Directors to Lobbyists: Stop Picking Our Pockets
from
November/December 2007
by Craig Mellow
Congressional efforts this year to rein in lobbyists continue to stoke controversy. They’re too little, say some critics, including Senator John McCain. Too late, say others, still incensed at Jack Abramoff’s favors to lawmakers, their aides, and even a White House honcho. And hardly tough enough to quell the frustration felt by many directors.
American business is paying more than ever to influence government, laying out a reported $2.59 billion in 2006—a 66% increase since 2000, according to the Center for Responsive Politics, a Washington research outfit that tracks how money influences public policy.
U
nreported spending, which includes advertising and grassroots organizing, may be close to $8 billion, says the Committee for Economic Development, a business and civic group in Washington. But money is not buying happiness, to judge by dozens of interviews
Corporate Board Member
conducted with directors, as well as top corporate managers and Beltway savants. “Business is tired of being shaken down by politicians. The business community wants to compete in the marketplace, not the political arena,” says Charles Kolb, president of the CED.
Gone into newsreel antiquity are the halcyon days when commercial and national interests aligned in the Marshall Plan and GM president “Engine Charlie” Wilson assured an Eisenhower-era Congress that what was good for America was good for General Motors, and vice versa. Business leaders increasingly feel they need government to solve 21st-century megaproblems such as health care, immigration, energy and the environment, and trade imbalance. But they do not believe that the current political lineup is up to the task—divided as it is into ever-shriller partisan wings and manipulated by ever-more-sophisticated special interests. “There’s a broad consensus in the business community that the system is broken,” says Patrick Gross, 63, a former Defense Department official. Now chairman of the Lovell Group, a high-tech investment and advisory firm in Washington, and a director of five corporations, including financial giant Capital One, Gross adds, “The current political environment will not support economic growth in the long term.”
The lobbying arms race, directors conclude, has bogged down into trench warfare in which the battle lines are typically drawn by one industry association fighting another. Each side may make tactical advances, but the larger landscape is laid waste by their high-priced K Street weaponry. “If we stay on the current course, with no real energy policy, in 30 years we’ll depend on foreign powers to keep our lights on, not just drive our cars,” warns Nicholas DeIuliis, 39, CEO and director of Pittsburgh-based CNX Gas Corp. “But you see a lot of self-interest in different sectors of the energy industry getting in the way of that policy.”
The number of registered Washington lobbyists more than doubled between 2000 and 2005, from 16,342 to 34,785, according to the
Washington Post
. Not coincidentally, Congress saw an explosion of appropriations via earmarks––footnote provisions in the massive omnibus spending bills that keep the government functioning, often tacked on unbeknownst to anyone but the sponsoring members. A mind-boggling 15,500 earmarks worth $64 billion became law last year, up from 3,000 and $19.5 billion in 1996, according to the Congressional Research Service. Politicians usually survive questions that follow earmarking. But not always. Republican congressman Randy “Duke” Cunningham was convicted last year of taking millions of dollars in cash and gifts in exchange for earmarks benefitting a military contractor.
Lobbying has intensified in the executive branch too. Paula Stern, 62, chairwoman of the International Trade Commission under President Reagan and now a board member at Avon, telecommunications provider Avaya Inc., and toymaker Hasbro, points to a long patent dispute between California chipmakers Qualcomm and Broadcom. The ITC found in June that Qualcomm-driven cell phones infringed a U.S. patent held by rival Broadcom, whereupon Qualcomm unleashed “a brigade” of lobbyists, she says, to press President Bush to overrule the commission.
“There are people all over the corridors of the government saying, ‘Let’s just not enforce the ITC decision,’” says Stern, who testified for Broadcom in hearings. In June the president instructed U.S. trade representative Susan C. Schwab to review the decision for a 60-day period ending August 6. After the review, Schwab announced she would not “disapprove” the decision.
Qualcomm has supporters in the complex dispute, including would-be customer Verizon Wireless, whose spokesperson declared that the ITC ruling would “freeze innovation.” But the case exemplifies the rising intensity and complexity of corporate-government relations, and the difficulty of resurrecting the sort of big-tent business lobby that influenced politics in generations past.
Fiercer intra-business squabbling over pocketbook issues is a major factor behind what Nicholas DeIuliis of CNX Gas calls the analysis paralysis gripping Washington on the great questions. He spends as much as 20% of his time handling government relations, but three-quarters of that is with state and local governments, which are filling a policy vacuum even though the energy-environment balance is plainly a national concern. “Every state east of the Mississippi is thinking about what it can do on climate change,” he notes.
What goes for energy also goes for health care and other key political challenges, says attorney Thomas J. Spulak, 51, who was general counsel to the House of Representatives in 1994 and now lobbies for corporations including liquor producer Bacardi and telecommunications company Nortel from the Washington office of King & Spalding. “There are a mind-boggling number of issues and sub-issues and ways of addressing them in today’s government,” he says. “It often seems like the best you can do is agree on some very small subset of part of a huge issue like health care.”
The Bipartisan Campaign Reform Act of 2002—better known as McCain-Feingold after its Senate sponsors, Republican John McCain and Democrat Russell Feingold—tightened regulations on campaign contributions. But oversight of lobbying has been lax. “Lobbying disclosure is far behind the times…and compliance with the law is spotty and not meaningfully enforced,” the Committee for Economic Development concluded in a 2006 position paper. Until recently registered lobbyists just had to report, every half-year, which congressional offices and federal agencies they had contacted.
This summer Congress passed legislation to put more controls on lobbyists. It would prohibit senators, representatives, and their aides from accepting gifts, meals, or trips from lobbyists; impose penalties of up to $200,000 and five years in prison for any lobbyist who provides those things; and compel lobbying firms to certify each quarter that their people have complied. Other provisions of the legislation would require more disclosure by lobbyists of the money they give to political campaigns and would put more restrictions on lawmakers who become lobbyists.
But loopholes remain, and, says Senator McCain, the bill falls short of effective reform. There is a private-sector push for stronger action too.
For example, the CED’s Making Washington Work initiative is pressing for an independent agency that would monitor relationships between lobbyists and members of Congress. And on earmarks, it wants a 72-hour delay to allow scrutiny of any doctored bill, plus declarations from sponsors about any connection they have with beneficiaries.
A call for more openness on the part of those who lobby the White House and federal agencies has not yet been answered. But a bill addressing that issue is being sponsored by a bipartisan team that includes Henry Waxman, Democratic chairman of the House Oversight and Government Reform Committee, and Tom Davis, its ranking Republican. Their proposal would require the disclosure of “significant contact” between any private person and a federal bureaucrat.
The most common abuse of lobbying power, after simple budgetary pork-barreling, is using it to keep potential competitors out of one’s business. The nest of often-antiquated laws governing financial services is particularly fertile ground for these grown-up games of monopoly, says Peter J. Wallison, a senior fellow at the American Enterprise Institute, a conservative think tank. Realtors, for example, have successfully pressured Congress to prevent banks from opening real estate brokerages, and the banking lobby quashed Wal-Mart’s attempts to introduce in-store financial outlets; the Federal Deposit Insurance Corp. simply refused to rule on the giant retailer’s license application.
Lackluster antitrust enforcement in recent years has worsened the competitive landscape in other key industries, to America’s general detriment, directors say. One is defense, where mergers and acquisitions have left no more than half a dozen major contractors. That concentrates lobbying power and makes it easier for the remaining companies to defend multibillion-dollar Cold War weapons systems against cutbacks, says Jacques S. Gansler, under secretary of defense for acquisition, technology, and logistics from 1997 to 2001 and now a professor at the University of Maryland and a director of the unmanned-technology company iRobot. “With 20 large defense firms down to five or six huge firms, naturally they have more power to keep producing more expensive ships, tanks, and planes,” Gansler says. “The press likes to focus on alleged fraud in contracting in Iraq. But even if it existed, that’s a question of millions. Waste costs billions.”
Reed Hundt, 59, a former chairman of the Federal Communications Commission and now a director of three technology companies, says that the telecommunications industry, long a poster child for the benefits of deregulation, has also become unhealthily concentrated, with AT&T and Verizon exercising an effective duopoly over America’s wireless connections. “And there are 10,000 lobbyists in Washington working for Verizon and AT&T to keep it that way for the next 20 to 40 years,” he says. “What this country needs is a competition policy, whether it’s restraining the oil cartel, the HMOs’ dominance of health care, or the old Ma Bell putting itself back together.”
Many of the directors interviewed concede that boardrooms and executive suites share some responsibility for government problems, because they feign disinterest in politics but nevertheless build armies of lobbyists to battle for every advantage that can be obscured within a 700-page document. “Business complains about government but could have more fundamental influence,” says director Paula Stern. “When they have a tax issue affecting their company, that’s when they send their top executives to Washington. Broader issues get more token attention.”
Daniel Yankelovich, 82, the veteran pollster, says that Americans’ trust in business leaders has fallen to levels previously seen during the Great Depression and the Vietnam-Watergate-stagflation era of 1968 to 1980, with just 28% believing last year that corporate bosses will “do what is right most of the time.” That’s
down
from 36% in 2002, when the Enron and WorldCom scandals were making headlines.
A 2006 survey of 721 directors and senior executives by McKinsey & Co. found that 44% thought captains of industry “should play a leadership role in efforts to address public issues.” Just 14% said they themselves currently play such a role. “That 30% difference is what I call the leadership gap, and getting those people involved is a problem you can solve with the right tools and organizations,” says Lenny Mendonca, director of McKinsey’s strategy practice, who is running a series of corporate forums to follow up on the survey. “The encouraging surprise from this process is that there is a lot more interest than I had expected.”
If that interest translates into action, then perhaps—perhaps—business will help some big-picture solutions take precedence over self-serving strategy. And, with a nod to “Engine Charlie” Wilson, that might mean that what is bad for lobbyists is good for America.
