Chamber Study Finds Government Poses More Risk to Corporate Profits

The effects of tax changes, regulatory enforcement, and changes in government policy on corporate profits are becoming more prevalent than they were a decade ago, according to a recent study released by the U.S. Chamber of Commerce. 

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The chamber study, which was conducted on behalf of the S&P 500 index, was based on an analysis of the annual reports filed by the publicly traded companies in the index. The study found that in their 2021 annual reports, companies used terms that were associated with potential risks associated with government action approximately 325,000 times, which is a 27% increase over 2011.

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During that same period, the chamber found that corporate profits were subject to relatively flat risks, which are caused by non-governmental forces, such as lawsuits and cost increases, compared to risks caused by government forces.

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Several factors led to the increase in government risks, according to the chamber, including the repeated shifts in party control in the government, a more partisan approach to policymaking, and the growing willingness of both parties to change policy through regulation rather than by passing legislation.

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“We found that this report confirms what we have heard from many of our members about the growing threat of government overreach and the risks that it poses to their business”, said Neil Bradley, executive vice president of the chamber.

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A study conducted by the Chamber of Commerce examined annual reports and sought to identify terms that were associated with risks affecting public policy, such as “data privacy,” “immigration” and “labor.” 

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The study found that healthcare companies and public utilities have experienced the greatest increase in threats to their profits from the government over the past few years. There is a great deal of regulation in both of these sectors.

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Among the organizations that contributed to the policy risk were the Justice Department, the Environmental Protection Agency, the Federal Trade Commission, and the Securities and Exchange Commission. The chamber found that the risks posed by the FTC have increased by 62% since 2011.

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It is estimated that public companies reported roughly 260,000 policy risks in their annual reports in 2011, the first year of the study. It was during this time that Democrat Barack Obama was the president of the United States.

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There was an increase in the number of mentions of government risk in 2016, which was the last year that President Obama served in office, and reached about 325,000. This was a time when the Obama administration was actively pursuing a broad range of regulations, including clean-air rules, health and safety policies, and efforts to assist workers in building labor unions within public companies at the time.

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At the start of 2017, the first year of the Republican Donald Trump presidency, the number of mentions of political risk reached a peak of about 360,000. In 2011, the first year of the study, there was a substantial increase in the number of political risks by nearly 40%.

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The populist rhetoric of Mr. Trump, as well as the verbal attacks he made on major U.S. corporations, along with his promise - which he executed - to slap new tariffs on Chinese imports, caused many corporations to feel threatened, adding both costs and uncertainty to their business operations. 

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Despite this, the chamber's study found that after Mr. Trump's first year in office, mentions of political risk in annual reports began to decline in 2018 and they have continued to decline throughout his presidency. Companies reported a slight rise in concerns about risks related to government regulation in 2021 when President Biden, a Democrat, took office.