How US executives are reshaping their corporate strategy post-election

Executives are responding to uncertainty from the potential changes in and the regulatory and policy environment after the US election by rethinking their corporate strategies in the US and abroad, according to the Ernst & Young LLP (EY) Election Pulse Survey.

A continued push for onshoring, possible increased regulation of environment and sustainability practices and discussion of increased in corporate tax rates are all issues being considered by the 500 US C-level and executive decision makers surveyed between Oct 19 and Oct 26, 2020. The executives represent companies with US$1b+ in annual revenue, including 40% with revenues of $10b+.

Among the key findings:

• 44% would form sustainability coalitions with corporate customers, suppliers and competitors to respond to increased regulations around environmental sustainability
• 79% of companies are likely to accelerate M&A strategies, alliances and joint ventures if corporate tax rates increase following the election
• 54% cite digital transformation as a top priority regardless of potential policy changes
• 64% of companies will acquire or build more domestic production in response to anticipated policies incentivizing onshoring

There is a growing focus on nonfinancial performance and value creation metrics from investors and consumers as companies are expected to be global corporate stewards. To meet those demands, 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.

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.

Potential tax changes could affect strategy, drive investment in digital transformation

Forty percent of executives say corporate tax rate increase would affect their strategic plans over the next 12 months. In particular, companies could allocate more capital toward digital transformation, which has become a top priority as a result of the COVID-19 pandemic. More than half cite digital transformation as a top investment priority. 

Such digital transformation and automation have been well underway at many companies but has significantly accelerated as the result of consumer demands, concerns about employee health and well-being, the massive shift to working from home and potential changes in tax policies.

To stay ahead of current market and economic disruption, companies are innovating their capital deployment strategies — from reinvesting proceeds from divestments to boosting their digital capabilities through M&A, rather than building resources internally. As companies consider a buy versus build strategy for digital transformation, 79% say they are likely to accelerate M&A strategies, alliances and joint ventures if corporate tax rates increase following the election.

Economic stimulus critical to business success

In addition to tax policy, 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. 

Many companies have already started to reallocate capital domestically, investing in a combination of people, digital transformation and technology.

Business leaders at companies between $1b and $5b in revenue (58%) say 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 could result in significant domestic investment in physical assets such as production facilities and other aspects of the supply chain. Companies think these policies may 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.