Economics, Uncertainty, and the 2016 Election
At a mainstage panel during NACD’s 2016 Global Board Leaders’ Summit on September 19, directors, economists, and former regulators discussed the potential regulatory, economic, and geopolitical implications of the coming election and reflected on how corporate directors and executive teams should adjust to greater levels of ambiguity. One of the panelists, Nicholas M. (Nick) Donofrio, director of Advanced Micro Devices Inc., BNY Mellon Corp., Delphi Automotive PLC, Liberty Mutual Co., the MITRE Corp., and NACD, and the former head of innovation at IBM, characterized today’s external environment as “lumpier and more abrupt than even a few years ago,” forcing companies and their boards to be always on alert and to act quickly in response to change.
The panelists offered a range of projections to help corporate directors assess the business impact of the upcoming elections. They emphasized that aside from a new occupant of the White House, the elections also have the potential to drive significant changes in Congress, major regulatory agencies, and the judicial system. The discussion centered on four major questions of importance for companies and the boards that oversee them.
- How likely is a major reform of the tax code?
Reform of the corporate tax code is long overdue, said former U.S. Senator Olympia J. Snowe, director of Aetna, Inc. and the Bipartisan Policy Center. For years, companies have learned to accept the “permanent temporary tax code,” and the resulting policy uncertainty has made investment and capital allocation decisions more challenging. Snowe suggested that even if House and/or Senate control switches from one party to another, it is unlikely that Democratic and Republican congressional leaders will be able to transcend their fundamental differences about taxation and break the current gridlock. Most likely, she believes, the incoming president will use the power of the pen to tweak the current tax code through executive orders.
- Should we expect continued regulatory activism?
Troy A. Paredes, director of Electronifie and former Commissioner of the U.S. Securities & Exchange Commission (SEC), shared his concern that “the tidal wave of regulations” seen in the past few years won’t slow down, and it will force companies to commit more time and resources to compliance. “Elections are always major inflection points,” he said, that either sustain or reset the policy priorities of the SEC and other key regulatory bodies such as the Commodity Futures Trading Commission, Federal Trade Commission, and Federal Communications Commission. Meanwhile, Paredes urged directors to be alert as to whether Mary Jo White, the current chair of the SEC, will have enough time in her remaining tenure to finish rule-making on key corporate governance matters covered in Dodd-Frank.
- Will our political system address skill shortages in the labor market?
Nick Donofrio offered a mixed view of how the country is addressing the looming crisis in the labor market where current skill sets do not align with the future industry needs. “Our political institutions are too polarized to take meaningful action,” he said. However, it’s crucial that the United States build a digitally competent and productive labor force that can be employed to deliver high-tech manufacturing. “We cannot afford to only create [financial] value in this country, but we must also [manufacture] value here. That means returning much more research and development and production to American soil.” In the absence of government investment, he’s optimistic that the private sector will step up to address this critical challenge and find innovative ways to reskill displaced workers.
- How will the United States make itself more competitive globally?
Harry Broadman, a seasoned economist and the CEO and managing partner of Proa Global Partners LLC, reminded the audience that the United States faced a similar set of challenges to its global competitiveness in the 1980s when Japan was projected to become the world’s economic leader. A major difference today may be the backlash against free trade, which could jeopardize the adoption of the Trans-Pacific Partnership and threaten the underpinnings of the European Union. Broadman underlined that it will be critical for U.S. policymakers to remove barriers to foreign investments from high-growth emerging market companies that will contribute to quality job growth. This new generation of enterprises is important to the future of global business, which will no longer be dominated by firms headquartered in the West.
He and other panelists also spoke extensively about the importance of major investments in public infrastructure. America’s crumbling highways, bridges, ports, and technology infrastructure significantly impede further productivity growth, which Broadman believes is the country’s major Achilles’ heel.