Implications of the Changing U.S. Regulatory Landscape Download Dealing with regulatory change and uncertainty continuously ranks among the top risks identified by board members and C-suite executives across the globe. Some believe that recent U.S. Supreme Court decisions will increase this risk for companies doing business in the United States, while others applaud the Court’s actions. What is happening, and what does this mean for boards and their companies?One metric used to assess the “quantity of regulation” in the United States tracks the number of prescriptive words, such as “shall” and “must” in the U.S. Code of Federal Regulations. These words have increased nearly three times since the 1970s. This proliferation of regulations is not unique to the United States and, at least in part, reflects governments’ and regulators’ efforts to deal with newer and broader areas of concern, such as technological innovation, climate change, and data privacy and security. It makes clear why managing regulatory change and uncertainty remains a business imperative and a significant risk for many companies.The rulemaking process in the United States was designed to ensure transparency, public participation and accountability. Since 1946, with the enactment of the Administrative Procedure Act (APA), the rulemaking process has worked as follows: Congress enacts a law setting forth broad principles and intentions and delegates to a federal agency the authority to develop implementing regulations; the appropriate agency drafts a regulation and publishes it for comment; the agency reviews and considers the comments submitted, modifies the initial proposal as it deems appropriate, and publishes a final regulation; and interested parties challenge the final rule in court if they believe it exceeds the statutory authority or is arbitrary or capricious. Download This issue of Board Perspectives discusses the Chevron deference doctrine, its origin in 1984 and its recent reversal this year and its impact, which marks a fundamental shift in power away from the executive branch to the judicial branch. It outlines potential outcomes of the Chevron reversal for U.S.-based companies and companies doing business in the United States.There may be greater opportunity post-Chevron for companies to influence rulemaking if they can thoughtfully and convincingly make the case that the regulators are overreaching. The better way — less disruptive and less costly than litigation — to make this argument is to comment on regulatory proposals. Boards will want to ensure that their companies are actively engaging in the rulemaking process when the outcome will impact the company’s business and operations.Companies face additional risk from the need to monitor a more complex environment, which may be more affected by court decisions than has been the case traditionally.Companies should assess the short- and medium-term potential impact of the Chevron reversal by assessing which areas of their business and operations are more exposed to and potentially subject to judicial challenge.On an ongoing basis, many companies will need to expand their horizon-scanning functions to track not just legislative and regulatory developments at the federal and state levels (and more broadly for multinational companies), but also in the courts. This will require added focus and potentially added investment.The Chevron reversal may also complicate a company’s implementation of new regulations in cases where it is reasonable to conclude that the regulation may be subject to judicial challenge. Companies will need to balance the affirmative requirement to comply with the new requirement, and the cost thereof, with the possibility that the regulation will be reversed or modified. This will highlight the need for an agile and adaptable regulatory change program.While the full impact of the Chevron reversal will unfold over time, what is clear already is that businesses used to dealing with regulatory frameworks shaped by agency interpretations must now adapt to a more uncertain regulatory environment determined by the courts. Directors should keep this shifting environment in mind when discussing regulatory matters with management.(Board Perspectives — Issue 179)Listen to our Board's Perspectives podcasts, which provide practical insights and guidance for new and experienced board members alike. We want to hear from you!What topics would you like to read about in the coming months?Let us know Click here to access all issues Learn More Topics Board Matters Risk Management and Regulatory Compliance
