Trump also rewrites the rules of the game for businesses

BarcelonaThe United States has built the world's largest stock exchange and capital markets thanks to its level of transparency and reputation. But with Donald Trump's arrival in the White House, the rules of the game are changing. Under the umbrella of deregulation, many analysts see a shift toward strengthening the boards of directors and managers of large companies to the detriment of small shareholders. "Donald Trump is tilting the balance of power from investors to CEOs," warned the Daily Mail in an article this week. Financial Times, one of the oracles of capitalism.

Trump has established a close and direct relationship with the CEOs and directors of large companies, especially those in technology, but also in other industries, and closes agreements on internships, the elimination of diversity policies, and investments, acting as if he were their president. In fact, "he violates good corporate governance," says Jordi Canals, professor in the Department of Strategic Management and holder of the chair of corporate governance at the Barcelona business school Iese. In this sense, he adds, there is a shift in power from shareholders, who are excluded from decisions, to the governing bodies of large companies.

Furthermore, Trump does not rule out entering into the capital of companies, as it has done with Intel, leveraging subsidies and other unused resources to reach almost 10%. This move—which has been joined by chip sector leader Nvidia—is unprecedented since the bailouts following the financial crisis and is interpreted by many as a shift toward state capitalism or naked, raw interventionism.

Following the guidelines of the current administration, the mandatory information that companies were required to submit on environmental, social, and governance (ESG) issues has been eliminated. Trump, Canals explains, has taken advantage of the debate during the administration of Democrat Joe Biden on these matters, as they are indicators that are difficult to measure, to exclude them from corporate obligations and, in turn, conform to his denial of the climate crisis.

This very week, the leader revived, through his Truth Social network, another of the reforms he launched during his previous term (2017-2021). This involves eliminating the obligation for companies to report quarterly results and information and moving it to semiannual reporting (every six months). The rationale for amending this 1970 regulation is to promote business management that is more focused on the medium and long term. In his usual line, he rebutted in his message"Have you ever heard the statement that 'China takes a 50- and 100-year view of business management, while we manage our businesses quarterly'? That's not good!"

In Spain, quarterly earnings reporting has been voluntary and semiannual earnings reporting mandatory for four years. Law 5/2021, which transposes a European directive, established this and reformed the provisions of the Capital Companies Act and the Securities Market Act. However, the vast majority of companies continue to report quarterly earnings "for transparency reasons," according to Mario Lara, director of ESADE Madrid and the Center for Corporate Governance at the business school. The expert adds that voluntary reporting allows companies to "adapt, depending on the profile of their shareholders."

Long-Term Incentives

However, he admits that "the pressure to publish quarterly results makes longer-term management difficult. Therefore, an important aspect is to properly structure senior management compensation policies and give weight to long-term incentive plans with metrics and objectives that accompany this more strategic and less operational vision."

But this is not the only change taking place in the rules of the game for companies in the US, nor even the most important. Paul Atkins, the chairman of the SEC (the securities regulator), in charge since April, has shelved fourteen rules that came from the previous administration under the Democratic presidency with Joe Biden in the White House. And many gave more power to shareholders. The current strategy involves refocusing on financial and profit-maximizing aspects, leaving aside social or environmental aspects.

Another example is the innovation introduced by the oil company Exxon Mobil. It's a unique voting mechanism that will allow minority shareholders to register to automatically cast their votes online with the board's recommendations at annual meetings, unless they communicate otherwise. This could help the largest US oil producer confront shareholder activism campaigns. The SEC stated that it did not oppose it, thus paving the way for other companies to follow. It's a change that leaves "environmental activists quite out of the game," warns Canals.

The SEC's latest move has been to end its practice of barring listings for companies whose bylaws provide for mandatory arbitration instead of the courts when shareholders want to report fraud or wrongdoing. Critics, including Democrats, claim this denies shareholders their rights while allowing companies to keep their alleged misconduct hidden. If harmed investors can't join a class-action lawsuit and share legal costs, many won't sue.

For the current SEC, this is a way to avoid complexities and "make IPOs great again," according to Atkins, using Trump's slogan "make America great again" (Make America great again, MAGA), and its deregulatory offensive, especially with cryptocurrencies, one of the presidential family's bets and businesses.