will focus on this paper’s main area of interest, namely the role of corporate reputation in Corporate Political Activity (CPA), and more specifically explain to what extent reputation can be considered a resource that can be used when engaging in such political activity. As stated before, CPA has been described as the actions firms take with the intent to influence their political environment and the resulting policy-making in their favor (Hillman et. al, 2004). As Baron (1995) described, it is necessary for firms to not only focus on the market components of their environment, consisting of the firm’s contact with other market participants or entities they have a direct contract with, but to integrate these with the nonmarket components when developing their strategy. As Baron states, nonmarket environmental elements consist of all “interactions that are intermediated by the public, stakeholders, government, the media, and public institutions” (p.47). These factors can for example result in a public policy or legislation change and consequently affect a firm’s market strategy. For instance, the government in a country might introduce labor laws protecting employees from being fired without a specific period of notice, as is the case in Germany, or an institution might impose rules for setting prices to prevent monopolistic behavior or dumping. Undoubtedly, such factors simultaneously influence a firm’s capability to cope with its market environment.
That being said, while the political environment of companies always influences, to a certain degree, their ability to manage Porter’s Five Forces of their own industry or market (Baron, 1995), some corporations might be more politically active than others for several reasons. For instance, undertaking CPA can depend on the specific issue’s “salience” for the company, i.e. to what extent the issue is important to a firm and affects it (Lux, Crook & Woehr, 2011). A company’s engagement in CPA can also depend on the availability of financial resources, as such activities are generally costly (Hillman et al., 2004; Attarça, 1999).
However, in addition to those elements, other organizational factors and resources might also influence whether a company will engage in CPA, as well as how intensively it
will do so. For example, elaborating on the resource-based view (RBV) of strategy, Dahan (2005) argues that the reputation a company builds with “professional non-market actors” (p. 44) can be considered a political resource, thereby eventually affecting a firm’s tendency and capabilities to engage in CPA. In his assessment of a firm’s political reputation, he argues that a better repute will enhance corporate agents’ reach in the political arena.
This assumption is consistent with Baron (1995), who considered that a firm’s reputation is an “important nonmarket asset” (p. 62). In his reasoning, he infers that committing to long-term reputation-building efforts can increase the effectiveness of a company’s political activities.
The need to maintain a reputation over time and not simply rely on its previous establishment also seems to be in line with the definition provided by Gioia, Schultz, and Corley (2000), who describe reputation as “relatively stable, long-term, collective judgments by outsiders of an organization’s actions and achievements” (p. 67).
More academic support of the view that reputation represents a political resource that is established over time can be found with Attarça (1999). As the author explains, the influence a company has over public policy-formulations relies on three political resources, namely a firm’s technical-economic expertise, its network of contacts and relationships, as well as its reputation, the latter being stretched to a more general concept of representative authority. In fact, he states that a corporate reputation is related to each firm’s history and behavior and that it lies at the foundation of companies’ influence over public policy decisions.
The author proceeds to explain that a firm’s reputation can serve as a vehicle to pressure the public decision-making process. Furthermore, a company’s “symbolic power” enhances a company’s legitimacy in the public opinion, an argument consistent with the authors King and Whetten (2008, p. 202). These authors establish that reputation indicates a company’s importance in a specific industry or market and, that way, enhances legitimacy. Therefore, it seems reasonable to argue that companies with relatively strong reputations are more legitimized in their corporate political activities and better able to pressure policy-makers to their own advantage. This also offers an argument that is coherent with Wang and Qian (2011), who argue that a company’s “sociopolitical legitimacy” (p. 1159) can improve its access to the political arena.
Another function of reputation in the political arena can be found in McDonnell and Werner’s paper (2018). Here, the authors argue that a positive corporate reputation can ease and even enhance the reach and impact that firms have on policy decision-makers. More
specifically, politicians are more willing to be connected with a firm that has a good reputation rather than with companies with a negative one, as the latter connection could also be detrimental to their personal repute. Regarding this potential threat, the authors explain that a firm’s repute can be used as “heuristic or diagnostic cue of associational risk” (p. 11), thus foretelling subsequent actions of the company and their potential effect on one’s own repute.
An additional argument that comes forth of this paper is that a better corporate reputation makes the political approach of a company more transparent to observers, as this reputation sends a signal about which political strategy will be mobilized. The term the authors use to describe this affiliation transparency of firms and politicians or parties is called “tactical traceability” of the strategy (p. 4).
Last but not least, a better reputation can help a firm decrease its reliance on financial resources when engaging in political activity (den Hond, Rehbein, de Bakker & Lankveld, 2014). Indeed, although the authors discuss reputation in CPA from a Corporate Social Responsibility (CSR) perspective, one can draw more generally from their work by stating that politicians prefer being associated with companies that have a positive reputation. Thus, as I previously established that well-managed stakeholder relationships can supports companies’ reputation building efforts, it can be inferred that companies with good relations to stakeholders foster a positive reputation and are therefore more likely to have lower lobbying expenses.
Research gap and hypotheses formulation
As discussed in the previously elaborated literature review, several research papers have already suggested and discussed the role of reputation in CPA and lobbying. Nevertheless, there seems to be a lack of empirical evidence that quantifies the effects or benefits that reputation actually provides to companies when engaging in political activity. Considering the fact that, as mentioned earlier, reputation has clearly been established as political resource and that it can complement financial as well as other political resources, the aim of this research will be to quantitatively analyze the effect that a company’s reputation has on its use of financial resources when engaging in lobbying activities.
Additionally, there seems to be a lack in differentiating between specific sources and measurements of reputation in the existing literature, taking into account the differences that exist in reputational assessment based on the perspective of specific stakeholder groups. By understanding the role that different stakeholder groups play in building or influencing a
company’s reputation, their relative strength in doing so, as well as what actually creates value for them, managers might be better able to appraise the benefits of individual groups. Indeed: “If tradeoffs have to be made, as sometimes happens, then executives must figure out how to make the tradeoffs, and then work on improving the tradeoffs for all sides (Freeman, Harrison, & Wicks, 2008)” (Parmar, Freeman, Harrison, Wicks, Purnell & De Colle, 2010, p.5).
This paper will propose the following, general chain of cause-effect relationships, upon which the later analysis will be built and tested. First, maintaining a positive relationship to stakeholders and creating value for them - this paper will only focus on employees – will result in the creation and maintenance of a positive corporate reputation of the employing firm. Second, this positive reputation will in turn give the firm an advantage when engaging in CPA, as it will improve access to political actors and institutions as well as foster the firm’s ability to pressure those decision-makers. Third, this reputational advantage will impact the firm’s use of financial political resource, which will be observed based on a company’s lobbying expenses relative to its total revenue in a certain time period. Based on this series of events, the following hypotheses are proposed:
H1: the better the reputation of a company, the less amount of financial capital it spends on lobbying activities.
It seems reasonable to assume that the better the reputation of a company, the less it will spend on lobbying. This assumption is based on the fact that, as previously explained in the literature review, reputation as a political resource can increase a firm’s legitimacy, thereby enhancing its access to public decision-makers and institutions (Wang et. al, 2011). Furthermore, reputation can act as a complement to financial resources (Attarça, 1999; Dahan 2005).
H2: the size of the company as measured in number of employees moderates the relationship between reputation and lobbying intensity.
This second hypothesis takes into account that size represents a firm-category antecedent to CPA. This view is based on the assumption that the more employees a company has and thus the larger it is from an employment perspective, the greater its public power will be, considering that more personnel represents more potential constituents (Hillman et al.,
2004). Furthermore, as the authors state: “size is a proxy for resources and provides some indication about the firm’s ability to become politically engaged” (p.839). Additionally, I assume that more employees reflect a more credible reputational assessment, considering the fact that a company with only a few employees might have a good reputation, however would unlikely be able to use it to its political advantage.
Model
Research question: does a company’s reputation as an employer impact its lobbying intensity, and does the number of employees of the company moderate this relationship?
The empirical analysis of the impact of corporate reputation on lobbying intensity, focusing on one specific stakeholder group, could have interesting implications for managers. First, using reputation when engaging in CPA could represent an attractive alternative or complement to using financial resources, i.e. potentially reducing the direct costs involved in such activity. Second, by further researching and understanding the different sources of reputation, it could be interesting to assess the relative political strength of reputation built through specific stakeholder groups. That way, a company might more accurately target and value those groups that matter the most, depending on the firm or industry but also on the political issue addressed.
Number of employees Employer reputation Lobbying intensity
Methods and Data Sample
In order to ensure a reasonable sample size as well as to give an overall impression of the index and American market, the data of every 5th company of the S&P500 index, ranked by market capitalization as of June 7th, 2020, was gathered, resulting in a total sample size of N=98. Using U.S. companies, as compared to for example European companies, guarantees that the relevant lobbying expenses and data are more easily and transparently accessible, thanks to the U.S. Lobbying Disclosure Act of 1995 that forces companies and lobbyists to openly display all lobbying activities.
The ranking was provided by the website slickcharts.com. In case the firm-level data required for one of the later described variables could not be found or assessed with certainty, the subsequent company in the ranking fulfilling these requirements was used.
Variables and measures
The data of each individual variables described consists of values for the year 2019, to make sure that the numbers are complete for the most recent total year, as there could be some seasonal, quarterly or other variance in the timely distribution of each company’s lobbying expenses throughout a year.
Employer reputation. For “Employer reputation”, a proxy variable was used based on the overall star-rating of the sampled companies from the job search engine glassdoor.com. This rating is established as average of all reviews by people currently or formerly employed at each company and gives greater weight to more recent reviews. The data was manually collected on June 7th, 2020, based on the S&P 500 index components ranked by market capitalization that day, given by slickcharts.com.
Lobbying intensity. The variable “Lobbying intensity” is the product of the division of each company’s total lobbying expenses by its total revenue for the year 2019. The reason the lobbying expenses are not kept as absolute values is to put the expenses in perspective, as a company with greater revenue could simply have a greater financial budget for lobbying however effectively not being affected by its lobbying activities. The data to assess these figures was gathered via the investing data website macrotrends.net.
Number of employees. In order to assess the moderating variable “Number of employees”, I used the data provided by the website macrotrends.net for each company.
Company Age. This variable simply serves the purpose of control variable, as a greater age can affect both a company’s reputation, considering that “older companies have more time to build reputation” (Cao, Myers, Myers & Omer, 2015, p. 51), as well as its CPA (Hillman et. al, 2004). The data was assessed using the founding year given by Wikipedia and subtracted of the year 2019.
Analytical plan
To test Hypothesis 1, i.e. whether the variable Employer reputation influences the variable Lobbying intensity, I will perform a linear regression using the statistical software SPSS, in which Employer reputation serves as independent variable whereas Lobbying intensity acts as dependent variable.
After that, Hypothesis 2 will be analyzed using Model 1 of the PROCESS macro of Hayes (2018), which is an extension tool for SPSS. This analysis will examine the interaction effect between Employer reputation and Number of employees on Lobbying intensity. In this case, Employer reputation and Lobbying intensity will remain the independent and dependent variables respectively, however Number of employees will be incorporated in the test as moderator variable.
Results Descriptive statistics
Before any further analysis, the following, general descriptive statistics (see appendix “Frequencies”) are assessed for 93 out of the total of 98 data points gathered, considering that five data points were removed as explained later. The employer reputation score in this sample ranges from 2.70 to 4.50 out of a potential maximum score of 5.00 (M=3.5957; SD=0.35291). The companies’ lobbying intensities vary between minimum 0,00000087063 and maximum 0.000357 (M=0.000092; SD=0.000080). Finally, the number of employees ranges from 872 to 495000 (M=56820.9677; SD= 85135.8520).
Correlation Table 1
Means, Standard Deviations and Correlations
Variables M SD 1. 2. 3. 4.
1. Employer reputation 3.5957 .35291 1
2. Lobbying intensity .0001 .00008 .047 1
3. Number of employees 56820.9677 85135.852 -.062 -.134 1
4. Company age 72.1398 48.21749 -.100 .022 .135 1
N = 93 companies of the S&P500
Looking at Table 1 one can find the correlation table of all variables. As can be seen, the variables Employer reputation and Lobbying intensity are insignificantly and weakly correlated, with r=0.047 and p>0.05. Furthermore, none of the selected variables of this model are significantly correlated.
Assumptions
To be able to make accurate and nuanced inferences based on the analysis conducted below, several assumptions need to be tested before performing the linear regression analysis. The relevant tables and diagrams are found in the appendix.
First, the assumption of normal distribution needs to be tested. Looking at the Shapiro-Wilk test, we see that the p-value = .000 < 0.05 meaning that the null hypothesis of normal distribution has to be rejected accordingly. Additionally, looking at the histograms of the variables, it becomes apparent that both the variables Number of employees and Lobbying intensity are strongly positively skewed. However, the histogram of Employer reputation seems to follow a normal distribution. Finally, by observing the P-Plot of Lobbying intensity, the normal distribution assumption for this variable is met. Thus, while the assumption of normal distribution is not met for Number of employees, the distribution of Employer reputation seems normal and the distribution of Lobbying intensity finds partial support (P-Plot).
The second assumption that needs to be tested is whether there is autocorrelation of the residuals, in other words ensure that the observations are independent. To test this assumption, the Durbin-Watson test was used. Considering that DW=0.026 and that this value does not lie between the standard limits of 1.5 and 2.5, the assumption is not met.
Third, the dataset needs to be checked for significant outliers, which could distort the results of the analysis. Using the z-value of the standardized residuals of the dependent variable Lobbying intensity, one can see that there are 5 outliers with an absolute value greater than 1.96. Having conducted the analysis with and without those outliers, removing those potentially extreme data points was necessary, as for example the assumption of normality or the subsequently described scatterplot improves in the scenario without using them.
Fourth, using a scatterplot, the assumption of homoscedasticity of the residual values seems to be reasonably met, as there appears to be no clustering of the points.
Finally, the assumption that there is no multicollinearity is also met considering the VIF-values for the independent variables are all below 5, in other words they have a tolerance greater than 0.2.
Analysis
Having checked the necessary regression assumptions, Hypothesis 1 is tested first using a linear regression. Here, the model summary (see appendix “Model summary – Linear regression”) shows that the first model only used the control variable Company Age as predictor, while the second model added the independent variable Employer reputation in the analysis. As can be seen in the model summary, the R-square value of model 2 equals 0.003. This value represents the proportion of variation explained by the model, and can be interpreted as the independent variable explaining 0.3% of the variance in the dependent variable. Comparing this R-square to the value of model 1, there is a change in explanatory power of 0.002, which can be seen under “R Square Change”, and represents the variance solely explained by the independent variable. Thus, there is hardly any more variance in the outcome explained by adding the independent variable Employer reputation as compared to only using the control variable Company age. This can also be seen in the p-value of the F change, which equals p=0.641, proving very little to no significance.
This assessment is further supported when looking at the adjusted R-square, which corrects for the loss of degrees of freedom from including another independent variable, actually decreases from -0.010 in model 1 to -0.019 in model 2. Indeed, the adjusted R-square value only increases if the additional variable ameliorates the model more than could be randomly expected by simply adding more variables, and thus maintains that Employer reputation adds no real explanatory value to the model.
Furthermore, the ANOVA table displays the lack in significance of the model incorporating not only the control variable Company age, but adding the independent variable Employer reputation, with a relatively low significance of p=0.876 as well as a remarkably low F-value of 0.132. In other words, there seems to be less explained variance than unexplained one with this model.
Finally, looking at the coefficients, we can see that, although insignificant, the unstandardized B for the model including Employer reputation is actually slightly positive, with a value of 0.00001124. This is contrary to the formulated hypothesis, expecting a negative relation between the independent and dependent variable.
As a result, there is no statistical evidence for the relationship and impact suggested in Hypothesis 1.
Having tested the first Hypothesis, the second one will be examined using model 1 of the PROCESS macro of Hayes (2018). First, looking at the model fit, the R-square value equals 0.0227, which can be interpreted as the fact that 2,27% of the variance in the companies’ Lobbying intensity is explained by the model. Additionally, the significance of this model seems quite low, with p=0.7285 and thus far from the typical threshold and significance level of 0.05.
Furthermore, looking specifically at the interaction variable Int_1 calculated as Employer reputation x Number of employees, the interaction effect itself has a p-value of 0.7550, thus further supporting the fact that the interaction effect is not significant.
Finally, the R-square change of adding the interaction variable to the model has a value of 0.0011, which supports that adding it to the model only increases the overall explanatory power by a moderate amount, however with very little significance.
As a conclusion, as the overall moderation model as well as the impact of the interaction variable itself does not provide any significant support for the moderating power of Number of employees on the relationship between Employer reputation and Lobbying intensity, Hypothesis 2 should be rejected.
Discussion Research implications
The aim of this research was to analyze empirically whether a better employer reputation would impact and eventually help a company decrease its need and use of financial resources when engaging in corporate political activity. In addition to that, the goal was to assess to what extent the number of employees as proxy for the firm’s size would moderate and, more specifically, strengthen the effect of reputation on lobbying intensity. While to test Hypothesis 1, a linear regression model was used in SPSS, Hypothesis 2 was checked via model 1 of the PROCESS macro of Hayes (2018).
To begin with, no empirical proof could be found in support of the first hypothesis. Indeed, the results did not provide any statistically significant evidence that the reputation as an employer would affect a company’s financial lobbying, as could be derived from the previously mentioned theories of Attarça (1999) or Dahan (2005) among others.
While this single research failed to find significant proof for this concept, one cannot say that it is necessarily wrong on an international scale. However, it does suggest that U.S. companies do not directly adapt or change their financial lobbying spending according to their reputation. Instead, it could be possible that a company’s reputation finds more use for other CPA purposes than as direct alternative to financial lobbying. As discussed before, a positive corporate reputation can also be used as political resource by increasing a company’s legitimacy, which, in turn, eases its access to the political arena (Wang et. al, 2011). Additionally, as argued by Attarça (1999), the reputation of a corporation might simply increase its ability to pressure politicians as well as the decision-making process to a certain extent, in which case a quantification of the reputational impact as measured by the lobbying expenses might not be the most accurate or viable metric to use in a real-life case analysis.
Therefore, companies could still benefit from building and sustaining good relations to their employees and other stakeholders and thereby improving their reputation. However, they cannot necessarily expect that this enhanced reputation will directly reduce their financial lobbying expenses when aiming to influence politics. Instead, they should focus on exploiting their gained or enhanced reputation, thus not using it to reduce their financial lobbying expenditures, but to complement them.
On one hand, it seems reasonable to assume that many other factors affect a company’s financial resource allocation decision for lobbying activities, considering that, for example, elements such as a specific issue’s salience for the firm can also importantly impact
this choice (Lux et. al, 2011), potentially unrelated to their reputation. On the other hand, a reputation built with a specific stakeholder group might also solely affect the amount of financial resources the company needs when interested in a certain issue. For example, if a company has a reputation to comply and even exceed particular labor laws and regulations on the treatment of staff, it might require less spending and instead use its reputation as fair employer only for labor-related issues.
In addition to that, the general concept that maintaining good relations to stakeholders can lead to an increased ability or potential for firms to engage in CPA remains generally plausible. In fact, as discussed before, there is a relation between a company’s stakeholder management and its overall financial performance (Freeman, 1984; Hillman et. al, 2001; Henisz et. al, 2014). Therefore, if a company treats its employees fairly, offers them value and thereby ultimately ensures the latters’ satisfaction, the increased financial performance could provide the company with more financial resources, ultimately enhancing its capacity to lobby. This could be especially valuable considering the fact that engaging in CPA as well as, more generally, adjusting to rapid political, public and regulatory shifts is often associated with high costs (Meznar & Nigh, 1995).
Apart from that, the second analysis conducted in this paper could also not demonstrate a moderating role of Number of employees on the relationship between Employer
reputation and Lobbying intensity.
These findings infer that the impact of a company’s reputation when engaging in CPA is unaffected by the size of its workforce. Nevertheless, it is still possible that a firm’s workforce size affects its overall reputation. As a matter of fact, depending on the industry a company belongs to, reputation might actually foremost depend on the size of a firm in relation to competitors (De la Fuente Sabaté & de Quevedo Puente, 2003). Taking this into consideration, as well as the fact that, as explained earlier, corporate reputation can enhance legitimacy, which ultimately impacts a firm’s success when engaging in CPA, could imply that a larger workforce and thus stronger reputation could still benefit a company’s political efforts.
Unfortunately, these overall findings about corporate reputation as well as the lack of significance of the main regression analysis for Hypothesis 1, could potentially infer that managers do not need to worry about their company’s reputation or their employees’ well-being, but instead can simply rely on the company’s available financial resources to directly exert political authority. This argument could decrease the incentive for managers to improve
stakeholder relations within and outside their company, despite many counter-arguments supporting such steps.
Limitations and future research
Considering the analyses conducted did not provide any statistical evidence directly supporting the proposed hypotheses, one must acknowledge the research limitations of the data and model used, as several linear regression assumptions were violated therefore limiting the research’s validity and meaningfulness. Taking these limitations into account, several recommendations for potential future research are made.
For instance, one way to possibly measure the impact of Employer reputation on
Lobbying intensity while keeping an employee’s perspective could be to use a different metric
than the star-rating of a job search engine used here. In fact, an interesting alternative measurement to assess employee satisfaction could be provided by using the retention-/turnover-rate of a company’s workforce, as different factors might affect it and, unlike the star-rating, cannot be manipulated as easily by companies aiming to improve their external perception.
The same goes for the data collected to assess a company’s lobbying intensity. As an example, a greater significance of the findings could have been made possible by narrowing down the financial lobbying resources used to influence specific policies or political issues. In other words, the impact of the reputation a company builds with one of its stakeholder groups might only become apparent when focusing on the political issues related to that specific group of people. Future researchers could thus use a metric to assess the CPA undertaken by a company regarding specific issues around labor and workforce.
Another limitation of the research is the analysis method used. Instead of using a linear regression as well as moderation analysis, more significant results could potentially be achieved by comparing the impact of reputation on lobbying between a treatment group and a control group, i.e. split the sample of companies into two halves, where one is classified as having a “good reputation” while the other half has a “bad reputation”.
Finally, although this paper analyzed the effect of corporate reputation on a firm’s relative lobbying expenses, managing stakeholder relations and building a reputation of course do not come without costs (Garcia-Castro et. al, 2016). Therefore, it would be interesting to compare the relative strengths of pure financial lobbying versus using reputation built through specific stakeholders. This could result in a better understanding of whether a
company should spend money directly on lobbying or instead invest in reputation-building activities to enhance its political reach and impact.
Conclusion
The aim of this paper was to statistically analyze whether the reputation of several U.S. companies, as assessed from an employee perspective, impacts or even reduces the amount of finances they spend on lobbying. Another goal of the analysis was to measure whether the size of a company as measured in number of employees would moderate the aforementioned relationship.
Despite this concept being drawn from the existing literature of Corporate Political Activity and Stakeholder Theory, the findings of the statistical analysis were insignificant, inferring that U.S. companies do not necessarily spend less financial capital on lobbying with an improved reputation. Furthermore, the size of a company did not significantly moderate the relationship between a company’s reputation and its lobbying intensity.
Nevertheless, building and maintaining a corporate reputation can still potentially help companies to more successfully influence their political environment. This effect of reputation is achieved by increasing a company’s legitimacy and thus access to politicians and institutions, as well as by complementing, not necessarily replacing, financial political resources. However, further research needs to be conducted in order to increase the academic and managerial understanding of this idea.
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Appendix A – Descriptives and correlation Frequencies
Correlation table
Appendix B - Assumptions Shapiro-Wilk
Durbin-Watson
Scatterplot
Appendix C - Analysis
Model summary – Linear regression
ANOVA – Linear regression
