Stephen M. Davis is a Senior Fellow at the Harvard Law School Program on Corporate Governance. He co-founded the UN Principles for Responsible Investment and the International Corporate Governance Network and originated the Firearms Safety Principles.
Corporate boards and institutional investors have long embedded political risk analysis into governance and stewardship frameworks. But most have focused mitigation strategies on jurisdictions outside the US while considering political risk to be close to nil in America. That approach changed following the January 6, 2021 insurrection at the Capitol, when many executives and shareholders began to confront the prospect that macro political risk in the US—for instance, social unrest in the wake of partisan mayhem—could trigger threats to enterprise and market sustainability.
Today, political stressors in the US have metastasized into a new and unprecedented micro-level phenomenon: the president himself has intervened at specific companies in board decisions over share buybacks, hiring practices, corporate mergers, foreign investment, and other matters. Previously, regulators and courts had ring-fenced such responsibilities from shareholder oversight based on the business judgement rule. Under it, boards could claim a safe harbor protection from outsider second-guessing if directors were making ordinary corporate decisions. Now the US president is asserting the right to such second guessing—and wielding threats if boards don’t yield. Worse, observers have found it difficult to predict or rationalize which corporate targets might be singled out, and when, or how, for presidential intervention. In addition, the president is engaged in an assault on the independence of the Federal Reserve, a body both companies and investors have relied on as a backstop to political impulsiveness. All this is unfolding while macro political risks—for instance, lethal Trump administration anti-immigrant raids in Minnesota sparking social unrest—remain at sharply elevated levels.
At the same time, though, the Trump administration is offering deregulation measures sought by certain corporations. And the president’s appointees are pushing the US Department of Labor and the Securities and Exchange Commission toward far-reaching curbs on shareholder influence and proxy advisors, items long on the policy agenda wish list of some public companies. READ MORE »
