The Changing Landscape of Business Risks: From Inflation to Government Regulation

Corporate executives are constantly evaluating the biggest risks to their businesses, which can range from unexpected events like pandemics and global conflicts to more traditional factors that fluctuate with business cycles. In recent years, there has been a wide range of risks, including Covid-19, supply chain shocks, consumer demand, and inflation, with the latter being the top concern over the past year. However, according to the HaberTusba CFO Council Q3 survey, the majority of CFOs now believe that inflation has peaked.

The Shift in Risk: Government Regulation Takes Center Stage

The Q3 survey reveals a significant shift in the perception of risks, with CFOs increasingly pointing to government regulation as the biggest threat to their businesses. The percentage of CFOs citing government regulation as the top risk has surged from about 6% in Q1 to 40% in Q3 2023. In contrast, the percentage of CFOs citing inflation has dropped to 10% from one-third in previous quarters, marking a substantial change in risk perception.

The Rise of Government Regulation

The focus on government regulation is supported by recent headlines highlighting regulatory actions. The Federal Trade Commission’s antitrust lawsuit against Google, the targeting of Amazon, the introduction of Medicare price negotiation for pharmaceuticals, and the escalating geopolitical tensions with China all contribute to the increased emphasis on government regulation as a risk factor.

A Return to Pre-Pandemic Trends

Regulatory experts suggest that the current focus on government regulation is not entirely new but rather a return to the pre-pandemic norm. Analysis of corporate filings over the past decade shows a steady increase in references to government regulation as a risk factor, particularly during the trade war between the US and China. The pandemic and inflation acted as temporary disruptions to this long-term trend.

The Dysfunctional Congress and Regulatory Uncertainty

Experts attribute the growing fear of government regulation to the dysfunction of Congress and the resulting reliance on executive action. The lack of major bipartisan legislation has led to an increasingly aggressive executive branch, which constantly shifts regulatory policies. This uncertainty poses challenges for businesses, particularly in areas like immigration and environmental policy.

The Impact on Corporate Lobbying

Corporations have responded to the regulatory uncertainties by increasing their lobbying efforts. After a period of stagnation, there has been a surge in lobbying spending by S&P 500 companies in 2022 and 2023. Trade and supply chain issues have become the top lobbying concern, reflecting the global nature of regulatory risks faced by US companies.

The Geopolitical Dimension: China and International Regulations

Regulatory concerns are not limited to the US government alone. The growing tensions with China and its impact on export controls, particularly in advanced chip technology, have bipartisan support. International regulations, especially from the European Union, also play a significant role in shaping the risks faced by US companies.

Overall, the shift from inflation to government regulation as the top risk demonstrates the evolving landscape of business risks. The cyclical nature of risks, combined with geopolitical tensions and regulatory uncertainties, requires businesses to adapt and navigate through this changing environment.