Michael Nalick
New research explains the connection between CEO ideology and spending
While it’s long been believed that CEOs are apolitical when it comes to firm lobbying and such actions are driven by professional needs rather than personal biases, new research from the University of Denver reveals that is no longer the case.
The study, which is forthcoming in the Journal of Management, found that when CEOs’ personal political ideology matches that of the political party in power, firm lobbying spending will increase. It will decrease when there is a mismatch with the majority political party.
Further, firms will alter lobbying tactics by employing more external lobbyists relative to in-house lobbyists when the CEO’s ideology differs from the political party in power. Importantly, these findings reveal CEO perceptions of the government as ally or adversary are vital when considering nonmarket-related actions and strategic decision making for political activities.
Overall, this study sheds new light on lobbying activity and extends the idea that CEO personal values, via value congruence, influence how the firm strategically views political climates and thereby affects nonmarket outcomes.
“Our findings offer meaningful lessons for operating in a partisan political environment,” says Michael Nalick, assistant professor of management at the University of Denver’s Daniels College of Business and an author of the study. “Executives are well-advised to proceed with caution when attaching themselves and their organizations to political entities. While CEOs might be ingratiated to powerful policymakers, they might alienate particular stakeholders and members of the opposite party.”
The study investigated public firms with governance data and CEOs who engaged in campaign contributions from 1998 to 2018 – a time period that included significant changes in party control of the U.S. Congress and presidency.
“CEO political ideology often reverberates far beyond the personal sphere,” says Nalick. “Whether it be intentional or unintentional, political ideology affects a variety of individual actions. To the extent a CEO shapes the firm in his or her political image, it should be aware of both the advantages it offers, as well as the doors it closes.”
The study, “When Not One of the Crowd: The Effects of CEO Ideological Divergence on Lobbying Strategy,” was co-authored by Scott Kuban of Tulane University, Jason Ridge of the University of Arkansas, Asghar Zardkoohi and Leonard Bierman of Texas A&M and Mario Schijven of the University of Illinois Urbana-Champaign.