AG Deal Diary

Corporate Strategy

Oversee the development of the corporate strategy in an increasingly uncertain and volatile world economy with new and more complex risks Strategic planning will continue to be a high priority for directors due to significant anticipated changes in U.S. government policies, continued international upheaval, potential changes in interest rates and uncertainty in commodity prices, among other factors. Boards must reassess their companies’ business plans and relative market position in dealing with the following issues:

1. Economic/geopolitical outlook. U.S. economic growth continues to be modest, but also continues to outstrip that of most other major developed economies. The advent of the Trump administration is expected to result in large changes in federal economic policies in the largest parts of the U.S. economy. The confluence of uncertainties arising from the ultimate form of Brexit and non-U.S. bank instability will particularly challenge companies with extensive ties to the U.K. and Europe.
2. Short-term vs. long-term; cash stockpiles. Boards will continue to face pressures on their long-term strategies from activist investors seeking to maximize short-term success, and no company seems immune to these pressures. The tension between the initiatives required to pursue either focus will increase the importance of cultivating productive shareholder relations. U.S. companies continue to hoard cash reserves, both domestically and abroad. At the same time, pressure to use this cash for stock buybacks and dividends has not abated.
3. Effect of low oil and gas prices. Global energy commodity prices have appeared to stabilize at a level far below those in recent years, but the market remains susceptible to volatile swings based on international conflicts, agreements among OPEC and other producer states, and the relationship between the pricing of traditional energy and renewable energy sources. These uncertainties will challenge companies in the development of manufacturing, logistical and marketing plans.
4. Prospect of increasing interest rates. U.S. companies have enjoyed an unprecedented period of below-average interest rates. This period is likely to end in the coming months, resulting in different scenarios for companies planning to refinance existing debt or incur additional debt to fund growth.
5. Digital transformation. As companies continue to grapple with the risks associated with cybersecurity, changes in the overall technological infrastructure will also challenge companies’ strategic plans. From the ability to mine Big Data to the transition to all-digitized/no-paper environments, companies will see both opportunities and risks.

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