Useful Government Affairs Practices for Businesses:

In my lifetime representing business interests, I have observed three approaches to government relations and advocacy:

1. Stonewall all new government programs and processes;

2. Cooperate to the point that you cede the subject-matter expertise and content knowledge to the government, or 

3. Or, tell the regulators what you can do to enable them to discharge their public responsibility. The International Warehouse Logistics Association generally takes tack No. 3.

However, we will move our approach to option No. 1 when we are faced with an either/or action from a hostile agency, such as the U.S. National Labor Relations Board.

But how exactly does approach No. 3 create the opportunity for warehouse-based 3PL leaders who are IWLA members to wear the white hats and build respect with government regulators?

One story starts when Congress charged the U.S. Food & Drug Administration with the task of creating and implementing the regulations that come from the Food Safety Modernization Act. IWLA quickly reached out to FDA staff to let them know that we want to be part of the process and that we will bring subject-matter expertise to help draft proposed regulations for an extremely safe food products supply chain. We also had a strong second goal: to be seen by the FDA as an organization that puts public health and product safety as a priority in the distribution of food products.

In mid-April, Pat O’Connor, IWLA’s Washington, D.C. representative, led a delegation of IWLA-member subject-matter experts to meet and confer with FDA staff members. The meeting’s purpose was to show, tell and answer questions from FDA regulatory staff about the practices of food-grade warehouses in handling, storage and distribution of food-grade products.

The result, as told by Pat and our membership delegation, was an “Aha!” moment by the FDA regulatory staff. They asked questions, received candid answers and better understood how warehouses are not sites of high-risk contamination. This awareness is foundational as the FDA moves into the actual drafting of regulations.

Successful public affairs operations, like IWLA’s, start with a strong engagement with the regulators. The regulators can see we bring immense subject-matter expertise. We create encounters where we can educate and inform so that unintended consequences don’t happen. Oftentimes we are able to achieve significant improvements because we build the groundwork based on trust.

And, should we not be shown the same courtesy and respect we give others, option No. 1 remains in our toolkit.

Rules of the Trade: How to Advocate for Business Today

Rule No. 1: Try to stay out of the press. The worst thing that can happen to a business-advocacy
issue is to have it become a referendum about feelings, emotions and fear. Here’s a perfect example: truck size and weight. The physics is proven. The safety is proven. The driver qualification is proven. And the additional strength of the concrete is a known fact.  Yet, the issue cannot be moved because the physics are politicized by the modal battle between trucks and rail. Voters react to the size of the vehicle. Overcoming that long-held fear has been a 40-year battle.

 Rule No. 2: You want the content of meetings with legislators and staff to be about the quality
of your data and an exchange of facts. The goal when meeting with officials is to build a
relationship of trust and credibility with the staff and consultants. Recognize that it is your job to protect your author and supporters with facts that enable them to talk about job preservation, job growth and wealth creation in their districts.

 Rule No. 3: Drain your comments of all emotion about your position. Issuess issues in the supply chain and 3PL industries are arcane matters to the general public: the law of bailment with respect to the federal oversight of the supply chain; C-TPAT status for 3PLs; demurrage, detention and competitive switching; tax equity between C corps and pass through corporation; nexus; when goods come to rest in interstate commerce; and overlapping jurisdictions between DOT and OSHA and hazardous materials when it moves from the truck to the warehouse.  When discussing these types of issues, the International Warehouse Logistics Association’s goal is to educate lawmakers and staff. This will give them a sense of comfort about your ask. A perfect example is the IWLA approach on food safety and security in the supply chain. Our foremost charge is to demonstrate to the FDA the practices we undertake to keep products free from contamination while in the custody of the 3PL. It is our responsibility to bring facts, documentation and research to the process.

Rule No. 4:  Keep your grassroots in reserve. When an issue you’re watching makes the front page, like the U.S. National Labor Relations Board recess appointments and that group’s regulations,
recognize you are now in a contest of wills. It is time to call out the troops. On these issues, which are in conflict from the get-go, know that letters, telegrams and district pressure are the measuring rod of success. Launch your grassroots network only when needed as some of your peers and constituents may find political action distasteful.

Rule No. 5: Realize your mission of education is never done. Every time you read a political or legislative issue impacting your business, you have an educational opportunity to prove you are the subject expert on your issues. Drop off an IWLA-3PL issues briefing with the elected official’s district office, commenting that you wanted the elected official to be informed on an issue of great importance to your company and your co-workers. And do so without any ask. You are on a mission to build a relationship of trust in your own backyard.

In summary: Good business advocacy is about your respective trade association and you being known to your elected official as a source of knowledge.  Leave the spinning to the people who handle the hot-button issues. You want to be known as someone who pursues and enables good jobs in logistics in your local district. Showcase those goals first and a sound relationship will follow. 

 

Digital Advocacy on an Elected Official’s Facebook Page– A Smart and Simple Public Affairs Frontier for Business

There is more than one way to get the attention of elected officials. And when it comes to helping
those elected officials make decisions that are right for business, getting their attention is all that matters – irrespective of party affiliation.

 Digital advocacy is a necessary part of your contact program with elected officials;

• More than 99 percent of Congress members are on social media – especially Facebook.
  I just posted a comment on the Facebook page of my elected representative,
  giving my opinion on the sequester.
• Visiting elected officials’ pages gives you insight. I was able to see (through the
  pictures posted) who is the representative’s real constituency.  For example, I reviewed the number of pictures with employers in the district versus those taken with organized
  labor, other elected officials and social groups.  What I took away was a comprehensive picture
  of who is influencing my elected representative.

Digital advocacy is a smart and very inexpensive way for you to educate and inform your elected
official on the impact legislative actions will have on your company and your workers. Follow these guidelines if you do decide to add digital advocacy to public affairs arsenal:

1)       Stay positive, even when you disagree.  Remember, this is a public post created by your elected representative to present a viewpoint and solicit yours.  When you comment on the page,
draw the elected person’s attention to facts, not your conclusions or how you want them to vote.

2)      Never, ever, ever go personal, say anything personal, or mention anything personal – unless you are thanking the leader for a positive visit, response or action. 

3)      Every now and then enter a comment on legislation the official has co-authored so he/she sees you are watching,reading and aware. 

 Once you begin posting on your elected official’s Facebook page, be aware the elected person
(or staff) will probably contact you, particularly if you have been informed, polite and diplomatic. You have opened a dialogue – and you did so via your computer and your desk. 

 Digital advocacy is a wonderful tool for those business owners who detest politics but want to have
influence. You don’t need to attend the fundraisers, make the office visits or engage in letters to the editor.  The elected official has come to you via his/her own social media site. Use that outreach to your advantage. Share facts, figures and informed impacts on what legislation means to you and your co-workers. It is a great tool for business to wield.

Maybe We Should Return to Calling Politics “Civics”

This column presents a different approach to political and public affairs involvement for the leaders of the businesses, and it is an approach which is as historic as the ancient Greeks and as authentic as today’s voter education programs.  The approach I am suggesting is to reclaim the no longer used word of “Civics”   Civics, according to my Wiki reference, “ is the study of the theoretical and practical aspects of citizenship, its rights and duties; the duties of citizens to each other as
members of a political body and to the government^”

I suggest this reformation because too often fear is used to motivate business owners and leaders to participate in elections, voter education and advocacy efforts.  The common phrase is “you are at the table or on the menu”, which is true as a statement if all political power consists of a tug of war between two competing, opposing interests, and it is also deeply cynical. 

The American participatory democracy is our gift to the world, and it is a participation that includes all who are willing to invest in the “duties of citizenship”. This fact says you participate because it is good for the country, good for other members of society, good for yourself and your business and good for the government.

To be granular, imagine if the only purpose of IWLA advocacy were to say, “the other guys and gals are ones you need to pursue.”  The IWLA strategy would be to outrace our competitor and not worry about the bear.  Yet, that behavior is not civics.  It is self-serving and leads to bad laws, bad regulations and mistrust, and we had better hope there never comes a day when it is just us against the bear.

The IWLA advocacy is to practice civics.  We do believe it is our responsibility to educate elected officials and their staffs on the impact to the supply chain of proposed legislation and regulations.  We don’t mind being called “a pressure group, big business, corporate mouthpieces, etc.” because our counter is we are engaging in the American duty and responsibility of civics, and civil discourse must be inclusive of the opinions of business leaders. We have subject matter experts, we care about our country and we want the enactment of laws and regulations that provide for the common good.

Business leaders should participate in civics, not out of fear, or from a defensive position; we should participate because it is our birthright as citizens and because it is our duty to this great country.

Watch the Tax Reform - A C Corp v. S/LLC fight in the works

The great struggle in the reform of the US Tax Code lies with the current disparate rates and treatment of C corporations as compared to the “pass through” corporations, S and LLC’s.  The recommendations divide strongly on R v D lines, and, as a result Senate versus House. 
Each party has a different means of addressing the pass through corporation and those differences will be the subject of this column.

For reference, I recommend you read the publication, “Taxing Business Through the Individual Income Tax” by the Congressional Budget Office released December 2012. This publication outlines a process that with the LLC and S corporations being taxed at the same method as C Corporations, an additional $76 Billion would be received by the U.S. Treasury.  In essence, it would extend the double taxation inherent in C corporations to partnership and S corporations.

Republican Camp, Chairman of the House Ways and Means Committee clearly sees the need to maintain the single taxation of S and LLC corporations.  His Ways and Means Committee is soliciting comments from stakeholders on two options: one that revises current rules and a second that replaces current tax rules with a new unified pass-through regime.

Camp has said “More Americans get their paycheck from small businesses than any other type of business or government. If we really want to strengthen our economy and put more money in the pockets of American workers, we must fix the Tax Code and how it treats small businesses. In
addition to all the complexity these Main Street businesses face, Washington currently taxes them at top rates nearly 10 percentage points higher than their corporate counterparts.”

Senator Baucus opened his hearing into tax reform with a written statement that included the following language: “Pass-throughs don’t pay corporate taxes; their business income is taxed at individual income tax rates. However, C-corporations get taxed on income, and then — when that
money is distributed in dividends to shareholders — it is taxed again. While a valuable tool for small businesses, we should examine if the use of pass-throughs have disrupted the level playing field for larger non-public companies and their public competitors. . . One of my main goals of tax reform
is to make the system more competitive, but also keep it fair. Our hearing this morning will examine the difference between corporate and pass-through taxation and whether current rules strike the right balance in our diverse economy.”

For IWLA members and logistics companies, please keep a close eye on tax reform.  The “pass
throughs” are the major focus. 

As a personal and political aside, much of the intensity of the fight of how to obtain more revenues occurs because of a federal government bias toward spending versus thrift.  If we could reduce the spend of government we could reform taxes, eliminate the high marginal tax rates on C corporations and fix any disparate incentives between the C and the pass throughs.      

On Service Taxes and the Logistics Industry

Two states (Ohio and Minnesota) have proposed extending the state sales tax to services, services which include the supply chain.  What was striking to me was the lack of historical research and analysis performed by the proponents of these taxes.  The proponent’s argument is the belief that extending the tax to services broadens the tax base, enabling increase state revenue with little taxpayer pain.  The service tax history records great pain, great failure and eventual repeal.

The history is readily available with a simple internet search: Service taxes on consumers and business to business transactions are rare in the US and for good reason.  Four states (MI, MA, FL and MD) enacted and repealed.  California repealed its service tax on for-hire transportation in 1973.  The history and yield of these taxes demonstrate they were oversold by their proponents, produced more controversy than yield and caused voters once again to speculate as to the logical process of legislators.

Economic prejudice lies at the heart of business to business and business to consumer services tax.  Private trucking would not be covered because no revenue exchanges hands (unless you separate the private trucking from the owner of the cargo).  As a result, for hire motor carriers would have a tax not imposed on the trucks of the same size, same weight, same fuel usage traveling the same highways.  Legal services provided in house are exempt.  Legal services provided by outside counsel are taxed.  Insourced logistics services: exempt; outsourced logistic services: taxed.

The competitive consequences are perverse and obvious.  Tax policy is intended to pick winners and losers in terms of enterprise composition, structure and size. As a social/tax policy, a services tax works against the creation of small, specialty business enterprises.  A service tax encourages a firm to vertically integrate every aspect of the company versus investing in its comparative economic advantage and outsource to other its non-core competencies.

All of these facts are known.  Yet, bad ideas to fund government continually resurface.  A great part of our job at IWLA is to use the facts of history and engage in education and advocacy on a continual basis.  This is a constant job, as Ohio and Minnesota demonstrate.

States Seek New Taxes on Services, including Distribution

This last week saw the introduction of legislation in both Ohio (HB 59) and Minnesota (Senate File 552) which will apply the sales tax rate in those two states to the service industry, including logistics and warehousing. In both instances, the legislation is part of the state's administration proposal of tax shifting between individuals, businesses, property owners, etc.  The proposed solution is to broaden the base of the sales and use taxes to raise the greatest amount of revenue in the easiest manner.

Our industry, in the past 8 years, defeated two earlier attempts: in Michigan and Pennsylvania. In Michigan, the state actually enacted the taxes on services, and then had to repeal the same because of the public protest and the very negative impact on trading industries, such as warehousing and logistics.

Unfortunately, in politics, bad ideas don't die.  They simply move from one state to another.  What legislators omit is that service businesses can also re-domicile from one state to another, particularly when the states surrounding yours does not have a service tax.

IWLA played a key role in the repeal of the Michigan service tax, a role which included the commissioning of a study by Michigan State University. The MSU study measured the impact of the service tax on the logistics industry, the probable flight of businesses to neighboring states, and the final negative net tax receipt because of the tax.  The MSU study became part of the legislative effort that supported the tax repeal.

We have a never-ending task to educate elected officals on the bad consequences of taxing services where the provider can and will re-domicile.  We know and can prove that Indiana warehousing becomes very attractive when Ohio imposes an extra fee on its warehouse and logistics companies.  The message is a continuing campaign of staying on message and staying alert.

Readers of this blog know that dis-enagement with government is a wrong-headed approach for business, especially a business that travels through so many jurisdictions as the supply chain.  In the next blog, I will cover the situations in Ohio and Minnesota specifically and what we can do to educate legislators about the wrong approach they are taking to deal with their states' financial issues.

NLRB Is Still in Business…and in Your Business

On Feb. 5 IWLA held its winter Washington, DC, meeting of our Government Affairs Committee. Those attending got expert views and inside skinny on topics ranging from food safety regulations, the impact of the new freight broker law, pro-business state legislative tax and labor initiatives and the outlook for transportation funding and policy, to what employers need to know to prepare their companies for the implementation of Obamacare in 2014.

(You can learn more about these issues at the 2013 IWLA Convention & Expo, March 10-12 in Orlando, Fla. For information about the program and how to attend, visit www.iwla.com)

IWLA members discussed and reviewed the January 25 Federal Circuit Court decision invalidating the recess appointments of three members of the National Labor Relations Board. Some news reports had suggested that the decision overturned all of the decisions made by the board during 2012, when the court said the board was illegally constituted.

That may turn out to be the case if the Circuit Court decision (now stayed) is upheld by the U.S. Supreme Court, but it could be as long as a year before that would happen. In the meantime, NLRB Chairman Mark Gaston Pearce publicly stated immediately following the decision that as far as he is concerned, it will be business as usual at the board, saying: "we will continue to perform our statutory duties and issue decisions."

President Obama embraced these recess appointments because of his Administration's profound belief and practice that unionization will create a strong middle class. In reading his speeches and his pronouncements, you can collect an abundance of quotes that organized labor is the critical element to a strong middle class. The Administration also sees the dramatic reduction in organized labor in the private sector and has deployed powers of the NLRB through its decisions and rulemaking for organized labor to increase its access to the employer workplace.

The activist recess appointees to the board have handed down a host of decisions that had a negative impact on employers while strengthening union positions. Two particular decisions have alerted employers that the NLRB will find ways to strengthen union organization attempts:

• The "Ambush Election" decision that substantially shrunk the time in which employers would have to oppose an organizing election.

• The "micro-union" decision that allows unions to organize small groups within a facility instead of having to win over all of the employees.

Here are some of the other NLRB decisions that employers could see overturned should the Circuit Court decision be upheld by the Supreme Court.

Social Media Policies and Practices -- In a series of 2012 decisions, the board expanded the range of what they considered protected social media activity by employees who vent about working conditions, and struck down employer social media policies that restrict such activity.

At-Will Statements in Handbooks – In the past it was not unusual for nonunion employers to include statements in employee handbooks confirming that employment is terminable at-will and limiting the authority of managers to change such policies. The NLRB ruled that certain at-will statements in employee handbooks violate the law because they suggest that employees cannot modify their at-will status through collective action and other protected concerted activity.

Confidentiality During Investigations – It has been common for quite some time for union and nonunion employers conducting internal investigations to ask employees keep the matter confidential and not discuss it with others. However, last year the board ruled that an employer's "blanket justification" such as protecting the integrity of the investigation was insufficient.

Instead, the employer bears the burden to determine in each individual case whether investigation witnesses need protection, evidence is in danger of being destroyed, testimony is in danger of being fabricated, or there is a need to prevent a cover up.

Off-Duty Employee Access to Workplaces -- The NLRB limited an employer's ability to keep off-duty employees off the employer's property by reversing its long-held position is that a policy prohibiting all access to the employer's premises by off-duty employees is presumptively unlawful.

The board determined that a rule that denies off-duty employees access to an employer's parking lots and other outside non-working areas is generally found invalid, unless the employer has a specific business reason for the exclusion.

Dues Check-Offs – The board held that it is an employer's duty to collect union dues from employees if there is a dues check-off provision in their contract even after the contract has expired.

Employee Discipline – No grievance process contained in the contract? No problem. The NLRB ruled that unionized employers must give the union notice and an opportunity to bargain before imposing discretionary discipline involving demotions, suspensions, and terminations where the collective bargaining agreement does not establish a grievance-arbitration process.

In summary, the Circuit Court decision was a welcome action, but until it is confirmed/upheld by the U.S. Supreme Court, the recess-appointed NLRB will continue to issue decisions that find ways and means to enable labor to organize your workplace.

The Economy Grows by Creating Consumer Wealth With Jobs

After President Harry Truman sought the advice of a series of top economists on the future course of the economy and they kept saying, "on the one hand…" and "on the other hand," he famously asked: "Aren't there any one-armed economists out there?"

You can be forgiven if you are wondering something similar when it comes to the conflicting reports of economic indicators we have been receiving over the past six months. Take some of the most recent ones. On the one hand, the government reported 0.1 percent negative growth in the Gross Domestic Product in the fourth quarter of 2012. But on the other hand, economists quickly lined up to attribute this to a temporary drop in government spending on military equipment and characterize as a blip in the slowly-progressing recovery.

This was followed by a report that unemployment edged upward in January from 7.8 to 7.9 percent. On the other hand, we are told that the overall employment and personal income trends are showing steady gradual growth. (Although, as CNBC reported it in their oddly chosen comparison, transportation and warehousing lost 14,000 positions in January "while hospitality positions such as bartenders and waiters, which led the way through much of 2012, was little changed.")

In recent weeks the stock market has been soaring, but at the same time we were confronted by a report that the consumer confidence index plunged 8.1 points in January from December to hit 58.6 -- the lowest reading in 14 months and the third straight decline. What is going on?

The overt fact-reporting with a deep political party influence complicates the situation. When I go to the Fox News website, the economy is in a tailspin because of the actions of the Administration. When I go to the New York Times website, the Administration's bold actions prevented a second depression, and both stories reference the same set of Bureau of Labor Statistics numbers.

Here is what we do know:  

• Consumer spending is the overwhelming driver in our Gross Domestic Product.
• Consumer spending depends upon consumer wealth.
• Consumer wealth depends upon jobs, wealth embedded in property, debt load, etc.
• Consumer wealth has yet to rebound for the general workforce.

The business community solution to the lack of consumer wealth is reduce regulations, taxes and the cost drivers from government, cost drivers that would otherwise be spent on innovation, marketing initiatives, new ventures and pay increases for the workforce.

As readers of this blog know, my opinion falls on the side of the business community solution. With the 2 percent payroll tax increase on all wage-earners since January 1, we should a better measurement of whether government tax increases contract or expand our consumer wealth. Of course, in an economy of multiple inputs and outputs, it is impossible (despite news media claims) to isolate cause and effect, even with sophisticated statistics, as we discovered when some of the supposedly best minds were selling the worst debt instruments.

The American tradition of consumer choice is in total opposition to the cost-push, central planning model, favored by some politicians. IWLA represents a large part of the supply chain sector. When we gauge public policy positions to embrace, we evaluate legislative and regulatory policies regarding how they approach consumer wealth creation. We believe the sound approach is to reduce the cost of hiring and to encourage private sector employers to put Americans back to work.

Post-Election Predictions for the Supply Chain

I would like to apologize for the delay in providing you my recap of the election and my fearless predictions. The holiday season intervened, then a bout with the flu (since recovered) and the preparation of budgets and business plans for IWLA.

With the association's business plan and budget adopted, the action now moves into implementation and working through the details -- much like where we are in the supply chain now that President Obama has secured a second term.

First, a general comment: I am not surprised at the recent news that the President's "jobs council" has not met in one year. President Obama's life experience is alien to the daily discipline of having to constantly work on the nitty gritty of customer acquisition/retention, managing labor relations, and meeting safety and regulatory compliance requirements.

In addition, nowhere in his cabinet do you find individuals who have operated within the framework of mid-market and smaller businesses. You do find academic, political and large institution individuals in abundance. His recent recommended appointment of his former Chief of Staff to the Secretary of the Treasury continues his approach. President Obama is comfortable with those who share his background and hew closely to the same views and does not seek to open the door outside his circle of like-minded colleagues.

Given Obama's background and those of the circle of advisors, I have little expectation for a welcome mat or even an attentive ear for mid-market and family-owned enterprises in this Administration. His appointments to the "jobs council" reinforce this observation. The council was top heavy with large, institutional corporations, many of which do business with the government. This means the one council he set up to provide him knowledge also came from his small, pre-existing community of comfort.

Third, if I consider the glass half full, this may actually be less harmful then if he really had a passion for understanding business. If he did, the probability is he would have it filtered through his life experience of never supervising employees in a profit-making business and his adopted ideological philosophy. Of course, this is my mere speculation.

For the supply chain and IWLA, it means there will be no leadership from the Administration on infrastructure funding, goods movement and supply chain throughput. What we can and will expect are Administration initiatives on tax policy, supply chain security and labor relations.

Given this fact, the IWLA advocacy resources will center on the key committees in Congress and the regulators in our key agencies. We will depend on members of Congress who have an enterprise sensibility to forestall poorly formulated tax, security and labor policy and we will work with the regulatory agencies to educate and intervene in the initial stages of rulemaking.

A very large example of regulatory education and intervention is the implementation of health care law and regulation of temporary and seasonal labor and the logistics industry. Obamacare's impact on business already is being felt, and warehouse-based logistics providers face new laws and regulations are aimed at our industry's engagement of contract labor.

I look forward to our continuing dialogue in this column and hope we can enlighten, encourage and possibly entertain your intellects during this coming year.