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Governmental Corporate Coaxing: A New Perspective on How Governments Influence Corporations

In strategic management, the question of governmental control over multinational corporations stands as a perennial concern. A longstanding belief posits that governments exert substantial influence over corporations by establishing and enforcing regulations governing their operations. This perspective has prompted extensive research into how corporations secure resources from governmental entities.

Predominant research predominantly highlights two methods through which governments assert control over multinational corporations: government fiat and bargaining. Government fiat entails the imposition of regulations and policies on corporations, while bargaining involves a reciprocal exchange of resources between governments and corporations. However, our understanding remains limited regarding how governments can shape corporate behaviour when direct control is absent and bargaining with global corporations is unfeasible.

Beyond bargaining, extant literature suggests that actors can employ non-market strategies, such as bridging and buffering, to navigate their external environments. Bridging entails adapting activities to align with external expectations, which are often influenced by diverse interest groups and electoral constraints. This makes it challenging for governments to align with corporate expectations.

Conversely, buffering is a strategy wherein corporations shield themselves from government regulation and seek to influence it through established political ties. However, this concept loses applicability when governments must expeditiously secure specific corporate resources without the luxury of establishing long-term relationships.

Nonetheless, the notion of buffering underscores the significance of influence. Corporations are known to exert influence on governments through various political activities, both overt and subtle. Recent research underscores the importance of soft forms of corporate political activity, especially for less influential firms. Yet, the mechanisms through which governments, confronting unique constraints and lacking established lobbying processes, exert influence on corporations remain unclear.

We see how the UK government, despite its dependence on credit rating corporations, employed specific intermediating, enabling, and facilitating processes to exert influence. These processes have been integrated into a model of governmental corporate coaxing, elucidating how governments, operating within a system of robust checks and balances, can persuade corporations to provide specific resources.

Research models contribute significantly to existing theories by demonstrating how governments, even with limited power, can employ corporate coaxing as a distinctive approach to influence corporations. This approach diverges from conventional strategies such as government fiat, bargaining, bridging, and buffering. It challenges the prevailing notion of governments as passive stakeholders in corporate activity, highlighting their potential for more active involvement and indirect influence over corporate decision-making.

In conclusion, there are valuable insights into the nuanced dynamics of government-corporate interactions, illuminating an underexplored facet of strategic management theory. By providing a fresh perspective on how governments can influence corporations, we aim to enrich the discourse on this subject and stimulate further research in the field.

Within government-corporation interactions, the practice of governmental corporate coaxing has emerged as a strategic approach employed by democratic governments to secure vital resources, often within the constraints of limited direct control.

Compartmentalising Communication This category encapsulates the technique employed by government officials to regulate the flow of information related to securing corporate resources within the state. They achieve this by selectively sharing varying degrees of information with different segments of the government, institutions, and the public. Such compartmentalization enables officials to circumvent resistance and concerns across these different sectors.

Classifying Communication In the context of a democratic government, expected to be transparent and accountable to the public, managing the sensitive nature of a credit rating was a delicate undertaking for the UK Treasury. It is worth noting that the Treasury’s intentions were explicitly non-publicity and confidentiality, as they wanted to prevent unwanted attention to the credit rating discussions. Officials were aware that a favourable credit rating could necessitate economic reforms that might face opposition. Conversely, a poor rating would lead to negative publicity and economic risks. This opacity was maintained, with the Treasury even preparing responses to potential press questions. For instance, if asked about contact with rating agencies, the chancellor was advised to acknowledge it but downplay its significance.

Channeling Communication Surprisingly, not even those working closely with the Treasury on the credit rating efforts had insight into the government’s broader financial planning. Without Morgan Stanley’s knowledge, the Treasury compiled a list of alternative banks that they could potentially partner with to secure loans in New York. In November 1977, the chancellor discreetly approved Morgan Stanley’s approach to the credit rating agencies, a move subsequently approved by Callaghan.

Process 3: Facilitating Processes of Governmental Corporate Coaxing Facilitating processes outline how government officials adopt strategies to make their coaxing of corporations more effective and likely to succeed. While enabling processes occur mostly within the state to initiate corporate coaxing attempts, facilitating processes involve interactions between government officials and corporations. Research highlights specific tactics employed by the Treasury and BE to enhance the effectiveness of their corporate coaxing efforts. These tactics were informed by Morgan Stanley, who emphasized that rating agencies were open to informal discussions before official rating applications, which proved beneficial to several sovereign governments. The bank also recommended defining areas of particular interest to these agencies. Leveraging Morgan Stanley’s advice, memos reveal that Treasury officials understood that their objective was to persuade the agencies. To bolster their coaxing efforts, government officials implemented two processes: traversing transparency and interlacing institutions. These processes unfolded in March 1978 when rating agency analysts visited London to assist in determining the ultimate rating decision.

Traversing Transparency This category illustrates how officials navigate between revealing and concealing state information. On one hand, significant state information is often in the public domain within a democratic state. On the other, officials aim to present the government and state in a favourable light. Factors such as the government’s survival of a vote of no-confidence, high inflation, and unemployment were widely publicised. To interact with the agencies, officials employed two tactics – leveraging government privilege and employing impression management.

Employing Government Privilege The Treasury and BE exercised a high degree of control over the data shared with rating agencies. While these agencies requested access to a private IMF report about the UK’s state, the Treasury firmly declined, citing the confidential nature of these documents. It is important to clarify that the government had the option to release these documents but chose not to do so. This stance was consistent with previous instances in which the government declined to disclose documents to the public on the grounds of privilege and public interest.

Using Impression Management: The Treasury was well aware that rating agencies would expect to engage with senior officials. Hence, preparations were made to “showcase” these officials, including the chancellor, to the agencies. The Treasury aimed to manage impressions and prevent the agencies from interacting with individuals outside the BE or Treasury. This was considered impractical, as briefing these individuals within the available timeframe would be challenging. During these discussions, Treasury officials and Chancellor Healey attributed recent economic issues to a combination of economic management and secular and cyclical factors affecting many nations.

Interlacing Institutions: This category outlines how officials emphasise their ability to wield influence by working within and between established state institutions. This involves highlighting the capacity of government officials to coordinate various state institutions and manage the complex interconnections between them. Treasury and BE officials employed corporate coaxing to signal to the rating agencies that UK institutions represented a credible investment and, consequently, that the government held substantial influence over a range of macroeconomic factors. This was achieved through three tactics: signalling institutional alignment, emphasising institutional capabilities, and underscoring institutional durability.

Signalling Institutional Alignment: The UK Treasury was acutely aware of the government’s socialist image and the country’s recent economic struggles. To counter this perception, the Treasury aimed to present UK government institutions as aligned behind minimal government intervention in the economy. The chancellor expressed a desire for a loosely structured arrangement regarding income policy and limited government interference in union and industry pay norms. Officials stressed how both the Treasury and BE were committed to key performance metrics, including high employment levels, low inflation, and improved industrial relations. In preparations for the rating agencies, civil servants consistently referred to the “government” rather than the Treasury, emphasising a unified approach across all government departments.

Highlighting Institutional Capabilities: Chancellor Healey adopted a fundamental tactic of emphasising the extensive capabilities of the government. Morgan Stanley advised the Treasury to underscore the significance of state institutions and for the chancellor to highlight various elements affecting the nation’s creditworthiness. Healey emphasised the strengthening of the national economy and the potential of North Sea Oil as a national resource. The extraction of North Sea Oil was projected to contribute £8 billion to the current account. Healey also outlined a range of planned economic measures, including no significant expansion of the public sector in the following decade, no further nationalisation, and plans to reduce income tax. It is worth noting that Healey’s autobiography acknowledges the challenges of controlling national taxation and industrial performance, underscoring the government’s intention to shape analysts’ perceptions by highlighting its substantial capabilities.

Insights by: Dr Jay Wasim