What questions should board members ask the leadership of their companies in the weeks to come? Political experts Terry Baxter, who served in three presidential administrations and is the former CEO of the National Transportation Safety Board (NTSB), and Alex Castellanos, co-founder of public affairs firm Purple Strategies and current member of CNN’s political analysis team, opined on considerations for the business community in this time of political and societal uncertainty.
Castellanos shared that President-Elect Donald J. Trump is highly aware that his administration will be under pressure to enact policies that produce economic growth. Both panelists agreed that the success of the new administration will also hinge on delivering on regulatory and tax reform, as well as changes to healthcare policy. Ever present in the incoming administration’s actions will be the populist sentiment that propelled the success of the Trump campaign. Castellanos suggested that companies that expect to succeed in this environment should be prepared to tell their story about how they are contributing to American renewal, including domestic job growth.
Attendees took away from the program several key questions that directors should be asking of management—and of each other—in post-election America:
Questions for Management
Information gathering: How are we informing ourselves about the new administration’s proposed policies, the implementation of those policies, and what those changes might mean for our company?
Outreach: What is our outreach and engagement plan for advancing our positions on important issues with the new administration?
New trends: How is our company identifying current trends, disruptors, and business impact issues? How are we identifying key actions that have longer-term or permanent implications?
Tax policy: What are we doing to prepare for shifts in the tax policy?
Spending: How are we positioning the company to benefit from proposed spending on infrastructure?
Growth: What core assumptions about our business’s growth should be reconsidered in light of the changes in government? What possible, emerging growth opportunities are on the horizon that we should be anticipating? Do we have a capture plan in place for these growth opportunities?
Exposure: What is our exposure to trade policy changes and the fluctuation of the U.S. dollar?
Supply chain: Do we know which of our critical suppliers could be impacted by a shift to a nationalist trade policy?
Strategic planning: How are we integrating political risk analysis and assessments into our strategy and risks processes?
Scenario planning: How robust and effective are our current scenario-planning processes, and how prepared are we to act quickly if needed?
Technology: What impacts will the new administration have on the growth of technology?
Questions for Fellow Directors
Compensation: What objectives are our compensation plans setting out for key executives and business units? Are we rewarding the right activities and the right behaviors?
Board composition: Does our board have the right combination of skills, diversity, and experience to provide effective guidance and oversight to management?
The audience also left with an important piece of advice. Castellanos cautioned that, in a world where we get our news from each other and the President-Elect has an affinity for social media, it is more critical than ever for companies to have a well thought-out corporate social media strategy.
Note: The views and opinions expressed in this blog are those of the speakers at this event and do not necessarily reflect the views or opinions of the National Association of Corporate Directors (NACD) or the NACD Capital Area Chapter.
Kimberly Simpson is NACD regional director for the Southeast, providing strategic support to NACD chapters in the Capital Area, Atlanta, Florida, the Carolinas, and the Research Triangle. Simpson, a former general counsel, was a U.S. Marshall Memorial Fellow to Europe in 2005.
The upset presidential election victory of Donald J. Trump and the Republican party’s victory in races for the House of Representatives and the Senate signal major changes ahead in both the federal government’s approach to growth and the Federal Reserve’s approach to monetary policy. Most evident among forthcoming policy changes will be a return of supply-side tax cuts, large operating fiscal deficits, and a move back toward more traditional monetary policies that, over time, should lead to higher short and long-term interest rates.
Below is an outline of my views on the implications of a Trump presidency for economic growth, taxes and infrastructure, central bank policy, and interest rates and trade.
My firm anticipates that the Trump administration will attempt to achieve the economic equivalence of a strategic breakout with respect to the pace of economic growth. In other words, with the economy mired in a long-term sluggish growth path below 2 percent, the administration will turn to deficit spending, infrastructure, and fiscal stimulus to achieve stronger economic growth. The administration will also seek to reform Dodd-Frank in a significant way, which would be a boost for Wall Street, and will also move to inject private competition into the health care system.
While there will likely be a faster pace of growth in the near term, uncertainty about the role and status of the U.S. in the global economy may combine to create longer-term issues, particularly involving free trade that, ironically, act as a drag on growth.
Taxes and infrastructure
From a purely economic point of view, it will be difficult to lift the long-term growth trend much above 1.5 percent without significant tax reform and productivity-enhancing changes related to tax investments and improving national infrastructure. Given the major demographic challenges associated with the aging of the Baby Boomer generation, and the gradual entry of the Millennial generation into the workforce, the underlying conditions of the post-Great Recession economy are not conducive to a quicker pace of growth unless there is major tax and entitlement reform.
In our estimation, based on visits to policymakers in Washington, the order of operations for the first two years of the Trump Administration will likely proceed in the following fashion.
A move to engage on comprehensive tax reform will likely be one of the primary orders of business in January 2017. We expect the Trump administration to work with Congress to craft a deal that would revolve around lower individual and business tax rates along with an end to corporate tax inversions. Under these conditions, an attempt to lower individual tax rates based on the framework set out in the House Republican blueprint released in June of this year of 12, 25, and 33 percent, would be the most significant tax reform since 1986.At the heart of Trump’s tax plan is the intention to reduce taxes on pass-through entities (eg, sole proprietorships, limited liability companies, S Corps., and so on) to 15 percent, which would decisively favor the middle market, which accounts for 40 percent of GDP and employs one-third of the labor force.
The probability that a bipartisan bill on a multi-year infrastructure project will pass is high. The glue that would hold this together would likely be parallel legislation that would seek to tax the $2.6 trillion in corporate profits being held abroad. There is growing realization in both political parties that the infrastructure around the country has been allowed to slip into such disrepair that it has become something of a national embarrassment.
It is important to note that a robust infrastructure is not an economic panacea. It is a long-run productivity-enhancing policy that is more of a legacy issue, as opposed to something that will jump start economic activity in the near-term. If there is no tax reform, then growth will remain decisively in the sub 2 percent range.
While President-elect Donald Trump worked last week with his transition team from the Trump Tower, directors met just blocks away at the Harvard Club of New York City, to address how in the aftermath of his election boards should begin preparing for what could be sweeping regulatory, tax, and social change.
(Left to right) Robert Klatell, Steven Kreit, and Laurie Shahon
Leading the discussion were EisnerAmper’s Chief Risk Officer Peter Bible and Steven Kreit, an audit partner with the firm. While the directors disagreed on the order and priority of policy changes, there was consensus around one point: Uncertainty will rule. Bible and Kreit suggested directors focus on in the near term and shared recommendations directors might take to remain agile in the face of politically driven risks.
How can a director prepare? Boards must engage deeply in strategy in the coming months. Anthony Buonaguro, president of the New Jersey NACD chapter and director of Enclave Homeowners Association, ignited a debate on whether or not boards will develop investment strategies focused on continued investment abroad.
“It resonated with me that we’re facing several years of uncertainty,” Buonaguro said. “Is this going to make boards more conservative? Usually there are two ways that people handle uncertainty: forge ahead as usual, or freeze. If it’s the latter, it’s not good for the economy or stocks. What are boards supposed to do to revamp strategy?” Kreit answered: “You have to put pen to paper and identify scenarios, then plan for them. Will you hit the scenario that happens? Possibly—or not. But if boards don’t strategize, they’re not going to get anywhere.”
NACD Directorship Publisher Christopher Y. Clark asked participants to suggest calls to action. Shaun Higgins, director of Aryzta AG and Carmine Laboratories, reiterated the importance of establishing strong enterprise risk management (ERM) practices. “I think you go into the board meeting and make strategic planning your number one ERM priority,” Higgins said.
Andrea Bonime-Blanc, CEO, founder, and director of GEC Risk Advisory LLC, jumped in: “I think the answer is to know what your top strategic risks are that need to be focused on.” Regarding specific risks, Bonime-Blanc said that when assessing the election’s implications, “We must pick the top five risks to integrate into business planning and factor U.S. geopolitical risk into our own strategic planning in a way that we never have had to before.”
The EisnerAmper hosts shared their near-term advice. “I can’t find a better reason for your companies to have ERM systems and processes in place,” Kreit said, noting that this is not the time for “mail-in” board members.
“I think this is a great time to start thinking about whether the people you have in the boat with you are the people you want to have in the boat with you,” Kreit said.
To see the full list of participants, please click here.
What We Know
Kreit addressed what can be readily understood from the election. “There’s talk about what is going to happen, but no one really knows,” he said. “Board members should really be prepared for anything. Start thinking about some of the concepts Trump has been talking about, what some of his main areas of focus have been.” Work with management to address how the following, possible policy changes might impact business:
Anticipate inflation and its impact on cash flow and management, equity valuations, and borrowing abilities. While an initial jump in equity markets was seen, according to Bible, “the debt market got $1 trillion knocked out of it,” a sign of anticipation of inflation. Companies should begin scenario-planning for changes in borrowing ability.
Expect early review of tax policy. The dominance of the Republican party across Congress and the executive branch indicate the probability of perhaps even speedy tax reform.
Repeal or replacement of the Affordable Care Act. Some changes will come to the policy, and companies should be prepared to address its impact on their workforce.
De-regulation and repeal of the Dodd-Frank Act. Bible and Kreit anticipate the repeal of at least some Dodd-Frank provisions, and, at a minimum, a review of leadership at the Consumer Financial Protection Board.
Changes are coming to trade. One of the major planks in the Trump platform was a general desire to repeal trade agreements and impose tariffs on China and Mexico, as well as opposition to the Trans-Pacific Partnership. Bible and Kreit underscored the fact that one of the American executive branch’s unilateral powers is to control foreign commerce, which could lead to trade wars “that could trigger a recession,” Bible cautioned.
Kreit also outlined the timeline of key power changes in the White House and Congress:
December 19, 2016: The Electoral College convenes to vote.
January 3, 2017: The 115th United States Congress convenes.
January 6, 2017: Congress declares the president-elect.
January 20, 2017: Presidential inauguration marks the beginning of the Trump administration.
March-September 2017: Congress anticipated to debate raising the debt ceiling.
September 30, 2017: The U.S. government’s fiscal year ends, opening the door for Congress to address budgetary and fiscal matters.
These dates could serve as important milestones for developments impacting their companies.
“Back when we were determining a topic for this discussion, one thing I think we could all agree on was that this election could change the course of the country—and, potentially, the world,” Bible said in summation. “I felt very strongly that we should have this type of dialogue for one reason, and that’s because board leadership is essential for success. It’s a brave new world.”
A second post reporting from this roundtable addresses longer-term concerns raised by directors. To continue reading, click here.