This week I have been considering the first few weeks of the Trump administration from the business perspective. It has certainly been a chaotic start, with a raft of announcements, Executive Orders and social media postings which have kept the business community in turmoil. While the market certainly reacted with a pro-business rally since the presidential election, the reality of the full scope the new administration seems to have taken hold. One question businesses and business leaders have struggled with is how to respond; engage or stand back?
Many in the business community felt that having a shot at comprehensive tax reform, reduced regulatory requirements, infrastructure spending or other ideas was worth some of the other baggage the new administration brought along. Moreover, many business leaders would rightly expect that the new administration would seek out their guidance on issues of great interest to the business community.
Gillian Tett, writing in her Financial Times (FT) column Finance, in a piece entitled “Businesses wrestle with a Trump dilemma”, said that companies and their Chief Executive Officers (CEOs) do need to be involved “because the crucial thing to realize is that nobody really knows where his team will end up on policy.” Steve Bannon and his crowd could take US businesses down one path and Secretary of State Rex Tillerson and the Goldman Sachs alums in the administration could take the economy down quite a different path.
One approach was detailed by Andrew Ross Sorkin in his Dealb%k column in the New York Times (NYT), in a piece entitled “A Quiet Giant of Investing Weighs In on Trump”, where he discussed a letter by Seth A. Klarman, the 59-year-old value investor who runs Baupost Group. In this letter, “Klarman sets forth a countervailing view to the euphoria that has buoyed the stock market since Mr. Trump took office, describing “perilously high valuations.”“ Exuberant investors have focused on the potential benefits of stimulative tax cuts, while mostly ignoring the risks from America-first protectionism and the erection of new trade barriers,” he wrote.”
Sorkin writes, “Klarman appears to believe that investors have become hypnotized by all the talk of pro-growth policies, without considering the full ramifications. He worries, for example, that Mr. Trump’s stimulus efforts “could prove quite inflationary, which would likely shock investors.”” The reason is that while, “President Trump may be able to temporarily hold off the sweep of automation and globalization by cajoling companies to keep jobs at home, but bolstering inefficient and uncompetitive enterprises is likely to only temporarily stave off market forces” and that “While they might be popular, the reason the U.S. long ago abandoned protectionist trade policies is because they not only don’t work, they actually leave society worse off.””
Klarman is an example of what Tett says are business people who use their voice powerfully, do not act simply as a sycophant but offer precise, hard-hitting, constructive criticism of the administrations ideas which they find objectionable from a business perspective. Moreover, she notes that it “is reasonable to support some of Mr Trump’s ideas – such as deregulation – but hate the xenophobia, and then be willing to fight that.”
This latter approach was discussed by Henry Graber, writing in Slate article, entitled “The Corporate Resistance to Trump Is Hardening”, where he described the amicus brief filed by over 100 tech firms in the ongoing Muslim immigration ban litigation. Graber wrote, “The 20-page argument, submitted by lawyers from Mayer Brown, makes the business case against the Trump order, noting the crucial role of immigrants in U.S. enterprises, including their overrepresentation among American Nobel prizewinners and patent holders. The brief also points out how the order harms U.S. companies’ competitiveness abroad, by injecting “severe uncertainty” into every level of international partnerships, from diplomacy to visas to the actual entry process at American airports.” While the brief did cite the legal basis for their position, it was primarily focused on the business impact.
Graber ends his article by stating, “But what has begun in public relations, for the moment, appears to have a more substantive backbone. The amicus brief points toward a quieter, more important epiphany in American boardrooms: that stopping Trump isn’t just good PR, but good for business as well. At least until he and House Speaker Paul Ryan cut the corporate tax rate.”
Jay Rosen, in a piece entitled “Where Do Politics End and Ethics and Compliance Begin?”, challenged the compliance profession to consider “this is a question that determines where the rubber hits the road. I am not sure that one can actually separate the two domains as politics is often looked down upon for recent decades”. I would only broaden this to a business context. While the need to speak truth to power has long existed and is a hallmark of the compliance discipline, working with the current administration would be a way to continue to have influence.
Tett ends her piece by stating there is one powerful tool, which is, in many ways, the simplest and is always available to chief executives. It is, of course, resignation if your “worst fears turn out to be correct.”
This would appear to be where the greater business community finds itself. Sometimes we will agree with the administration, sometimes we will disagree privately and sometimes we will disagree publicly. I do think the approach now is to be engaged, with the administration and other arms of the government as some actions which may be done for simple showboating may have longer term negative consequences for American business. If we do not speak up, there may not be an opportunity later.
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© Thomas R. Fox, 2017