Corporate political activity and the constraint of stakeholder reciprocity

Abstract

Corporate political activity (CPA) has been linked to significant problems, such as agency costs for firms and the weakening of democratic institutions. We explain a previously unexplored problem of CPA: the constraint of negative stakeholder reciprocity. Reciprocity is a ubiquitous phenomenon that adds a moral dimension to markets. A robust stakeholder theory literature explains how treating stakeholders generously improves firm performance through patterns of positive reciprocity, and treating stakeholders poorly diminishes performance through patterns of negative reciprocity. Some firms, however, use CPA to avoid negative reciprocity and its economic consequences while treating at least some of their stakeholders poorly. We describe the elements necessary for reciprocity and explain how CPA targets and impairs these elements. Because reciprocity is a market governance mechanism, the intentional constraint of negative reciprocity tends to result in stakeholder mistreatment and market inefficiency.