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Before finalizing proposed rules, government regulators solicit comments from the public. The process is designed to seek the views of a wide variety of parties, including for-profit businesses and nonprofits with social missions. Regulators expect that hearing from many competing perspectives will lead to a body of comments that broadly reflect the public interest.
But a new paper points to financial links between commenting nonprofits and companies that illustrate “how this logic of virtuous competition can break down.” The authors researched data on US federal regulatory rulemaking from 2003 to 2016 to analyze connections between nonprofit groups—which regulators are likely to see as unaffiliated and acting for the public good—and companies that donate to them. They found that corporate donations tend to generate supportive regulatory comments from nonprofit recipients.
“What we’re doing is trying to see the footprints in the data in its entirety, as distinct from the really compelling anecdotes and the great work done by others,” including investigative journalists and activists, says coauthor Raymond Fisman, a professor of behavioral economics at Boston University. He wrote the paper with Marianne Bertrand, a professor of economics at the University of Chicago Booth School of Business; Matilde Bombardini, an associate professor in the Business and Public Policy Group at the Haas School of Business, University of California, Berkeley; Brad Hackinen, an assistant professor of business, economics, and public policy at the University of Western Ontario’s Ivey Business School; and Francesco Trebbi, also a professor at Haas.
Their analysis demonstrated three major findings. First, once a corporation or corporate foundation gives money to a nonprofit—a donation that is tax-exempt and allowed under the law—that same nonprofit is more likely to submit comments on regulatory actions if the company itself has already commented. Second, nonprofits that took money from a company were more likely to file comments that made similar points to the company’s own comments. And third, “the final rule’s discussion by a regulator is more similar to the firm’s comments on that rule when the firm’s recent grantees also commented on it,” the researchers write.
While donations to nonprofits typically come from a company’s affiliated foundation, there’s a difference between regular corporate giving designed to make customers and employees feel good about a brand and money intended to stand up a surrogate in a regulatory fight.
“I’d distinguish between corporations engaging in philanthropy and community work because it makes loyal customers and creates social value; that’s wonderful,” Fisman says. “The problem that emerges here is that they may be using their ostensible good works to secure government favors that work against the public interest.”
Regulators may tend to think that comments from nonprofits represent their unbiased view of how a proposed rule would affect the vulnerable populations they serve, but the nonprofit executives instead may be taking positions that their corporate donors would like them to take.
“Here you can imagine an entirely well-meaning regulator trying to separate expert advice from bias,” Fisman says. “This process is distorted by companies influencing the commenting behavior of nonprofits.”
The data suggests this influence is pervasive, given the prevalence of companies and the nonprofits they support writing letters about the same rules. For example, the researchers found that the probability of a nonprofit commenting on a rule is 3 to 5.5 times higher when a donor first comments on that same rule.
“The magnitude of the effect relative to some baseline probability that any corporate-nonprofit pair would comment on the same piece of regulation is surprising to me,” Fisman says.
Although it’s long been understood that corporate philanthropy is a form of marketing, the paper makes inroads into looking at these donations as a way to capture unwitting regulators as well.
“This is a fascinating and compelling study of how corporations can advance their economic interests through their nonprofit funding,” says Christopher Marquis, a professor of Chinese management at Cambridge Judge Business School. “The authors use systematic data and rigorous analyses to show that nonprofits’ advocacy work follows their grantors’ interests in their comments on rules.”
One particularly illuminating case study in the paper, Marquis says, highlights the role of Coca-Cola and PepsiCo in shifting the regulatory and legislative environment in their favor in the 2010s, when momentum was gaining around the United States for taxes and other regulatory crackdowns on sugary sodas due to their role in causing obesity. Such campaigns fizzled when nonprofits that had received funding from the two giant soda manufacturers spoke out against the new rules, investigative reporters later found.
“This is pernicious, as the regulators likely think the nonprofits are independent and impartial constituencies, but in fact the analysis suggests they are not,” Marquis says.
Marianne Bertrand, Matilde Bombardini, Raymond Fisman, Brad Hackinen, and Francesco Trebbi, “Hall of Mirrors: Corporate Philanthropy and Strategic Advocacy,” Quarterly Journal of Economics, vol. 136, no. 4, 2021.
Read more stories by Chana R. Schoenberger.