A few weeks into the Trump presidency, it is tempting to obsess about the political rhetoric and soundbites coming out of Washington, DC. While the first month of this new administration is certainly unprecedented in style, method, and message, the real cumulative impact on business remains unclear.
The combination of the chaotic start, the many political appointee vacancies across key departments and agencies, conflicting policy views between a Republican White House and Republican-controlled Congress on key issues, and ongoing investigations makes it challenging for businesses to respond and separate signal from noise.
Nevertheless, a recent pulse survey conducted by the National Association of Corporate Directors (NACD) offers some early insight into how companies and their boards are starting to navigate this new political environment.
1. A small majority of respondents (51%) is positive or very positive about the possible impact of the new administration on the growth prospects for their companies in the next 2 years. Almost 29 percent of respondents rated the possible “Trump effect” on business as either negative or very negative.
The differences in outlook are likely influenced by the relative dependence of individual companies on the benefits of international trade, the expected industry benefits of deregulation and infrastructure spending, and perceptions about the impact of a changing US leadership role in the global economy and security architecture.
2. Corporate tax reform, deregulation, and trade protectionism are the most highly ranked “policy” topics that respondents plan to discuss at their next board meeting. That’s not surprising since the (gradual) effect of policy changes in these three areas can significantly alter cost and revenue projections for business. The big question for many boards and executive teams will be whether the potential
fallout from trade protectionism (actions by the United States and possible retaliation by its trading partners) would offset any gains from a reduced tax and regulatory burden.
Trump’s unorthodox approach of injecting himself in the daily business of individual companies and their decisions seems to concern fewer respondents. Only 13 percent plan to discuss reputational exposure and management at their next board meeting.
3. Fifty-one percent of companies are now reassessing core assumptions about the impact of new and proposed policies on their strategic growth plans, which is an important exercise when so many key variables are moving or likely to move in the near future (for example, corporate tax rates, inflation, value of the dollar, interest rates, and import/export barriers).
Also, in response to the speed and ferocity with which consumers in this very polarized environment now react to corporate actions, many business leaders are beginning to proactively communicate the authenticity of their brand and their company’s contributions to society. More than 44 percent of respondents report that their companies are now reaffirming their core values and commitments to key stakeholder groups.
4. Only 25 percent of respondents decided to introduce scenario planning exercises to adapt to changes in the operating environment. Of that group, 85 percent are considering discontinuous scenarios based on major swings in key economic indicators, while 76 percent are scenario planning different outcomes from the planned overhaul of the US corporate tax system. Other macro-issues, for which boards will use scenario-planning in the coming months, include the possible repeal of the Affordable Care Act, the commercial fallout of trade protectionism, and the impact of significant geopolitical crises.
If used effectively, these scenario exercises can help open the minds of decision-makers—corporate directors included—to different signals, and prepare for surprises that directly affect the business strategy. Leading companies actively monitor for such signposts that would trigger course corrections in their strategic pathway.
To help corporate directors sense and respond to changes in this operating environment, NACD continuously assesses and interprets the impact of emerging issues. Every week we post our most recent analyses in our Emerging Issues Resource Center. Stories are accessible to all members.
Regardless of which party is in the White House, the National Association of Corporate Directors’ (NACD) more than 17,000 members will have a significant impact on both our economy and the country’s social fabric. The importance of strong corporate leadership was one of many topics discussed when the NACD Atlanta Chapter hosted a discussion about the Trump administration’s new world order.
Despite different party allegiances, six-term Vermont Governor Howard Dean and Republican strategist Ron Kaufman shared their optimism about the country and the global economy. Moderator Eric Tanenblatt led an informative and insightful discussion in which each panelist shared his perspective on topics relevant to business leaders.
President Trump’s Victory
From Left: Eric McCarthey, NACD Atlanta Chapter chair; Governor Howard Dean; Renee Glover, NACD Atlanta Chapter board member and event organizer; Ron Kaufman; and Eric Tanenblatt
Governor Dean, former chairman of the Democratic National Committee and six term-governor, opined that despite some of the unpleasant overtones of the Trump campaign, President Trump’s victory can at a high level be attributed to discontent with the economy, and specifically to the impacts of automation and the Internet. The perception that jobs have been lost to overseas manufacturing is more likely due to workforce reductions resulting from automation. At the same time, the Internet has changed both how people receive information, and the quality of the information they receive.
As a result, many people voted for Trump because he represented change in a time when the “haves” and the “have nots” are at odds. A similar sentiment has been seen in England with the Brexit vote, and in current political tides elsewhere in Europe.
Mr. Kaufman, a senior advisor to US presidents, governors, and members of congress, concurred that the appetite for change was a significant factor in Trump’s election. He shared that during his work on behalf of candidate Jeb Bush and then candidate Trump, many of the voters he met were attempting to decide between Trump and Senator Bernie Sanders.
Trade and Foreign Policy
Despite both political parties having adopted anti-trade rhetoric, both panelists emphasized the ongoing importance of global trade. Dean noted that global trade has lifted billions out of poverty, and Kaufman added that in the new world order, the economy continues to be global. Misunderstanding this fact, he added, could be disastrous.
While both panelists were optimistic in general, Dean cautioned that the Trump administration’s foreign policy ultimately could have a significant impact on the domestic economy.
Given Congress’ intent to make sweeping changes to the Affordable Care Act, our panelists turned to healthcare. Both Dean and Kaufman agreed the issue is extremely complex and that buying insurance across state lines is trickier than it might seem. State insurance regulators would likely take steps to fight a system under which its citizens could buy policies from other states. States, Kaufman said, built programs based on their specific problems, like those Governor Mitt Romney addressed in Massachusetts. Other states have different challenges and concerns, which make a national plan difficult.
Dean suggested that the ACA could be modified, including the fee-for-service model, which is a major driver in the increasing cost of healthcare. He also suggested that the individual mandate should be repealed, given how much Americans dislike government mandates.
Role of Millennials
In speaking about the Democratic Party, Dean emphasized how important millennials are to the future of the party and the future of the country. This demographic doesn’t like institutions, and millennials know that they can take part in changing societal behavior using nothing more than a smart phone. Millennials also tend to be libertarian on fiscal issues and progressive on social issues. Young people are impatient for change and have the energy to make it happen. According to Dean, the Democratic Party should ensure its next leader resonates with this group.
Dean believes key issues the nation must address include:
Election reform – have an independent commission determine voting districts
National debt – bring the debt under control
Income inequality – change the tax code to allow people to get rich by helping others (ex., building affordable housing)
Kaufman added his key issues:
Term limits – impose de facto term limits by means such as taking away retirement plans for government officials and their staffers
Education – deploy resources to this, our biggest challenge
Opiate addiction – declare war on opiates, especially in rural areas
Defense – reorganize defense and use the savings for education
Both speakers stressed the importance of education in terms of growing tomorrow’s workforce.
Kaufman believes that charter schools and vouchers can play an important role. Dean agreed on charter schools; however, he expressed concern about vouchers creating a more segregated society, where parents send their children to school with those of a similar background. Dean feels that such segregation would be problematic for the country in the long term. He shared that Republican school board members in rural areas are sometimes the biggest opponents to vouchers, as they would allow parents to move their children to larger school systems with more benefits.
Dean warned that student loan debt is a simmering issue that is impacting incentives in the workforce and could provoke a crisis in the years to come. He pointed to the fact that some communities are suffering from a physician shortage because many medical students are choosing specialties more lucrative than primary care in order to repay staggering student loan debt.
Kaufman suggested that, while we must change the education system, the answer may not lie in Washington, DC, and a variety of approaches may need to be deployed. In any case, he suggested that the older generation “should get out of the way and let the kids be in charge.”
This intelligent and respectful discussion of the issues came to an end with both speakers agreeing that America is an exceptionally strong country in which leadership—including the kind provided by American corporations—matters.
Dean and Kaufman are both Senior Advisors in the Public Policy and Regulation practice at Dentons, and Tanenblatt is chair of Dentons’ US Public Policy practice and a leader of the global Government sector team and global Public Policy and Regulation practice, focusing on governmental affairs at the federal, state, and local levels.
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 NACD or the NACD Atlanta Chapter.
Kimberly Simpson is NACD’s 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.
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.