High Stakes On K Street
CEOs must use finnese in the world of lobbying and sealzy favours.
April 10 2006 by Peter Galuszka
With his matching black fedora and trench coat set off by an arrogant scowl, Jack Abramoff easily played the role of the bad guy. The Washington lobbyist, who pled guilty to fraud and conspiracy charges in January, shamelessly parlayed influence for Indian tribal gambling casinos and corporations alike.
Abramoff’s demise touched off firestorms about the ethics of lobbying and campaign financing. The case suggested that influence peddling in Washington may have become a destructive force that interferes with legitimate efforts by business leaders to provide input to government officials. Rather than stirring healthy debate about business issues, the lobbying trends are toward secrecy, subterfuge and lots and lots of money-a potent brew indeed.
Chief executives navigate this world of sleazy favors at their own peril. CEOs run the gamut from being smooth players savvy about Washington to absolute neophytes, but they risk public scorn and damage to their company brands if they don’t keep a close eye on who is doing their brokering. And while lobbying is a necessary exercise for many companies, not going about it in the right way could well banish CEOs into a new regulatory netherworld similar to what the Sarbanes- Oxley Act did to them post-Enron.
The natural tendency of many CEOs is to try to distance themselves from Washington power brokering. Yet some are taking an activist approach. The Committee for Economic Development (CED), a Washington-based group with many CEOs on board, is launching a detailed study of campaign financing and lobbying. It may result in best practices guidelines that could become a business norm. “We hope that in less than a year, we will have significant recommendations,” says Roderick M. Hills, CED chairman and a Washington lawyer who was head of the U.S. Securities & Exchange Commission in the 1970s and has served on the boards of 20 companies.
Congress is also grappling with changing rules regarding money and influence in the wake of high profile scandals, including the indictment and resignation of House Speaker Tom DeLay for such questionable acts as accepting a golf trip to famed St. Andrews in Scotland from Abramoff. Specific issues include limits on accepting uncompensated pleasure or business trips or dinners.
But after a spurt of interest, Congress seems to be cooling towards doing much, in part because some want to keep certain perks. “There’s pushback now from Capitol Hill,” says Larry Noble, executive director of the Center for Responsive Politics, which operates OpenSecrets.org, a massive data base about campaign financing. The congressional dithering makes the CED’s study even more important. “I think it’s a very positive development,” says Noble. “The CED has taken a real interest in corporate reform. It represents the corporate side laying out its position before Congress does.”
One of the biggest problems in understanding the Washington lobbying game is the sheer dollar amount involved. Prof. James A. Thurber of American University, who has been studying lobbying for more than 30 years, estimates federal lobbying runs about $10 billion a year. In 2004, just the House of Representatives represented $2.1 billion, a 30 percent boost from 2000. The number of registered federal lobbyists runs from 11,500 to nearly 40,000. Thurber has seen total figures as high as 150,000.
Throwing money around in Washington doesn’t necessarily mean that business leaders get what they want. In fact, says Thurber, who is leading the CED study, “CEOs are so naÃ¯ve about the way things work.” For one thing, about 80 percent of lobbying money actually is spent trying to influence the executive branches of government, not Congress. These include the Departments of Defense and Health and Human Services, plus regulatory agencies such as the Federal Communications Commission and Food and Drug Administration. The perception seems to be, Thurber says, that lobbying ends with campaign contributions and giving special favors to Congress. But that’s hardly the case.
Lobbying, bribery and scandal, of course, have been a part of the Washington scene ever since French architect Pierre L’Enfant laid out the capital in the Potomac’s marshlands. Notable have been Teapot Dome, Abscam and the Keating Five savings and loan debacle.
But in recent years, lobbying has become an even bigger, well-oiled machine. The most recent phase began in1994 when Republicans seized control of Congress and promised a “revolution” in philosophy heralded by Newt Gingrich. House Speaker DeLay and Grover Norquist, a GOP theorist, launched what came to be known as the “K Street Project,” named after the downtown Washington thoroughfare famed for lobbyists’ offices where salaries can start at $300,000 a year.
DeLay’s and Norquist’s brainchild took lobbying to a new dimension. It cemented ties between GOP lobbyists and the GOP congressional leadership, mandating that preferred lobbying firms hire only Republican lobbyists. Firms that hired Democrats were blackballed. CEOs were squeezed for campaign money for exclusively GOP candidates and strongly encouraged to come on board by supporting legislative and public policy issues being pushed by the Republican majority. Regular meetings were held between members of Congress and lobbyists to enforce cadre and ideological discipline. “It was all about building loyalty and reciprocity on K Street,” says Thurber.
With informal but muscular institutions like the K Street Project in place, CEOs often found themselves being sandbagged. Last year, members of the CEO-heavy Business Roundtable were reportedly stunned to find, when called to a meeting by White House staff, that instead of the expected polite chat about policy, they felt themselves strong-armed to get on board with President George W. Bush’s plans for Social Security reform.
When DeLay ran the show, corporate officials regularly found themselves being patted down for campaign money when they expected to be asked for their insights on economic and public policy issues. “I think a lot of lobbyists are being unfairly singled out,” says Melanie Sloane, executive director for the Citizens for Responsibility and Ethics in Washington (CREW), a watchdog group. “A lot of members of Congress are the ones doing this.”
The challenge for CEOs is to strike the right balance in their lobbying efforts. One approach that seems guaranteed to fail is avoiding the Washington game altogether by pretending to be “above it.” That seems to be the conceit of many high technology firms. Microsoft is a famous example because, for years, founder Bill Gates simply refused to hire any lobbyists.
That tune changed in 1998 when the U.S. Department of Justice took Microsoft to court for creating a monopoly by bundling its Internet Explorer program that it sold with its Windows operating system. Microsoft was blindsided, since it had no real Washington presence. Millions of dollars later, the case was settled in 2001.
Washington insiders still find Microsoft’s “head-in-the-sand” approach bizarre since Gates had once worked as an aide on Capitol Hill as a youth. Ironically, Jack Abramoff once worked for the Washington office of the Seattle-based law firm of Gates’ father although that had nothing to do with the antitrust case. Microsoft has since greatly beefed up its lobbying arm.
At the other end of the spectrum are companies such as Altria, General Motors, 3M and FedEx, which are famous for their energetic and skilled lobbying. General Electric is the largest corporate spender, according to PoliticalMoneyLine. These companies maintain large Washington outposts and hire professional lobbying firms to help with issues as diverse as potential Food and Drug Administration regulation of cigarettes to getting breaks on pension funds.
One big win was the tax break for repatriating overseas profits. In one case in 2004, computer maker Hewlett- Packard ended up with millions of dollars in extra repatriated profits by doubling its lobbying budget. It also hired Quinn Gillespie & Associates, a renowned Washington lobbying firm, and helped pass a bill in Congress to cut the tax rate on profits earned overseas.
FedEx acknowledges that lobbying has played a major role in its growth. OpenSecrets.org states that from 1990 to 2006, the company donated more than $21 million to Republican and Democratic candidates.
The effort has paid off hugely. FedEx won a deal with the U.S. Postal Service to deliver its overnight packages and express deliveries and has been allowed permission to install FedEx package drop boxes at post offices. In 2003, FedEx and competitor United Parcel Service linked up in a successful effort to block DHL, based in Germany, from delivering packages to U.S. military personnel involved in operations in Iraq and Afghanistan.
FedEx routinely allows members of Congress to ride along on its large fleet of aircraft. Doing so is legal, provided that the legislators pay the full first-class fare to FedEx, says Noble of the Center for Responsive Politics. His group, however, believes that the practice’s routine nature makes it suspect.
“It’s like this: a Congressman calls up a lobbyist and says he has to be in Kansas City that night and it just so happens that Federal Express has a plane going to Kansas City at a convenient time. It’s a lot cheaper than chartering a plane, and many members of Congress don’t like to ride first-class commercial because they might be seen by constituents,” Noble says.
FedEx affirms that the practice is legal and that the company is reimbursed, but Noble claims such rides make the legislator indebted and give FedEx considerable, exclusive face time with the politician. However, current reform proposals bandied about in Congress would further restrict limits on travel accepted by legislators along with monetary gifts.
Kristen Krause, a Washington-based spokeswoman for FedEx, says the company’s policy is useful to members of Congress because it helps them move about efficiently. Moreover, FedEx is proud to be active in the lobbying field. “We have 265,000 employees and we have to be active in Washington,” she says. The company has the second-largest Political Action Committee to contribute campaign funds, she says. Congressmen and women, Krause says, have to become expert on a wide variety of topics very quickly and lobbying efforts help them understand important issues.
For its part, FedEx competitor United Parcel Service likewise is a heavy political campaign contributor and has leased aircraft to fly lobbyists and legislators about. One major recipient is U.S. Rep Roy Blunt of Missouri, who lost a recent effort to replace DeLay as House Speaker. Blunt has been noted for his unusually close ties to lobbyists. His son is a lobbyist for UPS and his wife has been a lobbyist for Altria.
Most CEOs land somewhere in between Microsoft’s naÃ¯vete and the aggressive style of FedEx and UPS. It’s the CEOs in the middle who could use some insights as to how lobbying should be done. “The problem is that many CEOs just hire big lobbyists and let them take care of it,” says Melanie Sloane, CREW director. By contrast, a CEO’s general counsel would never simply hire an outside law firm and let them do the company’s legal bidding any way they wanted without review.
Sloane notes that when a Kansas energy company wanted something in a federal energy bill, it blindly hired a Washington lobbying firm, paid its fees, and did what it was told. Two high-ranking executives of the company ended up being indicted. Yet the director of left-leaning CREW notes that lobbyists are “being treated unfairly” and that it is often members of Congress who instigate improper activity.
Going About it the Right Way
What’s a CEO to do? Thurber believes CEOs waste a lot of money not going about lobbying properly. “They often don’t have a clear strategy,” he says. Savvy CEOs understand that to truly influence an agenda, they must shape the debate at the very beginning and follow it every step of the way. That means investing in advertising campaigns in print, on television and on the Internet, building coalitions among like-minded groups, and producing market surveys, as well as direct lobbying.
Hiring K Street lobbyists and giving campaign contributions is only a part of the holistic effort. Enron, notes Thurber, “thought they could buy their way out of their mess.” Another misconception among CEOs, he says, is that regular and generous campaign contributions to legislators or presidential campaigns ensure loyalty. Votes that CEOs wrongly assume to have in their pockets may go the other way.
CEOs also need to educate themselves and their staffs about lobbying. One group that has helped chief executives, including ones from John Hancock, Dow Corning and Dow Chemical, is The Washington Campus, founded in 1978 by a consortium of business schools to help explain the public policy process. “Many companies are very concerned about training their executives to know how Washington works,” says Antoinette Durkin, president and CEO of the group. Among their topics at training sessions that can run a few days or several weeks are how to evaluate whether lobbying is effective.
The findings of the CED study, which may be ready by the end of this year, could provide more ethical clarity. Watchdog groups believe that lobbying is an honorable profession, and that pursuing clear public policy objectives, along with corporate profits, can be compatible.
A major fear, says John Castellani, director of the Business Roundtable, is that the actions of a few will taint the majority of lobbyists who operate lawfully. In a similar way, the accounting scandals of a few gave rise to Sarbanes-Oxley.
The Business Roundtable, however, is not taking as strong an approach as the Council for Economic Development, which wants its lobbying reform to include a hard look at campaign financing. “We want members of Congress to be legislators, not fund raisers,” says Charles Kolb, CED’s executive director. That could be the all-important first step in breaking the unholy spiral of money and influence.
GETTING LOBBYING RIGHT
- Have clear, precise objectives for lobbying goals.
- Know thoroughly the subject about which you are lobbying.
- Take a holistic approach; don’t just contribute money and forget.
- Consider building an entire campaign-grass roots, media ads, direct lobbying-to reach your goals
- Educate yourself on how Washington really works.
- Don’t assume campaign contributions assure a vote your way.
- Keep close tabs on lobbying firms you hire.
- Take immediate action if a lobbyist or staffer missteps.
- Don’t do anything you wouldn’t want publicized.
McCain to CEOs: Be Careful
Mark C. Thompson, coauthor of Success Built to Last: Creating a Life That Matters (Prentice Hall, September 2006), interviewed Sen. John McCain, who has been a critic of lobbying efforts. Here are excerpts:
Q. How would you counsel Corporate America to interact with Washington?
Lobbying is fine. The Constitution says everyone has a right to petition their government. It’s the system here that’s broken…that you can put these so-called earmarks [into legislation] with no one knowing about it. That system attracts bad people and sometimes it makes good people do bad things. So my advice to Corporate America is make sure your representatives are conducting themselves in a way that they would want to read about on the front page of The New York Times or The Washington Post. Not whether it’s right or wrong technically, but how it appears. Because it’s not what you do, it’s what you appear to do.
Q. So how did we get from debating the issues to assassinating each other’s character?
I’ve puzzled over why there’s been this deterioration in the political discourse in America. I’m sure there’s a whole variety of reasons. I think one of them is we’re in a very short news cycle. Part of it is talk shows that exacerbate differences of viewpoints, which increases their ratings. And I think also perhaps we don’t spend enough time trying to understand one another’s viewpoint. And some people who engage in this kind of bitter partisanship win elections. So I think the only way we’re going to cure it is when the American voter rejects that kind of conduct and rewards at least a certain bipartisanship where bipartisanship is called for.
This is a very difficult time in American history. We have the War on Terror. We have a tenuous situation in Iraq. We have the Iranians trying to acquire a nuclear weapon. We have problems in Nigeria, Venezuela, and greater issues between ourselves and our old enemy the Russians. It’s going to require leadership. It may entail sacrifice. I think it’s up to leaders to tell the American people it’s going to be tough.
Q. What can CEOs do to support these issues?
This election coming up in November will be a seminal election. There’s great unrest out there among the American people. Approval of Congress is 25 percent; disapproval is 75 percent. Support candidates and issues that you believe in. Have a hand in the electoral process. Make sure that everyone votes. And be respectful of the views of others.