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The U.S. Debt Debate: Sitting Idle While Government Slashes and Reforms Is Unwise
The first round of political chicken over the debt ceiling limit may be over, but the fight is certain to flare up again as the 12-member congressional Joint Select Committee on Deficit Reduction, commonly called the “supercommittee,” works toward its Nov. 23 deadline for deficit-slashing recommendations.
Despite the lull, those who keep tabs on the workings in Washington say this is the wrong time for companies to sit on the sidelines and watch the next round unfold.
“It’s a critical time to take a look at your organization, at your regulatory and political risk, and to have a strategy for addressing this in D.C.,” said Howard A. Schweitzer, a principal in Cozen O’Connor’s public strategies business. “With trillions in cuts coming, general counsel, CEOs and heads of government affairs need to have their finger on the pulse of what is happening here.”
Making substantial changes in the wake of the debt crisis is not optional for the government, said Schweitzer, former chief operating officer of the Troubled Asset Relief Program (TARP). In both parties, everyone agrees that the United States doesn’t want to become Greece or Europe.
Citizens also agree. One of the most profound outcomes of the debt crisis is the American people’s realization that we need to control spending, said Ernest Patrikis, partner in White & Case’s banking and insurance regulatory practice in New York. “This is a major break in our thinking.”
Looming spending cuts, coupled with the back-to-back reforms through the Affordable Care Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, has created tremendous regulatory uncertainty for government and for businesses, Schweitzer added. Tough economic times and these once-a-generation reforms require the government to enforce more regulations with fewer employees, contractors and resources, he said.
“The crisis picks up and amplifies what’s been done in Dodd-Frank,” Patrikis said. “It’s a great big ball of wax, all intertwined.”
Doing More With Less
General counsel must help their companies adhere to more regulations in a sour economy. Companies seeking credit will be subject to higher standards; government and military contracts will be fewer, said Patrikis, former general counsel for the Federal Reserve Bank of New York and of AIG.
“As a company, if I’ve got cash, I’m keeping it,” Patrikis said. The uncertainty surrounding budget cuts, tax code changes and regulations impacts business planning. This needs to be resolved so corporate America knows what it needs to do business, he said.
Schweitzer agreed. The debt ceiling debate and chilling economic numbers have been a real drag on hiring. Additionally, doing business with the government and obtaining government approvals will be more difficult; and the level of political risk is exceedingly high, he said.
“The more regulated you are, the higher the level of political risk,” Schweitzer noted. Companies must identify key risks and develop a strategy for addressing them in the short, medium and long term.
Patrikis advised general counsel to avoid getting caught up in the minute-by-minute analysis in Washington and focus instead on actions that directly affect the company. Find out where you are vulnerable, and then develop relationships with people in Washington who can keep you informed and whom you can call for help, he said. Further, companies need to express themselves, either directly or through associations. “Make a point,” Patrikis said. “Make many points, so the government takes notice.”