Interest representation and influence in the EU: comparative case studies of the CRA3 and AF4 interest representation and influence during recent EU reforms in the context of the financial crisis

Abstract

Due to the financial crisis and political pressure for reform, lobbying in the EU became a crucial task for the financial services industry as a whole. The EC's crisis-induced actions to create stronger independence and better quality of services jeopardized the business models of the rating agencies and audit firms. The EC proposals carried threats, in particular, for the leading firms of both sectors (referred to here as the 'three leading credit rating agencies' (CRA3) and the 'four leading auditing firms' (AF4)) with regard to future customer relationships, revenue streams, and cost structures. This thesis examines how the CRA3 and AF4 represented their interests during recent EU reforms in the context of the crisis, what resources and conditions enhanced their power, and how the CRA3 and AF4 influenced the EU reforms. This qualitative study analyses the two comparative cases of EU interest representation and influence of the CRA3 and AF4. By drawing on existing academic theories from the areas of non-market strategy and EU interest representation, the thesis develops an analytical framework to assess both cases. The EU interest representation and influence are analysed through causal-process tracing and supported by a triangulation of the analysis of the degree of preference attainment.The research rests on empirical data from extensive document analysis and 33 expert interviews.The CRA3 lobbying was strongly affected by the crisis. Damaged reputation, low EU lobbying experience, weak political networks and no concerted actions were key characteristics, limiting their influence. The CRA3 made many political concessions, but achieved some success in the form of no change of the issuer-pays model and no general mandatory rotations. Existing structural coercions, coherent preferences of banks and investors, and a lack of alternative solutions were important aspects to achieve these outcomes. By contrast, the AF4 established a strong EU interest representation and received high influence. Their lobbying activities were very closely coordinated. The financial crisis and other external conditions such as the scope and salience in media were much less significant. Moreover, the AF4 benefited from excellent lobbying resources and superior access to EU decision-makers. Critical proposals, such as a change of the appointment and remuneration model or mandatoryjoint audits for PIE audits, could be completely avoided. In addition, the AF4 could receive acceptable mandatory rotation and non-audit services rules. As a conclusion, both - the CRA3 and AF4 - faced no disruptive changes for their business models. In relative terms, the EU lobbying of the AF4 was much more sophisticated and they achieved higher influence. This study demonstrated the benefits of using an academic framework for practitioners optimising their lobbying activities and academics studying EU lobbying and influence. Future research should examine more closely the correlations and causalities between the different existing theories. Finally, this work of research showed the high significance of business lobbying for EU decision-making. This study revealed the political challenges for the EU authorities to achieve high quality post-crisis reforms for the stability of the EU system, dealing with two complex and important financial services sectors.

Date of Award	31 Dec 2015
Original language	English
Awarding Institution	The University of Manchester
Supervisor	Matthew Allen (Supervisor) & Jiajia Liu (Supervisor)