When President Barack Obama took the White House in 2009, he delivered an inauguration address against the backdrop of an economy reeling from the collapse of the housing market and accompanying financial crisis.
Obama spoke about the “clouds and raging storms” of an economy that had been “badly weakened.” The financial crisis, he declared then, had reminded the country that “without a watchful eye, the market can spin out of control.”
Within 18 months, Obama would successfully push for greater restrictions against the ability of Wall Street to take risks. The Dodd-Frank Act was an early victory for a new administration that would push to fundamentally reshape how American companies did business.
(Related on ThinkAdvisor: How Bancroft found a new home at Kirkland)
What Your Peers Are Reading
Hallmark legislative achievements under Obama, heralded by consumer and investor advocates, civil rights leaders and environmentalists, now stand in peril under the administration of President Donald Trump. The Trump administration embarked almost immediately on a plan for the “deconstruction of the administrative state,” as the president’s chief strategist, Stephen K. Bannon, put it earlier this year in remarks in Washington.
No presidential transition comes without some uncertainty for regulated industries and the lawyers who work in them. But the pace and fervor of Trump’s deregulatory push has proven dizzying for corporate legal departments and outside counsel, forced to keep up with every new memo, Federal Register notice and presidential pronouncement. In speeches, executive orders and Saturday morning tweets, Trump is methodically fulfilling a campaign promise to shred many of the rules and regulations his predecessor created and embraced.
In the regulated industries, there is wide unrest. How far will the Trump administration go? Will the courts be a check against the power of the White House and Congress to scale back agency regulations? How will the president and his deputies respond to concerns by emerging industries such as drones and marijuana that want the assurances that regulations bring? Is the federal hiring freeze — impacting the very ability to enforce compliance — only temporary?
A fog hangs over regulatory Washington, dissolving the bright-line borders drawn and policed by the Obama administration.
“What [companies] value more than anything is certainty, and certainty isn’t a high commodity right now,” said Crowell & Moring partner Elliott Laws, chairman of the firm’s environmental and natural resources practices group.
Trump, hours after delivering his inaugural address, froze all the rules that were pending before agencies. Days later, meeting with executives from a dozen companies, including Ford Motor Co. and Dell Technologies Inc., he vowed to cut regulations by 75% — “maybe more,” he said — to spur economic growth. Trump would soon sign an executive order that requires agencies to cut two existing rules for every new regulation, as part of an effort to offset compliance costs. More than 90 regulations were delayed, suspended or reversed in the first weeks of the Trump administration, according to a New York Times report in March.
For example, the U.S. Labor Department spent more than six years crafting new rules to curtail conflicts of interest in the retirement-advice market. The department’s so-called “fiduciary rule,” challenged in court by the U.S. Chamber of Commerce and insurance-industry advocates, is now on hold at least for 60 days.
Legal departments that were once scrambling to prepare for the fiduciary rule’s April 2017 effective date have now been handed a reverse play, forced to roll out backup options, all in preparation for how rulemaking under Trump could evolve.
“I’ve had conversations with general counsel where they’ve chatted about the difficulty in trying to keep multiple options open at this late date,” said Amar Sarwal, chief legal strategist at the Association of Corporate Counsel. “The difficulty here is how, with that regulatory firehose, to make sure you’re able to accommodate various options that may be mutually exclusive.”
For financial companies, Republicans on Capitol Hill have put a target on Dodd-Frank changes that, among other things, created the Consumer Financial Protection Bureau. The agency, since its creation in 2010, has collected billions of dollars from mortgage lenders and banks for fraud and other deceptive practices. Its continued existence is now an open question.
(Photo: Diego M. Radzinschi/ALM)
The retrenchment has been a welcome surprise for companies and corporate lawyers who, like many, anticipated a continuation of Obama-era regulations under a Hillary Clinton administration. After eight years on the defensive, companies in many industries are crafting wish lists for the rules they want Trump to quash.
“I have some clients with whom I am close friends who were disappointed by the outcome of the election because they personally are strong Democrats or were supporters of Secretary Clinton. But what I’ve told them was, I know you are not happy on a personal level, but this is a tremendous opportunity for your company,” said Gibson, Dunn & Crutcher partner Helgi Walker, co-leader of the firm’s administrative law and regulatory practice group. “It’s just a completely brave new world in terms of the possibilities for regulatory reform.”
Companies are preparing to play an unfamiliar role after eight years fighting government regulators in administrative proceedings and in court: agency supporter.
“We are prepared, and I’m talking with clients about what we would do to support an agency in defending against petitions for review of agency actions that are favorable,” said Gibson Dunn’s Walker, who has represented clients including Verizon Corp., Comcast Corp. and Ford. “I think, just in talking with people inside agency general counsel shops, that they are thinking about how best to write their orders so they will withstand any challenges coming from those who disagree.”
Proponents of deregulation will have an ally in the leadership ranks at the U.S. Justice Department. Trump’s pick for associate U.S. attorney general, Rachel Brand, formerly led the regulatory litigation arm of the U.S. Chamber of Commerce. In that role, Brand was a leading critic of federal regulatory action.
Brand and her colleagues at the Justice Department will be tasked with defending federal agencies from attack during the Trump presidency. She was asked on Capitol Hill last month about the challenges of switching sides.
“My client will be the United States, and my role will be to serve the public interest and the interest of justice, representing that client as best I can,” Brand told U.S. senators at her confirmation hearing. “That’s a role I’m very comfortable with.”
The practical implications of Trump’s two-for-one slashing order remain to be seen. Trump’s mandate spelled out broad concepts, to be sure, but left the finer points for the Office of Management and Budget to flesh out.
That office issued interim guidance instructing agencies to take two deregulatory actions for each “new significant regulatory action that imposes costs.”
But questions abound. What action rises to the level of significant? How will the administration calculate compliance costs? Will the agencies look inward for deregulatory actions or engage in interagency bargaining?
Hogan Lovells partner W. Michael House, who leads the firm’s legislative practice group, called Trump’s order “a nice concept” — but one that will leave much for companies to watch, closely, before executing a revised business strategy.
“In many of these areas, it’s going to take legislation” to repeal a regulation, House said. “It’s not as easy as just making a proclamation, especially in areas that require legislation.”
(Related on ThinkAdvisor: Trump’s Victory Will Reshape Financial Rules, Supreme Court)
Unions, along with public interest and environmental groups, are moving quickly to preserve existing regulations. Trump’s two-for-one order drew a challenge from the Public Citizen Litigation Group, the National Resources Defense Council and the Communications Workers of America. In a lawsuit filed in Washington federal district court in February, the groups argued the Trump administration’s approach would scrap rules that have a net benefit to society in spite of their compliance costs.
“The executive order will block or force the repeal of regulations needed to protect health, safety and the environment, across a broad range of topics — from automobile safety, to occupational health, to air pollution, to endangered species,” the groups said in their complaint.
The lawsuit was one of the earliest, and broadest, challenges against the Trump’s administration’s push to deregulate.
And it is likely just the beginning.