Item 1: Adjusting to potential policy and economic changes

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Audit committee outlook

The election of Donald Trump to the U.S. presidency, with a stated focus on dramatic change, signals a potentially major shift in regulatory and economic policies affecting businesses. Forecasting the likely impact of a new administration is always difficult, and even more so with an administration led by a president who values unpredictability.

Potentially major changes in policies affecting taxes, trade, labor, international relations and regulatory priorities could pose risks, as well as opportunities. The audit committee should evaluate whether management has considered and adequately addressed the potential risks associated with policy and economic changes that may affect the business and competitive landscape.

Key items to consider might include:
  • Impact on trade and overseas assets, particularly with regard to Mexico and China, and likely changes in tariffs and customs and border controls; companies with international supply chains or markets should develop contingency plans and closely monitor developments.
  • Impact of changes in immigration policies on labor availability, practices and costs, including the potential for labor shortages, heightened regulatory scrutiny and increased expenses.
  • Impact of likely fiscal and monetary policy, including infrastructure spending (which could create opportunities and stimulate job growth) and tighter Federal Reserve policy (which could increase interest rates).
  • Impact of tax policy, particularly for companies with large sums overseas, in which case repatriation at lower tax rates could create a need for new distribution policies and investment strategies.
  • Impact on specific industries such as oil and gas, construction, shipping and transportation, financial services, technology, life sciences and health care, and real estate, particularly in the area of potential deregulation.

Consider potential impacts on customers and suppliers, as well as on the organization itself. Also, bear in mind that while some policies, such as those enacted by executive order or adjustments to agency priorities, can be changed relatively quickly, others can take months or even years to alter or unwind.

The goal is not to try to precisely predict impacts — an impossibility — but rather to forecast a range of impacts on the organization and their effects on performance and value. Then management can develop strategies, with board input, that enable the company to adjust so as to enhance performance, and protect and create value.