Recalls can be costly — a conservative estimate suggests a recall can cost about $12 million. One way to limit the negative consequences is to engage in lobbying to lower the penalties. For example, Toyota avoided paying $100 million in penalties in 2010 related to unintended acceleration recalls. But the lobbying drew media attention, and Kurt Bardella, a spokesman for Representative Darrell Issa of California, the ranking member of the House Oversight panel, was quoted saying that Toyota was, “lobbying for less rigid actions from regulators to protect their bottom-line.” The report suggested that Toyota was more interested in money than safety, and it begs a greater question: how much should firm managers pay attention to media scrutiny in their decision to lobby?
Research published in Strategic Management Journal offers clear data on the topic, suggesting that managers should pay careful attention to the reputational cues from the media to determine when lobbying may be problematic during recalls and to refrain from the practice. 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, and they looked to the auto industry for answers.
Companies 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 a firm millions of dollars. But lobbying can 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 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. 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.
The team 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.
“An important thing to remember is that lobbying is a normal, legal part of the democratic process, so a firm may not have to stop lobbying altogether due to stakeholder pressures,” Kim adds. “However, we’ve seen more recently that the media and other stakeholders’ scrutiny may push a firm to disclose their lobbying (one example being ExxonMobil), or abandon their political donations (another form of corporate political action) or come up with workarounds.”
This focus on a firm’s lobbying and other corporate political actions underscores what the paper reinforces: Managers should continue their tendencies to exercise caution by gauging the media temperature around their firm’s recall before deciding whether to lobby to reduce the costs of a recall.
