On the heels of the US elections, US executives are responding to uncertainty from the impending changes in legislation, regulations and policy by rethinking their corporate strategies in the US and abroad, according to the Ernst & Young LLP (EY US) Election Pulse Strategy Survey, conducted by EY US Strategy and Transactions.
The survey polled 500 US C-level and executive decision-makers at companies with $1b+ in annual revenue between October 19th 2020 and October 26th 2020 and explored the potential implications of each presidential administration’s policies on business strategy and execution.
Nearly every corporate strategy will be impacted by sustainability regulation
Business leaders view the sustainability imperative as challenging, with 96% indicating their current portfolio strategy will be affected. Further, about half believe it will be difficult for their organizations to respond to increased regulation on environmental and sustainability practices. This comes at a time when environmental, social and governance (ESG) has gained prominence among investors and dealmakers as a key consideration in the due diligence process.
“There’s a growing focus on nonfinancial performance and value creation metrics from investors and consumers as companies are expected to be global corporate stewards,” said Bill Casey, EY Americas Vice Chair, Strategy and Transactions. “To meet those demands, we found that 44% of companies are looking to form coalitions with corporate customers, suppliers and competitors, and an equal amount are making changes internally through new investments in clean, sustainable assets. But no one thinks it will be easy.”
When assessing the relative ease or difficulty of making these changes, there is a substantial gap between companies of higher and lower revenue. The great majority (86%) of leaders at companies between $1b and $5b in revenue indicate it would be easy to respond, while 70% of leaders at companies with $10b+ in revenue indicate it would be difficult.
Major strategic priorities include corporate tax, infrastructure spending and economic stimulus
Forty percent of executives indicated changes to corporate taxes will affect their strategic plans over the next 12 months. If an increase in corporate tax were to occur, 79% of business leaders indicated that would accelerate acquisitions in core business and new growth areas, alliances and joint ventures.
Some of that capital will likely be allocated toward digital transformation, which has quickly become a top priority as a result of the COVID-19 pandemic. More than half (54%) cite digital transformation as a top investment priority.
“Digital transformation and automation have been well underway at many companies but have significantly accelerated as the result of consumer demands, concerns about employee health and well-being, the massive shift to working from home and the prospects of changes in tax policies,” added Casey.
Loren Garruto, EY Global and Americas Corporate Finance Leader, Strategy and Transactions, added: “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.”
US business leaders are also considering the impact of potential economic stimulus and investment in infrastructure by the federal government. They see these actions as critical for success, as 44% indicate large-scale infrastructure investments to offset the economic impact of COVID-19 will create opportunities for their company. A nearly equal percentage (43%) indicate large-scale infrastructure investments will stimulate the US economy, and 42% indicate they will create opportunities for customers.
“There is broad agreement among executives that federal investments in economic stimulus and infrastructure spending will benefit the larger economy, their business and their customers,” said Casey. “They see these measures as critical to restoring the health of the economy, providing a lifeline for US companies until a vaccine for COVID-19 is widely available.”
Push for US onshoring leads executives to rethink capital deployment strategies
Federal policies and regulations aimed at increasing domestic onshoring of production and operations are also expected to have a significant impact on corporate strategy, with more than 64% of US business leaders indicating they would acquire or build more domestic production in response.
“As production moves to the US, executives are left with the question of where to invest their capital,” added Garruto. “We’re seeing companies reallocate capital domestically, investing in a combination of people, digital transformation and technology.”
Business leaders at companies between $1b and $5b in revenue (58%) responded they are more likely than businesses surveyed overall (35%) to say that federal policies designed to increase domestic onshoring will have a positive impact on their company’s profitability. This cohort is also more likely than companies with $10b+ in revenue to expand manufacturing suppliers and back-office employees in the US next year. The gap is significant, with 86% of these companies indicating they are likely to expand, compared with 53% of business leaders overall.
“The policy landscape and political pressure could result in significant domestic investment in physical assets such as production facilities and other aspects of the supply chain,” said Casey. “Companies assume these policies will remain for the long term and are planning accordingly. Transactions and supply chain modifications are among the near-term solutions for affected companies to remain competitive in both the US and globally and rely less on foreign sourcing.”
As executives wait for potential regulative changes expected with the new presidential administration, integrating considerations early on and embracing opportunities for capital allocation will be key to surviving in this environment.
The EY Election Pulse Strategy Survey was commissioned by EY Strategy and Transactions, in which 500 US business leaders from companies with $1b+ in revenue were interviewed between October 19th 2020 and October 26th 2020. The survey gauges how business leaders view potential policy implications of the 2020 presidential election and the actions they will take in response. Respondents included CEOs, CFOs, chief strategy officers, chief growth officers, chief transformation officers and heads of business units.