Agency issues with small lobby firms: a test of competing hypotheses

Abstract

Several scholars have suggested that agency problems might significantly influence how well lobby agents represent the interest of their lobby principals (Stephenson and Jackson in Harv J Legis 47(1):1–20, 2010; Kersh in Crit Rev 14:237–258, 2000; Lowery and Marchetti in Interest Groups Advocacy 1(2):139–170, 2012). Schiff et al.’s (Interest Group Advocacy 4(3):225–248, 2015) analysis of lobby spending by major clients of the top 19 lobby firms in Washington in 2012 found strong support for these expectations. We address the generalizability of their finding by using the same explanatory model employed by Schiff et al. (Interest Group Advocacy 4(3):225–248, 2015), extending their analysis to the same principals’ spending with smaller lobby firms. After outlining competing expectations about the severity of agency problems with smaller lobby firms, we assess their veracity with 2012 data. In the conclusion, we discuss the implications of our findings for the generalizability of agency problems in lobbying relationships between principals and agents.

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Notes

  1. 1.

    This inherent ambiguity is further compounded by a number of traits of lobbying as a service. The first is the inherent complexity of the policy process, a complexity that is often bewildering to principals/clients not routinely engaged in it (Hillman et al. 2004, 846; Leech 2013, 18). Second, the outcomes of lobbying are not solely dependent on the work of one organization, but rather on the collective efforts of all lobbying on an issue (Baumgartner et al. 2009, 110), which may generate metering problems or an obscuring of the relationship between the inputs of a production process and its outputs (Alchian and Demsetz 1972). Third, unlike other services, lobbying success is more often than not defined by a nonevent. Because the status quo usually wins (Baumgartner et al. 2009, 242), a lack of any policy change constitutes success for those supporting stasis. Yet, it is difficult to link a lobbyist’s effort to the absence of an event. And fourth, when lobbying does try to change the status quo, successes are likely to be lumpy and rare (Keim and Baysinger 1988, 175), again making it difficult to measure effectiveness in a continuous manner.

  2. 2.

    Another type of such a conflict concerns contract lobbyists who have multiple clients. The simplest conflict of this sort arises when the interests of two clients might conflict at one point in time (Rosenthal 2001, 103). But conflicts might also arise over time as a lobbyist modifies how he or she represents the interests of one client in anticipation of representing future clients.

  3. 3.

    That is, the work of lobbying will more often than not be quite different from the core technology of the client organization.

  4. 4.

    Monitoring often suffers from site asset specificity when an activity takes place at a distance (Williamson 1981, 555); most direct lobbying takes place in capitols, where simple distance makes monitoring difficult.

  5. 5.

    Even with lobby registration, one can rarely glimpse inside a legislator’s office to see what is said and how it is said, and it is even harder to observe informal exchanges that occur at campaign events or fund-raisers.

  6. 6.

    Thus, interests may diverge in terms of the types of activities undertaken. Stephenson and Jackson (2010, 9), for example, note that “precisely because certain aspects of lobbyist performance are easier to observe than others, lobbyists have an incentive to distort their efforts in the direction of those activities that are more easily observable by the clients, even if other forms of more subtle difficult-to-observe effort would better advance the client’s interests.” And the misdirection of lobbying efforts may even extend to lobbying targets. As again suggested by Stephenson and Jackson (2010, 9), “imperfect monitoring may give lobbyists an excessive incentive to achieve easily observable short-term successes that can be directly attributed to the lobbyist’s efforts, and an excessive incentive to avoid easily observable defeats.” In all of these respects, then, the activities lobbyists engage in might less than fully represent the interests of clients.

  7. 7.

    Lobby disclosure reports provide rather precise information on spending and only more crude measures of the other forms of lobby behavior. And just as importantly, spending should be much more directly observable by the principal than other manifestations of lobby behavior, thus making spending a hard test.

  8. 8.

    The primary data employed in our analysis were largely drawn from the consolidated lobby disclosure reports, including a series of dummy or count variables drawn from the industry and issue codings provided by the report forms, the location of the principal, the venues lobbied, and the spending on behalf of the principal during 2012 by its contract lobby firm or firms. Additional variables were coded from the larger set of disclosure reports. This included dummies and count variables for the total number of lobby firms engaged by the principals for the four-quarter period, whether the principal lobbied on its own behalf, and the total spending by each principal across all agents (including its own direct lobbying) during 2012. Last, we separately coded whether the principal was listed in the Fortune 500.

  9. 9.

    Consumer sovereignty is also used in a normative sense. As Rothenberg (1967, 269–270) noted, “In its normative sense consumers' sovereignty asserted that the performance of an economy should be evaluated in terms of the degree to which it fulfills the wants of consumers.”

  10. 10.

    Schiff et al. (2015) also examined a dummy variable measuring a principal’s proximity to the Capitol (having an address in the Washington D.C. metropolitan area, which is typically indicative of a Washington office) as an additional indicator of the principal’s capacity to control an agent. However, perhaps as a result of limited independent variance on this variable for major lobbying principals, this variable failed to generate discernible estimates in their results. Therefore, we excluded this variable from further analysis.

  11. 11.

    These controls are necessary because each might itself be subject to agency problems. Agents may prefer to lobby more frequently, on more issues, or in more venues, which could influence, lead spending. Thus, to isolate the unique effect of agency issues on lobby spending by a principal with a given agent, we need to control for these other forms of agency problems. And our model includes a dummy indicating whether the principal is a Fortune 500 company in order to tap the effect of wealth on capacities to spend. Nearly a quarter of the principals were on the Fortune 500 list. We do not, however, have great expectations for this variable given that our sample is already largely restricted to large principals.

  12. 12.

    In this third block of independent variables, then, we follow Schiff et al. (2015) include dummies for the full set of 14 industry codes provided by the disclosure reports. We then included a selected set of issue dummies to tap issues on which there might be expected to be considerable lobbying.

  13. 13.

    The models were also, however, estimated separately with clustering on the client or the lobby firm given that several were included in multiple dyads or employed several of lobby firms. Similar results obtained.

  14. 14.

    The model includes all of their control variables, but excludes their DC location variable since it did not generate estimates that were discernibly different from zero in any of their models.

  15. 15.

    For midsized lobby firms, the average principal’s contract account for 6.50% of the firms lobby income. For boutique firms, in contrast, it was a whopping 40.06% of their lobby income.

  16. 16.

    Again, their results—and ours—cannot clearly distinguish between these two possible results, although either would be supportive of the general proposition that agency problems exist. Further work is needed, however, to tease out these effects.

  17. 17.

    We thank an anonymous reviewer for this suggestion.

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Correspondence to David Lowery.

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Whitesell, A., Schiff, E. & Lowery, D. Agency issues with small lobby firms: a test of competing hypotheses. Int Groups Adv 7, 82–103 (2018). https://doi.org/10.1057/s41309-018-0029-1

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Keywords

  • Lobbying
  • Principal-Agent
  • Interest Groups