The Biggest Kid On The Block

The National Federation of Independent Business has the membership and the money to throw its weight around in Washington.
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The National Federation of Independent Business, says a congressional aide, "walks into a congressman's office and says 'Look, we have 500,000 members, and this is how they want you to vote."

Its direct approach doesn't make the NFIB the best-loved small business lobby in Washington, but as the biggest of all small business associations, the NFIB commands attention, if not affection. Its 500,000 members contribute $30 million in dues annually. A staff of close to 700 includes lobbyists in Washington and in every state capital, as well as a full-time speaker who bounces from small-town Rotary clubs to TV talk shows spreading the gospel of free enterprise. This fall its political action fund will distribute between $200,000 and $300,000 to cooperative incumbent congresspeople or to challengers who promise to take a friendly view of the federation's legislative goals. NFIB spokespeople are regularly sought out by reporters for the Washington Post, New York Times, Fortune, and ABC News. Its president, Wilson S. Johnson, is on good personal terms with Ronald Reagan, and its Washington legislative director breakfasts frequently with lobbyists representing the biggest names in corporate America.

To its credit, the NFIB has participated in most of the legislative victories won by small business recently: regulatory flexibility, equal access to justice, the 1978 reduction in capital gains tax, and others. But it parted company with most other small business associations when, during the 1981 debate over President Reagan's economic recovery plan, it enthusiastically embraced the President's tax reduction proposals, including the controversial 10-5-3 depreciation plan. The NFIB's support and lobbying effort did not assure victory for the Reagan tax cut, but NFIB opposition would have been a serious threat to its passage.

One other thing the NFIB does well, and often, is sell -- itself. Nearly 600 of its 700 employees are commissioned salespeople. Of every dollar this sales force brings in, 76? pays for commissions and sales overhead. Just 20? of the revenue dollar is spent on research, public affairs, and lobbying at the state and federal levels.

But the size of the NFIB's membership, more than the size of its sales force, gives the organization its clout. No other national business association, representing large or small firms, can walk into almost any legislator's office and claim as members several hundred and often several thousand voters in his or her district.

It uses that clout at election time, too. Every election year the federation prepares a congressional scorecard, which it uses to decide how it will distribute the cash in its political action fund. More Republicans than Democrats reap federation support because, notes general manager Dick Fisher, "There are more Republicans that vote with our members' positions than there are Democrats."

Two years ago the NFIB shocked the Establishment by working against the reelection of Gaylord Nelson, a Wisconsin Democrat who chaired the Senate Small Business Committee. At 22%, Nelson's NFIB vote rating was the lowest in the Senate. "All the other groups told us we couldn't take on the chairman of the committee," says Fisher, "and we said he doesn't look so good to us. We invested in his challenger, and Gaylord Nelson didn't come back last year."

The NFIB tends to draw its half-million members from the smallest of small business. Most are proprietorships in retailing, wholesaling, or the service sector. There are more of these businesses than of any other kind in the country, and keeping track of them is no small feat. The annual visit of the NFIB salesperson is one way the association and the members stay in touch. (See box, page 60.) The Mandate is another.

The Mandate was the brainchild of C. Wilson Harder, who left his job at the Chamber of Commerce of the United States in 1943 because he didn't like the way the chamber was handling its small business members. Harder had devised a unique system for keeping in touch with small business owners' views on the political issues that affected them. He called it the Mandate, and it's been the cornerstone of the NFIB for almost 40 years. It is both a blessing and a curse.

Eight times a year the federation sends ballots to members, asking them to indicate whether they favor, oppose, or are undecided about four specific issues. The tabulated results of these polls dictate how the federation will lobby in Washington, because, theoretically, they are a clear expression of the members' views.

But consider the potential for abuse. NFIB officials, not the members, decide which questions to ask and how to word them.Usually they write the "pro" and "con" summaries that accompany each question. Complex issues are difficult to boil down into two short paragraphs without resorting to simplistic characterizations.

The NFIB has many critics within competing associations and on Capitol Hill. Surely, they charge, the NFIB's chief lobbyist, James D. "Mike" McKevitt, and its president, Wilson Johnson, both right-of-center Republicans, must skew the Mandate toward their own views. The critics are most unhappy when the Mandate produces a position that differs from their own.

Recently, for example, the executive director of another small business association complained that while his and other organizations were working hard to persuade Congress not to end the industrial revenue bond (IRB) program, NFIB members voted against it. But the IRB vote illustrates not so much abuse as the shortcomings of a procedure that relies on simple yes-or-no answers.

First, the system is inflexible. The question put to NFIB members was: "Do you favor or oppose allowing states to continue issuing small issue Industrial Revenue Bonds?" The response was oppose, 49%, favor, 37%, with the rest undecided. There was no manipulation of the answer, but the question was wrong. There should have been three choices, as there are before Congress: (1) continue IRBs as they currently exist; (2) continue IRBs but curb the abuses; or (3) end the IRB program. Unfortunately, the Mandate is not designed to deal with three-part questions.

Now the NFIB is in an awkward position. It can't work with Congress to improve IRBs, because officially it opposes the program. Since it's likely that IRBs will survive in some form, NFIB members might be better served if their Washington representatives could help shape that new form.

A second Mandate shortcoming is that a two-valued choice, whatever the question, leaves no room to accommodate different interests within the association. Most NFIB members, too small themselves to use IRBs, are vulnerable to unfair competition from large chain retailers who abuse the tax-free bonds. Thus most NFIB members have nothing to gain, even from a reformed IRB program, and it's not surprising that they would vote no. A minority of NFIB members, on the other hand, could legitimately use IRBs without affecting the majority who don't. Majority rule in this case unfairly penalizes them.

The Mandate causes other problems for the federation. For example, the NFIB uses Mandate issues to select the legislative votes on which to base its "small business" ratings of representatives and senators. Last year in the House there were just four recorded votes on issues that had been polled in the Mandate, all of them relating to budget and tax cuts. Consequently, some House Democrats were apoplectic this spring when the federation announced its ratings for the first session of the 97th Congress. The NFIB had decided that a vote for Reaganomics was a vote for small business, and a vote for one of the Democratic budget or tax alternatives was a vote against small business. Not surprisingly, 90% of the House Republicans received 100% ratings; 71% of the Democrats scored zero.

"It was clearly a case of their wanting to give zeros to as many Democrats as possible and 100% ratings to as many Republicans as possible," fumes Rep. Norman D'Amounts (D-N.H.). "It was purely partisan." Within weeks of the NFIB ratings, Rep. Byron Dorgan (D-N.Dak.) had already heard from some constituents about his zero score. "That obviously isn't very helpful to those of us who consider ourselves strong small business advocates," says Dorgan.

The federation, as one writer put it, may have shot itself in the foot with this rating. "Like a whole lot of members, I'm not interested in cooperating with people who then turn around and do something like this to you." Dorgan adds.

Whatever its shortcomings, the Mandate does give every NFIB member a chance to participate in the association without expending time and money that many small businesspeople can't afford. On average, according to Dick Fisher, 14% of the Mandate ballots are marked and returned. He wishes it were more, but considers 14% a "fair sample."

The NFIB's impressive, computerized data-processing system keeps track of which member votes and how often, and feeds this information to the federation's sales force. They use it, along with their annual sit-down sessions with each member, to identify business owners interested in becoming more active in the federation's work. These members are then nominated for NFIB's 10,000-member Action Council, the federation's real spear carriers.

When the White House asks the federation to supply some small business-people for a session with the President, they're drawn from the Action Council. Some council members are polled when NFIB lobbyists need an association position on an issue that hasn't appeared on the Mandate. Action Council members form the association's offensive line when it wants to lobby on specific issues. And increasingly, Action Council members are being asked to replace the association's paid lobbyists in testifying before congressional committees.

Unlike the National Small Business Association (see INC., May, page 131), its principal rival as small business's chief Washington lobby, the NFIB doesn't hesitate to form alliances with big business interests. It worked closely, for example, with the U.S. Chamber, the National Association of Manufacturers, and the Business Roundtable in drafting what eventually became Ronald Reagan's plan to simplify and accelerate asset depreciation schedules. Federation officials agreed in February 1981 to contribute $50,000 of members' money toward a campaign to promote Reagan's economic recovery program. That campaign was later canceled, so the contribution was never made.

The NFIB's close association with the hired guns of the country's biggest business organizations causes concern for some small business lobbyists. "It tends to blur the distinction between big business and small business," says one, who adds, "I think NFIB gets romanced by the big guys." But Allen Neece, who represents Small Business United, a coalition of regional small business groups, points out that in working closely with these powerful business interests, "Mike McKevitt was playing in the big leagues. He was the only guy on the inside speaking for small business, which had never been on the inside before."

The NFIB's enthusiastic support for Reagan's depreciation reform and personal tax cuts gave it easy access to the White House and key Administration officials. But, relying on its Mandate votes, the federation has parted company with Reagan on other issues. It opposes, for example, his enterprise zone plan for aid to urban areas. NFIB members recently voted 63% to 27% against the continuation of safe-harbor leasing.

Alliances, whether with an administration or other business groups, are difficult for the NFIB to sustain for long. Other associations, the NFIB explains, aren't bound by the Mandate vote. So the federation sometimes finds itself on the other side of the issue from other small business associations. Its opposition to the continuation of IRBs is one example. Another was its opposition two years ago to the creation of small business development centers at colleges and universities around the country. Recently, while other groups testified to the need for continued Small Business Administration assistance in capital formation, the NFIB urged Congress to slice SBA loan funds by 25% as part of the Administration's general budget-cutting program.

NFIB president Wilson Johnson says he'll rely on the marketplace to sort out who's doing the best lobbying job for small business. And if success is measured in membership sales, the NFIB is well ahead of its competitors.

Last updated: Jun 1, 1982




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