US execs rethink strategies in anticipation of potential policy shifts

24 November 2020 Consulting.us
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US executives may have to rethink their corporate strategies in advance of potential policy and regulatory shifts in Washington, according to a recent Election Pulse Strategy Survey from EY. The Big Four firm polled 500 C-suite executives at companies with more than $1 billion in annual revenue.

With Biden as president-elect, corporations may face some policy changes in the form of stricter environmental and sustainability regulation, as well as higher corporate tax rates. However, the Democrats have likely failed to swing the Senate, pending the Georgia run-off in January, and thus would face a substantial challenge in enacting more progressive policies after four years of Trump. A Democratic White House could still enact policy change via executive order, but they will probably be reticent to do so. 

Nonetheless, business leaders have to make contingency plans for potential regulatory changes. On the sustainability front, 47% of business leaders told EY that it would be difficult for their organizations to respond to increased regulation on environmental and sustainability practices.

The size of the company seemed to make a big difference in the relative difficulty of enacting ESG change, with 86% of companies between $1 billion and $5 billion in revenue saying it would be easy to respond, while 70% of $10 billion+ revenue companies saying it would be difficult. However, with customers and investors placing an increasing emphasis on ESG metrics, companies will likely have to make some changes in the future, regardless of difficulty.

US execs rethink strategies in anticipation of potential policy shifts

Meanwhile, 40% of leaders said changes to corporate taxes will affect their strategic plans in the next 12 months. More than three quarters (79%) said that an increase in corporate tax would accelerate acquisitions in core businesses and new growth areas, alliances, and joint ventures. Some of that capital would be directed to digital transformation, which 54% cited as a top investment priority.

“Companies are innovating their capital deployment strategies — from reinvesting divestment proceeds to boosting their digital capabilities through M&A, rather than building resources internally — to stay ahead of current market and economic disruption," said Loren Garruto, EY Global and Americas corporate finance leader, strategy and transactions.

Business leaders are also contemplating the second stimulus package, which the lame duck president is currently stalling. Forty-four percent said large-scale infrastructure investments would create opportunities for their company, while a similar number said it would stimulate the economy and create opportunities for customers.

Biden is expected to continue “America first”-type policies, with no indication he will soften the current trade stance on China. The president-elect’s “Made in America” tax incentive, meanwhile, aims to incentivize reshoring via tax credits to companies that expand employment in the US.

More than 64% of respondents said they would acquire or build more domestic production in response to reshoring incentives. Companies between $1-$5 billion in revenue would be likeliest to expand manufacturing suppliers and back-office employees in the US next year in response to such federal policies, at 86% versus 53% of companies overall.