A major shift in economic policymaking since the COVID-19 pandemic has brought fundamental changes to the U.S. and global economies. The Biden administration is pursuing an ambitious agenda centered on climate change and a transition to alternative energy sources that will increase the role of government in the economy. These changes are making politics a greater factor in business and bringing a new source of policy uncertainty.
The Biden administration’s economic policies include an industrial policy that supports certain critical industries, incentives for reshoring or “near-shoring” supply chains for strategic products and industries, scrutiny of the technology sector through increased antitrust enforcement, continued skepticism over the benefits of international trade, particularly with China, and increases in individual and corporate taxes.
This complex and changing policy environment brings growing policy risks for businesses. The political and regulatory environment will likely be a decisive factor for companies when making investment decisions. In response, firms should focus on identifying and monitoring key policy areas as the first step in managing this political and policy risk.
Make Policy Analysis a Key Part of Due Diligence
Management and boards must understand and respond to political and regulatory developments that could have a material impact on their business. They must make analysis of policy, regulatory, and geopolitical risks a key part of their due diligence in support of strategic and operational planning, investment decisions, and transactions.
To move analysis of the policy environment to the forefront of their decision-making, management and boards should take responsibility for risk oversight and engage in risk-monitoring activities on a regular and systematic basis. They should first identify and understand key policy changes and include a discussion of relevant policy topics at regular meetings.
Monitoring and Research is the Foundation of Policy Analysis
Policy monitoring and in-depth research are the first steps in identifying and managing the political and policy risks that can materially impact a business. Successful policy monitoring does not simply keeping up with the flow of information but helps management and boards assess the relevance of policy developments. In-depth research can then help management and boards move beyond the headlines and develop a deeper understanding of policy issues. These two functions help management and boards in making decisions and avoiding a focus on only issues that have captured the public attention.
The problem for many firms, however, is that management and boards often lack the time to stay current on policy changes and the knowledge to assess their business impact. The influx of information can also be difficult and costly to track. An outside specialist can help management and boards keep pace with policy developments and understand their impact. This will allow management and boards to focus on decision making and in responding to policy developments. Hiring experts for policy monitoring and research can also prove more cost effective than relying on counsel or public affairs specialists.
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