Lobbying can help companies reduce costs related to product recall, but it can also have a negative impact on the firm's image. Research published in Strategic Management Journal offers clear data on the phenomenon, suggesting that managers should pay careful attention to the reputational cues from the media to determine when lobbying may be problematic and to refrain from the practice.
Firms can use lobbying to influence the government, which in turn potentially limits their costs during product recall crises. Previous research has shown that when a firm increases its lobbying spending by approximately $417,014, which has been found to lead to one less recall, it can save the firm millions of dollars. Each recall conservatively costs about $12 million. Such lobbying can, however, draw scrutiny from the media if the lobbying gives the impression that companies would rather save costs than focus on safety, which can come across as hypocritical.
The researchers — Jinsil Kim of the College of New Jersey, Miranda J. Welbourne Eleazar of the University of Iowa, and Seung-Hyun Lee of the University of Texas at Dallas — wanted to better understand how firms could resolve the tension around lobbying. They hypothesized that the greater the negative publicity of a firm's product safety recalls, the less likely that firm would be to lobby for recall-related issues.
The researchers used auto firms' lobbying responses to news about product recalls and lobbying. They tapped multiple data sources and a sample of 3,747 manufacturer-recall observations related to auto recalls and lobbying in the U.S. between 2008 and 2022. They also conducted 15 interviews with lobbyists and heads of external affairs overseeing firms' lobbying activities.
"As there is more and more attention around this issue, and we've come long past the era when the focus was only on the gains from corporate political action, firms are increasingly considering this tension as well," Kim says. "We asked what the triggers or signals that firms look out for in their decision regarding CPA (corporate political action) management: whether to go ahead with lobbying or strategically eschew it."
Upon analysis of the data and interviews, they found that companies are more likely to strategically refrain from lobbying to minimize additional, unwanted media spotlight and its associated negative repercussions when they receive negative media coverage of product recalls, or recall-related lobbying. While lobbying can reduce costs related to product recalls, the repercussions to firm reputation appear to not be worth the savings.
"From our field interviews with corporate lobbyists and head of external affairs, we learned that practitioners are aware — to a certain extent — of the impact of media and pay much attention to what goes on in the media, and make lobbying decisions accordingly," Kim says. "We view that our paper would reinforce their tendencies to exercise caution. It may be challenging to accurately anticipate the costs and benefits upfront, but we've made a first step by showing that gauging the media temperature is important."
To read the full context of the study and its methods, access the full paper available in the Strategic Management Journal .
About the Strategic Management Society
The Strategic Management Society (SMS) is the leading global member organization fostering and supporting rigorous and practice-engaged strategic management research. SMS enjoys the support of 3,000 members, representing more than 1,100 institutions and companies in more than 70 countries. SMS publishes three leading academic journals in partnership with Wiley: Strategic Management Journal, Strategic Entrepreneurship Journal, and Global Strategy Journal. These journals publish top-quality work applicable to researchers and practitioners with complementary access for all SMS Members. The SMS Explorer offers the latest insights and takeaways from the SMS Journals for business practitioners, consultants, and academics.
Click here to subscribe to the monthly SMS Explorer newsletter.
Click here to learn more about the programs and opportunities SMS has to offer.
