Does a CEO Have a Duty to Lobby?

We need not only more disclosure, but also more work in alerting people in general (and students in particular) about the distortive effects of lobbying and the extent to which it takes place.



Luigi Zingales
Luigi Zingales

“To petition the Government for a redress of grievances” is a right inscribed in the First Amendment of the U.S. Constitution. This right equally belongs to individuals, organizations, and corporations. Thus, a CEO has the right to use corporate resources to petition the Government for a redress of any grievance her company might have. But does this right translate into an obligation? Does a CEO have a duty to lobby? Does this obligation follow from the shareholder value maximization principle, as Larry Fink seems to suggest in the Davos debate reported here?


If we limit ourselves to describing what businesses do (what we call positive economics), then the answer is obvious. Most CEOs lobby heavily. Not only do they do it, their main investors tell them to do so, as confirmed here by Larry Fink, CEO of Blackrock and one of the largest institutional investors in the world. They lobby not just to redress grievances, but to shape the rules of the game to their own advantage. Alphabet (Google) is not a regulated company (at least in the classical sense of the word), but it is one of the companies spending the most on lobbying. Why? Not only to defend the right to use the massive data it collects, but also to proactively shape the business environment in its favor. Whether one supports “net neutrality” or opposes it, he has to agree that net neutrality greatly favors Google, which fears being charged directly for the massive internet use it generates, while it penalizes telecom companies, which cannot price-discriminate to recover the fixed costs of the network they build. Not surprisingly, Google lobbies very heavily in favor of net neutrality, while telecom companies lobby against it. 


When economic giants fight among themselves, not only does the right to lobby fulfill a constitutional right, it is also efficient.  This is what Nobel Prize winner (and late University of Chicago professor) Gary Becker thought: competition among lobbies leads to efficient outcomes 1)Becker, Gary.  1983. “A Theory of Competition Among Pressure Groups for Political Influence.” Quarterly Journal of Finance 98(3):  371-400. Yet, for this result to be true two conditions need to be fulfilled. First, the different interests (or view points) should have equal ability to organize and finance their lobbying effort. As Mancur Olson (a Maryland economist who died too young to win the Nobel Prize) wrote, dispersed interests face a bigger hurdle in getting organized 2)Olson, Mancur. 1965. The Logic of Collective Action:  Public Goods and the Theory of Groups. Cambridge:  Harvard University Press. Thus, citizens interested in clean water have a harder time lobbying Congress than chemical companies who pollute it (see the DuPont case described here).  Second, lobbying is efficient if it is entirely dedicated to providing information to the legislator. While some lobbying certainly performs this role, not all of it does, as shown in this paper. If lobbying is (mostly?) about influencing rather than about informing, then it is a tantamount to an arms race, which leads to inefficient outcomes with too much lobbying 3)Tullock, Gordon. 1972. “The Purchase of Politicians.” Western Economic Journal 10: 354-355..


Thus, under realistic conditions lobbying tends to be excessive from a social point of view: not only does it waste resources, but also might lead to the wrong decisions: favoring the strongest player, not necessarily the one with the most valid claim. If this is the case, then there cannot be an economic duty to lobby, at least not one based on sound economic principles, since this prescription would lead to outcomes that are inefficient. 


This conclusion seems to contradict the traditional theory of the firm. If the goal of a CEO should be to maximize long-term shareholder value and lobbying does produce this outcome (see for example), for evidence that lobbying firms have higher returns), why shouldn’t CEOs do so?  Yet, in his famous piece where he advocates that firms should have a single-focused goal of maximizing shareholder value, Milton Friedman was very careful in stating the assumption that “the basic rules of the game” were off limits to firms. Thus, implicitly even Milton Friedman recognized that– when lobbying is present and effective– his prescription does not necessarily hold.


Then, the question is not whether firms have a duty to lobby but whether from an economic point of view the cost of putting restrictions to firms’ lobbying activity (if this were constitutionally allowed) is superior to the potential benefits of these restrictions, with the understanding that–left to themselves—firms will lobby aggressively and probably lobby too much. Some people (including my colleague and friend Steve Kaplan) think that lobbying activity is a minor and inconsequential part of firms’ activity. Thus, it is not worth changing our prescription for it. This belief is certainly supported by the absolute value of the amount spent in lobbying. Alphabet, a company with a $515 billion in stock market capitalization, spends only $17 million a year in lobbying. Why should this be such a big deal?


Yet, this conclusion relies heavily on a very narrow definition of lobbying. In reality, the amount of resources most firms spend in influencing public policy is much larger. It includes a big chunk of the advertising many firms do–otherwise why would many firms with no consumer products, like ADM, engage in massive advertising? It also includes a lot of philanthropy, like many oil companies do to acquire brownie points with local communities in case of an oil spill. It includes also campaign donations and all the time and resources companies dedicate to help political candidates. During the last presidential election, Google’s CEO Eric Schmidt offered technological help to the Obama campaign. Is it just a coincidence that the FTC commission appointed by his administration decided not to proceed with an antitrust case against Google, in spite of the favorable opinion of the FTC research department?           


If the definition of lobbying is broadened and the consequences are potentially so ominous, it is neither minor nor inconsequential. And if this were the case, it would be hard to argue that consumers can offset Google’s lobbying. The call for papers that the Stigler Center (in conjunction with HBS) has launched tries to answer precisely these questions and to stimulate a debate on what should be done.


In the meantime, my modest proposals (which I advanced in my 2012 book A Capitalism for the People are as follows. Even if the Constitution allowed for laws to restrict corporate lobbying (and, in the United States after Citizens United, it is not), it would be a practically impossible task to achieve. Thus, one potential remedy is to introduce a progressive tax on lobbying expenditures. The proceeds of this tax could then be used to strengthen the advocacy of public interest groups, which are poorly coordinated and poorly financed, to level the playing field. This money could then be allocated to various groups using a voucher system, along the lines of Larry Lessig’s proposal for campaign financing reform. 


The second remedy is a combination of naming and shaming. Most people feel it is socially legitimate for a company to lobby to redress an injustice, like a higher tax rate that penalizes one company vis-à-vis the rest. At the same time, I suspect many people would feel uncomfortable with a company lobbying to protect an unjustified tax loophole that benefits it greatly (certainly I do). Thus, exposing excessive lobbying can play a role in mitigating it.


For this to take place, however, we need not only more disclosure, but also more work in alerting people in general (and students in particular) about the distortive effects of lobbying and the extent to which it takes place. Academia (and in particular business schools) should play a key role in this direction. This is one of the key missions of the Stigler Center.    


With a clear social norm on what constitutes acceptable lobbying, the legal principles of corporate governance do not need to be changed. As I already discussed here, the American Law Institute’s principles of corporate governance states that a CEO “may take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business” (emphasis added). Thus, there is no way a shareholder can sue a manager for breach of her fiduciary duty if the CEO does not undertake socially inefficient lobby.


Yet, who decides what is reasonable and responsible? Once again Academia plays a big role here. Hence the importance of the conference we are organizing on this theme.


Other related posts:


Can a CEO in Good Conscience Not Be a Crony Capitalist?


Why This Blog? 


Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy.

References   [ + ]

1. Becker, Gary.  1983. “A Theory of Competition Among Pressure Groups for Political Influence.” Quarterly Journal of Finance 98(3):  371-400
2. Olson, Mancur. 1965. The Logic of Collective Action:  Public Goods and the Theory of Groups. Cambridge:  Harvard University Press
3. Tullock, Gordon. 1972. “The Purchase of Politicians.” Western Economic Journal 10: 354-355.


  1. CEOs have a duty to lobby and government has a duty not to take notice. You get problems when politicians see advantage in taking notice of those lobbying – be they businesses, trade unions, professional groups, churches or whoever. What you have here is problem with politicians not CEOs.

  2. caro Professor Zingales,
    da qualche tempo la seguo con molto interesse, soprattutto -ma non solo- circa i temi del governo societario.
    Mi scuso se scrivo in italiano.
    Nel post Lei dice, se non erro : 1) che economicamente il lobbying non è efficiente nell’ottica complessiva della società; 2) che , proprio per questo, non è un dovere per gli amministratori, come sostenne anche M. Friedman, laddove scrisse che gli amministratori devono rispettare le regole del gioco.
    Ma, appunto, è corretto invocare M. Friedman? Le regole del gioco infatti quasi mai prevedono un divieto di lobbying: anzi in taluni stati è regolamentato e quindi ammesso (nei limiti di legge).
    Inoltre, in linea di diritto e con riferimento al diritto italiano, gli amministratori devono dare esecuzione al contratto sociale, perseguendo gli interessi dei soci (<>) : devono quindi conseguire il massimo profitto. Infatti secondo l’art. 2247 codice civile, <>.
    Una simile norma difficilmente può essere vista come ostativa ad una condotta lobbistica o comunque a condotte massimizzatrici del profitto , che non violino norme di legge. O sbaglio?
    Inoltre, si può forse dire che l’amministratore non solo non viola alcuna norma, ma è anzi obbligato a fare lobbing, al punto che un socio può citarlo in responsabilità se non lo fa?
    C’ è innanzitutto un problema di quantificazione del danno e di nesso di causalità (sarebbe assai difficile provare che, se avesse fatto lobbying, avrebbe prodotto maggior profitto o evitato certi danni; forse nemmeno in termini meramente probabilistici).
    Ma a parte questo aspetto, Lei risponde, se non erro, che un socio non può citare un amministratore in responsabilità, poichè la lobby è socialmente inefficiente. Però si potrebbe replicare che l’amministratore non deve curarsi della efficienza complessiva della società , bensì solo di quella della società da lui amministrata; “efficienza” , poi, da intendere come idoneità a generare il massimo profitto, tale da dare esecuzione nel modo più diligente al contratto sociale.
    E’ invece più facile argomentare che l’amministratore non è tenuto a massimizzare il profitto violando la legge, anche se, tutto calcolato, ciò convenisse alla società. Non solo non c’è obbligo in tale senso , ma vi è anzi obbligo di non farlo: nel senso che se producesse profitti con modalità illecite, violerebbe l’obbligo (legalmente espresso: art. 1176 cod. civ. ) di comportarsi con diligenza (vi sarebbe forse un problema di quantificazione risarcitoria: nel senso che sarà pur vero che –commettendo illeciti- è stato negligente, ma ciò facendo ha purtuttavia portato denaro nella casse delal società: ed allora che ne è di tali risorse di provenienza illecita?)
    Che ne dice?
    Distinti saluti
    Lorenzo Albertini

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