Political Instability from the 2024 Election: Corporate America Should Prepare
Republished - Oct 16th, 2024
By Arthur Kohn, Skytop Contributor / December 5th, 2022
Arthur Kohn has practiced law since 1986, focusing on compensation and benefits matters, including executive compensation, pension compliance and investment, employment law, corporate governance and related matters. In 2021, he was appointed as a fellow to the American College of Governance Counselors.
Arthur is an adjunct professor at New York University School of Law and a regular guest lecturer at Columbia Law School. He frequently speaks and writes about executive compensation, taxation and corporate governance matters. He repeatedly has been recognized for his work by the business and legal press, including Best Lawyers, Chambers USA, The Legal 500, Super Lawyers of New York and others.
Arthur received a B.A. from Columbia University and a J.D. from Columbia Law School, where he was admitted into the Accelerated Interdisciplinary Legal Education program, was appointed a Harlan Fiske Stone Scholar and received Phi Beta Kappa honors.
Potential of Chaos Poses a Real Threat
Some have taken comfort from the outcomes of the U.S. midterm elections, believing that America has turned a corner towards political stability. The point of this note is to argue that, whatever takeaways may be warranted from the midterms, corporate America should begin now to prepare for the possibility of a chaotic outcome to the next national elections in 2024. The basic argument is that:
for many reasons, including that most basic proposition that democracy is good for business, corporate America should be highly motivated to prepare for a crisis so as to minimize the potential damage of a crisis in 2024,
corporate America has trust and influence that may be useful in disputed election scenarios, and
a little preparation in light of the complex dynamics that may come into play is customary, legally prudent and well worth the minimal cost.
Developing a Plan
Preparation would involve developing a plan for companies to take a view related to the resolution of a dispute in the election’s outcome. That plan would not necessarily involve taking a view as to the winner. Rather, it could involve, by way of illustration, only taking a position as to the proper approach for determining the winner. It could include a framework for when an industry, company, director, board or CEO should or should not take a position, notwithstanding pressure from multiple directions.
Reducing the Burden and Risks
The preparation could work out when coordination about a position is prudent and permissible, and when not. It might, perhaps at a minimum, involve identifying the categories of issues that might arise in a crisis context, so that there is a list to consult if a crisis arises. It might stake out guidelines that could be relied upon in an actual crisis, which could be defended at least in part on the basis that the guidelines were developed outside the pressure of the crisis. In sum, preparation in this context would mean reducing the burden and risks of having to make decisions concerning challenging issues in novel contexts on the fly.
More Than Enough to Create a Crisis
A premise of this note is that our political system is not clearly stable. There are still very large numbers of voters who challenge the legitimacy of our government, ranging from those who really believe that the voting process is manipulated, to those for whom the reality about the functioning of the process does not matter as much as their grievances, to those whose careers depend on the instability. Collectively, they represent a sizable portion of the electorate, more than enough to create a crisis. There is a chance that this group will have learned from their failures in the 2020 election cycle.
Think Seriously and Dispassionately
We should not divert attention from the fact that this is the reality in which we exist, even if the legitimacy of the government may seem beyond doubt and not subject to rational dispute. It is noteworthy than in the aftermath of the 2020 election dispute, separate groups of retired military leaders (https://www.nytimes.com/2022/07/21/opinion/january-6-trumpmilitary.html) and retired secretaries of defense and chairman of the joint chiefs of staff (https://warontherocks.com/2022/09/to-support-and-defend-principles-of-civilian-control-andbest-practices-of-civil-military-relations/) thought it necessary to publish public statements concerning the relationship between the military and civilian government. There is no good reason not to think seriously and dispassionately about the situation.
Significant Risks Remain Ahead
There are many views about how the next election will unfold. It is not my purpose to examine those views or to guess which will turn out to be correct. Maybe we will get lucky and the system will stabilize, and maybe it won’t. In any case, it seems clear today that significant risks remain ahead and there is a lot at stake in the outcome.
Contingency Planning
The fact that we cannot know with clarity what a crisis in 2024 would look like is not a good reason to refrain from thinking about how business should respond in the event one were to arise. Contingency planning regularly is done in the absence of a clear view about how facts and circumstances will unfold. The uncertainties obviously increase, rather than diminish, the need for preparation.
Without a Partisan Bias
The exercise of preparing for a crisis inevitably may seem partisan, because only one party in 2020 challenged the results. Regardless, there should be a way for corporate America to prepare for the possibility of a political crisis in 2024 without a partisan bias. Indeed, an important reason to prepare is to minimize the risk that overly partisan views about the outcome will dominate. Part of the purpose of preparation is to create reasonable expectations, so as to maximize the likelihood of a consensus result if the outcome is contested, consistent with our historical norms regarding the peaceful transfer of power. Accordingly, it would be critical that any attempt to prepare for the election not be or seem partisan.
Novelty of the Concern
While corporate America is not accustomed to having to worry about peaceful transfers of power, well run big businesses routinely plan for contingencies that are much less likely and complicated than a crisis arising from the 2024 elections. The novelty of the concern does, however, pose difficult challenges. To start, it is not an item on the agendas of those who would be best positioned to take up the relevant questions. They have plenty of more routine issues to occupy their time. Furthermore, the subject is obviously treacherous, even radioactive. On balance, there is no reason for any executive to take up the issue, even if there is a need for corporate America as a whole to prepare.
Trade Groups
As a result, preparation for a crisis is a project best undertaken by one or more trade groups. That model is consistent with the historical roles that trade groups play, insulating individual companies from having to stake out positions on topics that pose difficult challenges for them to take individually.
Extremely Multidisciplinary
A well-designed project would be extremely multidisciplinary. If done internally, it would require input from various stakeholders, including expertise from governmental affairs, human resources, investment relations, customer relations, press relations, human relations and cybersecurity departments among others. Most obviously, consideration would also need to be given to corporate governance issues and the views of the board of directors.
Views on How to React
There are likely to be differences of view about how to react in a crisis among board members at almost all companies. In the current environment, in which businesses are regularly pressured to take views or not by different powerful constituencies, many directors express the view that companies should only take a view on social issues that directly and clearly materially impact their particular business. That common and strongly-held view would be likely to be asserted for the proposition that businesses should stay clear of taking a position concerning a disputed election.
Impact on Business
Whatever the merits of that view in the context of other issues, it does not support a decision not to prepare for a potential 2024 election crisis. First, it presumes that resolution of such a dispute would not have a material and direct impact on business generally. That view is incorrect, at least in many crisis scenarios for many large public companies. The outcome of an election crisis could have very material and direct implications for business in general and for specific industries and individual businesses. Second, as stated above, the point of preparation is to thoughtfully consider whether it would make sense for any business to weigh in or not in a specific crisis. Certainly, the risks on the horizon are novel enough that having a thoughtful, detailed, multidisciplinary exploration about the prudent course is preferable to reliance on a rule of thumb such as the view stated above, however intuitive it may seem even to many wise and experienced individual directors.
Legal Obligations
Separately, every board should ask what legal obligation it has to consider the risks arising from a potential election crisis. Every such question depends on specific facts and circumstances confronting the corporation; the basic and fundamental analysis under Delaware corporate law arises from the well-known 1996 Caremark decision. That case involved a claim that the board of Caremark International breached its fiduciary obligations by failing to adequately monitor the risks facing the company, a drug manufacturer, from the criminal sale of its drugs for unapproved uses. The basic question addressed by Caremark concerns the standard of diligence to which a board is subject in exercising its oversight function. That is, at what point is a board responsible for a failure to exercise sufficient care in monitoring risks facing the company?
On the one hand, the challenge for a plaintiff seeking to hold a board accountable for such an oversight failure is famously difficult. The Delaware Court of Chancery has said that Caremark claims are “possibly the most difficult theory in corporation law upon which a plaintiff might hope to win a judgment”. On the other hand, the most notable aspect of the Caremark analysis in regard to risks arising from a 2024 election crisis is that it is eminently foreseeable, because of the events arising from the 2020 election.
In sum, the risks of legal liability seem very low if a company can exercise the discipline not to react in any way to a crisis. In the real world, though, there will likely be strong pressures on many companies to react in some way. If a company decides it must act for business reasons, the absence of preparation in the event of an adverse outcome will not be helpful, to say the least.
Long and Short-Term Incentives
It is worth listing the many long-and short-term incentives that could cause a corporation to act in the face of a 2024 election crisis:
Business needs robust democratic norms to thrive. Questioning whether the rule of law in this country would survive an election dispute may seem to be hyperventilating. All politics aside, there is a lot at stake and good reason to be cautious.
How much would a loss of global political leadership damage corporate America?
A. Could it cause further serious damage to the reliability of global supply chains?
B. Could it erode the stability of the dollar as the global currency?
C. Could it undermine any chance for progress on global cooperation to address climate change?
How would financial markets react to such a crisis? Would the recent experience in the U.K. be indicative?
Would individual companies be worried about competitors’ currying political favor by stepping into the dispute?
How would employee sentiments factor into company decisions?
How would customer sentiments and brand positioning factor into company decisions?
Would CEOs feel an imperative to engage, for what individual, personal reasons might motivate them?
Would particular Industries be motivated to step into the dispute for business reasons?
Would large stockholders seek to exert influence on companies to step into a dispute?
In sum, the case for a little preparation should be simple. The fact that maybe it’s not in this case speaks to the novel challenges facing us.