In-House Counsel Should Advise Their Companies to Assess the Political Risks of Their Business Decisions

Companies, of course, want to succeed even in chaotic environments. Success requires appropriate planning, which can help lead to predictability. Good corporate governance — making sure directors have appropriate information to timely assess compliance with legal obligations and fulfill duties they owe to the business, its employees, and stakeholders — can help mitigate downside impacts to businesses. Given the amount of political uncertainty, and the pressure businesses now face to take positions on political issues outside their immediate economic environment, good corporate governance also compels businesses to consider politics as they never have before.

Good corporate governance can help cabin these new corporate risks, thereby minimizing the potential for financial impacts on the corporation. In-house counsel should advise the company’s decision makers of the following practices that may mitigate those risks:

• Ensure appropriate data-gathering and compilation. Political policies do not arise in a vacuum. Internal and external policy advisors, trade associations, and business contacts can help track potential political risks. (As one example, ArentFox Schiff’s “Trump’s Policy Playbook” is intended to help businesses understand risk across the whole of their operations.)
• Review and assess policy positions and evaluate whether they continue to be appropriate on a regular basis. At the federal level, we have seen diversity, equity, and inclusion (DEI)-related activities move from being universally lauded to potential reasons for imposition of federal civil or criminal liability. Executive Order 14173, issued on January 21, directed the US Attorney General to develop an enforcement plan to target private sector DEI programs believed to be unlawful. (For more, see here.) Actions like designating corporate personnel tasked with understanding points of emphasis in government enforcement and mapping them across a corporate footprint may be appropriate.
• Evaluate what corporate efforts are appropriate to use in marketing in the current political environment. Recent years have seen sustainability reports become key tools to influence stakeholders ranging from consumers to employees. Businesses which previously leaned into social issues or community involvement in the environmental, social, and governance-era may want to deemphasize aspirational goals and/or provide additional data on their factual conclusions, practices, and achievements.
• Review and assess places where rollbacks in federal, state, or local government spending could impact the viability of business operations. Investments reliant on federal grants or subsidies need to be reviewed.
• Review corporate compliance programs in light of federal priorities. The US Department of Justice has listed initial federal compliance priorities including terrorism financing, money laundering, and international restraints on trade. As above, taking a systematic approach to understanding and evaluating points where corporate activities could be impacted by enforcement priorities may be appropriate
• Finally, the regulated community should conduct a thorough census of regulations or statutory laws that have the potential to negatively impact corporate operations. They should assess whether any impediments can be addressed through a forward-looking government relations strategy, especially given current efforts to streamline regulations and government operations, particularly related to environmental and energy issues. (For more, see here and here.)

When directors fail to consider and weigh political factors and shifts in governmental initiatives and program enforcement, stakeholders may ask why the board made no effort to make sure it was informed about an issue so intrinsically critical to the company’s business operation. While perhaps not a traditional function of the legal team, it is a whole new world out there. By encouraging the company’s decision makers to take politics into account, in-house counsel can exponentially increase their value and the company’s ability to succeed.