CTA Injunction

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As just about everyone is aware, Federal law requires filing for many companies a report setting forth the ownership and control of these companies. This is a requirement generally referred to as “CTA.” For entities existing before 2024, the deadline is December 31.  For entities formed during 2024, the report is due within 90 days of formation.

Below is my current reaction relative to the efforts of a US District Court in Texas to create a nationwide ban on the requirement to comply with this law. [Note that many companies are subject to this requirement but also many are not– you must seek counsel from your legal advisers in this regard.]

A  Federal District Court in Texas has issued an injunction to prevent the CTA registration requirement from taking effect.   Since this injunction may be overturned, modified, or limited in geographical scope, for now all companies subject to the filing requirement (which is due as of this writing on December 31 for older companies and within 90 days of formation for 2024-formed companies) should seek legal guidance as to whether they should continue in ordinary course to prepare this filing (if not already completed).  I note in passing that the Federal Courts in the District encompassing Texas are notoriously conservative; that may explain the injunction but at this point the injunction is in effect at the National level.

It is possible that the filing deadline will be extended given this development; it is possible that the injunction will be over-turned and that the original deadline will be in effect; it is possible that a senior Federal court or the incoming administration will alter, defer or overturn the whole program.  What will happen is unclear.  As the deadline approaches all companies subject to this filing who have yet to file must determine how to respond until clarity is provided to all of us, hopefully in a matter of days.

As with all posts, nothing on this site constitutes legal advice to any recipient.  All recipients should consult with their own legal counsel or advisers with respect to next steps.  Posts to this site are informational only and readers cannot rely upon any posted matter as legal advice provided to you.  Readers are warned that the CTA requirements are complex and that consultation with your legal advisers is recommended.

Election/What Companies and Boards Should Do

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This seventh and final post addresses issues for corporate boards, in light of issues raised at the November 20 NACD–New England  program discussing the impact of the election on business. Fo

Are you a winner or a loser? The panel suggested that certain companies will do well, and others not so well, in the new economy.  Clearly AI is destined to be of intense interest and AI-related companies should be able to have an easier time raising capital (something I observe in my own practice).  Bitcoin’s hour has arrived, for good or ill.  Independent media has come into its own (outside press coverage separately have noted that during the election the non-mainstream digital press was the active venue for effective communication).    Tech and banks should do well absent intense regulation.  If interest rates do get lower, and if immigration does not create labor gaps, retail big box and companies which provide what is purchased in CapX expenditures should thrive.

Losers: mainstream media, with a special vulnerability for META. Perhaps some climate-related enterprises although look to see if they are active in Red States; and note that during Trump-1 there was a spurt of interest in clean energy tech.; if China and its big lead in solar and that impact on AI gets in the Trump cross-hairs, it is possible that solar will become a hot area in spite of the benefit no doubt to be enjoyed for the fossil fuel sectors.

Boards will be faced with volatility risk due to what is likely to be a different and much less regulated economy; how that falls out is unclear in general, and if the new economy gets too far afield that may bespeak a need for caution.

As for ESG, the phrase itself is past its shelf life.  The environmental part has been previously covered, and the progress  made in corporate governance responsibility is likely to be untouched. The “social” part covers very many topics and social trends in business are not likely to be altered, although stripped of elements of “woke-ness.”  My observation is that young workforces in corporate America are not going to change their focus on social justice factors.

The panel had consensus on one thing: it will be very difficult to manage a “global” company, based on the economic and political uncertainty that the new administration will bring.  And even wholly on-shore companies will need to look at supply chains given tariff and geopolitical  risks (in this regard, the panel characterized future relationships with Mexico as complex but not likely to incur major alteration). Planning also is compounded by our prior discussion of China, its real agenda and its approach to Taiwan. “America first will be tested from day one” as to China, the Middle East and Ukraine; businesses touching those areas, as so many are,  will need to keep close watch.  My personal takeaway: big bold bets may not be the wisest business move. Finally, it was noted that Apple would be at greatest risk given the international lack of clarity–perhaps due to its present significant presence in China.

The panel also addressed the practice of companies to take public positions on social, political and international issues. Given the new administration the obvious comment was made that boards are best advised to look closely before a company or its CEO takes a public position on any matter; it was suggested that saying nothing about any issue is wisest, although pressure from younger staff in certain types of companies will likely remain constant.  This entire part of the program reminded me of a line from the movie Casablanca about the fact that now “the winds are blowing from Vichy.”

And to carry the movie reference forward as I conclude:  “Th–th–that’s all, folks!”

Election /International/Business

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This is the sixth post discussing content from a program mounted by NACD New England, exploring the business ramifications of the recent Presidential election.  International business is affected by Federal policy and of course by war and international tensions, and the United States also is engaged in a world-wide high-stakes sparring match with China that affects both business and peace.

The immediately prior post concerning the US-China battle over AI supremacy addressed part of this issue, the need for AI supremacy to maintain business supremacy.  But there is more to the Chinese story.

China’s diplomatic efforts to achieve traction in the Mediterranean,  South America, Asia generally and India in particular, is a direct challenge to US interests.  But an important unknown is whether China will move against Taiwan and its premier chip manufacturing facility, a move that seems to be more likely.  What underlies this likelihood?

China today is suffering under numerous internal pressures.  Local governments and banks are in deep trouble due to debt from the housing crisis.  We were told that 64,000,000 housing units were unoccupied, a number that seems almost impossible to understand.  The government admits that 18% of younger Chinese are unemployed, and the panel thinks the real percentage is at or above 25%.  Families are not having children. Women are not even marrying.  Riots and killings have broken out, reportage is not permitted to reach the press, but,theseare signs of social unrest.  The panel believes that Xi is under very great pressure and some risk, internally. This alone may make a war with Taiwan more possible, diverting attention and creating a rallying nexus.  In this context, recent activity in the Straits and the South China Sea takes on more ominous context.  The impact of a Chinese take-over of Taiwan on US business and AI prospects would be significant.

The prior post also noted that AI demands for power should affect US policy towards energy-rich Canada.

There was passing mention of relations with Mexico, without substantive analysis except to say that no major changes were anticipated. [SH note: what if deportees are dumped into Mexico?]

The panel noted that the war in Ukraine very likely would be brought to an end with surrender of land to Putin under the new administration, Trump having the geopolitical views he has expressed and his aversion to being involved with wars abroad or financing them.  The same may well be applied to the Middle East, more pressure to settle.  It was thought that Trump might well have leverage to apply in favor of the Abraham Accords, ability to pressure Saudi Arabia to recognize Israeli existence as part of a peace deal, and greater leverage with the Israeli government.

The panel seemed to treat political alliances and initiatives as integral to ultimate business dealings, and pointed out the major efforts of China to court the third world and particularly India which could in the long run prove to be a major market and substantive player.  The Belt and Road economic initiative also had opened up Chinese business and influence in new markets that the US business fails to reach. In this sense, the panel seemed to assume that political progress made by China was synergistic with business initiatives and that in some sense markets were getting closed to US business in the long run, markets that would be greatly expanding.

Further, to the extent global thinking contemplated the US courting India as a counter-weight to China, the combination of Chinese inroads and proximity might be taking that thought off the table.

Finally, Europe by history has been and remains important to US business and trade. How will Trump deal with new leadership emerging in Italy, France and Germany?  What attention will he pay to Britain, which itself is on a downward path?  If the new administration turns on NATO, or walks away again from the Paris Accords, will American trade with Europe deteriorate?  All of the EU is in a slow growth mode, not gaining population, reliant on Russian fossil fuels.  The panel seemed concern about US relationships in Europe, but expressed the view that things might stabilize if NATO was “stable enough,” an undefined metric.

The last post will discuss the posture that American boards of directors, and thus the companies they lead, might adopt in light of the change of administration.

Election/AI/Business Impact

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AI permeated many aspects of the panel presentation at NACD, and this fifth post pulls together numerous different strands.

First there was the assertion that AI would so drive innovation that in the next decade almost all diseases could be cured, including a serum for cancer.

Second, AI was framed as essential to the US position in world business and in world politics, as it was viewed by all as the most important overall business driver in the future.  In this context, there was almost no discussion of AI risk or the need to control its development or use; it seemed to this observer that the panel just assumed that in fact it was going to be full speed ahead.

Third, the panel viewed the world’s brightest business future as being shared between the only two superpowers and thus the only two countries that entered into this discussion: the United States and China.  And the US was perceived as ahead but in a great trouble for the future.  China is allegedly each your graduating twice as many PhDs in AI than the US, and that if China surpasses the US in AI it will become ascendant in both business and in world power politics.  This risk is compounded by the fact that Taiwan is the key source of chips and China is seen as quite likely invading Taiwan (SH note: press reports that Trump has said the US cannot support a military response in that event).  See the next (sixth) post in this series, discussing international issues, with the panel’s view of what the internal drivers of China have become.

Fourth, at one point the panel agreed that to drive US business there is a need to provide essentials to the international community of emerging and/or growing nations.  Essentials are food, medicine, energy and computational power.  If one accepts the shopping list  and accepts that providing that list to growing Asia, Africa, South America, the Caribbean and India will be key to economic success, then ascendency in AI becomes a major factor in being able to serve these markets.

Last point is about data centers, which took long discussion.  AI is developed and run on data centers which must run 24-7 and burn huge amounts of power.  China has a lead in power given particularly its growth in solar power tech and its physical location stretching across a sunny band of Earth, and its current alleged lead in clean-tech generally. If the US is to compete, it needs power.  We do not have enough, but Canada has almost limitless power.  It was stated that, notwithstanding current tensions with Trudeau, the new administration and its cadre of tech advisers need to woo  Canada to ship the power South to the US, and both countries need to be in the business of building more power transmission lines and capacity.

Election/Medical/Bio/Health/Business Impact

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This is fourth post of a series concerning impact of the elections on US business, based on a program presented by the NACD’s New England Chapter.

Discussion started with the proposed Cabinet appointment of Kennedy, which was observed as obviously controversial and that confirmation was not assured but seemed likely; mention that, like Trump and Musk, Kennedy is a potential major disrupter (SH notes: as of the drafting of this post, word just came across the internet that the Gaetz appointment was withdrawn; and today’s press noted growing pressure against Kennedy confirmation; the panel was prescient about the power of the stock market as it was noted that the market was climbing steadily but as soon as Gaetz was proposed “the market fluttered” and the day after the panel program he has withdrawn).

Concern was expressed as to level of government financing for bio, pharma and all med-tech at the company and research hospital levels.  This fear seemed contrary to the general consensus that: this administration would be very pro-tech and pro science; the new administration is pro-business and will create an environment for VC/private capital which in turn often ends up in health care deals; profits must be kept high in med-tech because you need very expensive long-term research approved by the FDA and some projects will fail, so it is important to assure sources of finance to this sector.  This latter point feeds into the optimistic and startling prediction made by one panelist that: humankind now is entering the apex period of scientific progress which will in fact reconstruct all society by 2035 including the development thru AI of cures for all diseases including serums for cancer.

This led to a discussion of the appointment of Dr. Oz to run Medicare/Medicaid. He was evaluated as follows (without express reference to press concerns as to his prior therapeutic endorsements): he is a surgeon, he knows the issues, but there are “no guarantees.”

There was much discussion of a crisis in the support of the ailing and elderly.  At present longevity models the social security system is in danger, and if the prophesy is true that AI will drive great progress in longevity by curing everything up to and including cancer, then the costs of Medicare/Medicaid are going to grow due to new expensive treatments and enhanced longevity itself.

 

 

Election/Inflation/Tariffs/Business Impact

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This is third post of a series concerning impact of the election on US business, based on a program  presented by the NACD’s New England chapter. Fear has been raised that various articulated Trump policies would drive inflation, most particularly by reason of promised tariff increases on imported goods.

Here again, commentators predicted some moderation of perceived risk based upon the presumption that health of the economy and stock market will remain tantamount goals of the new administration and his close advisers.  It was also noted that inflation control is important to the governors of the “Red States.” It was acknowledged that the Fed is expected to continue downward pressure on interest rates, which means less anti-inflation pressure from Fed policy, and there was no speculation as to what would happen when the Fed chair is replaced (SH note: Powell’s second four-year term ends in May of 2026 and he has announced he has no plans to step down before then).  Whether immigration policy will cause cost increases in goods (through falling domestic supply) resulting in inflation was finessed by the supposition that illegal immigrants will not in fact be mass-deported; to the extent this supposition proves incorrect and the US needs to import more from overseas notwithstanding increased tariffs, then there will be inflationary pressures which cannot be quantified.  No one suggested that there would be no tariff increases, nor offered any specifics as to tariff rates or goods most affected.

The analysis on this subject seemed less rooted in data, understanding of personnel and objective arguments than in a general sense that Trump and his allies, being very business-oriented, would not let inflation run rampant for financial reasons.  There was no suggestion that inflation control would be high on the Trump agenda so as to protect the American consumer, and indeed [personal observation] while Trump campaigned hard on inflation and the increased cost of groceries and goods, the panel did not suggest that consumer pressure would be the influencer with the incoming administration.

No clarity of possible effect of renewed inflation on the country’s credit, cost of borrowing, etc., since no clarity on whether there will be inflation beyond what might be described as “normal.”

Conclusion: unclear future guidance.

Election/Immigration/Business Impact

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This is second post of a series concerning impact of the election on US businesses.  Trump made a big point of deporting illegal aliens. using military force to round them up.  What will he do and how will that action impact businesses here?

The panel expects prompt activity but mostly in the first nine months to a year.  They do not expect wholesale roundups of people who are in the US illegally.  The reason for this prediction is economic.  Certain industries were cited as being at great risk of wholesale deportations: construction, warehousing, big box stores are a few examples.  Also red states are farming states and they need immigrant labor.  Trump’s agenda will not tolerate damage to these sectors notwithstanding campaign rhetoric.

What will cause Trump to focus on the real economic cost of mass deportations?  The comment was made that Trump is deeply interested in the stock market, as are many key supporters. “He looks at the market at four o’clock every day to see how he’s doing.”

It is interesting that here, as with all other areas explored at the conference, the focus was wholly on business impact with no mention of human social impact.  Indeed, the subject of the forum upon which this series of posts is based was clearly on economics and the role of boards of directors under the new administration, and I do not suggest that the panel is without social sensibilities, but on the subject of immigration the lack of mention of social and moral impact was a bit jarring.

The Election and Impact on Business

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This is the first of a series of posts based upon an extensive program sponsored by the National Association of Corporate Directors on November 20.  The focus was on what the results of the election meant for different kinds of business, for capital and investment markets and for the economy in general.  Each section will have specific focus as indicated by the titles.

I start here with  general observations that apply to all businesses and markets.  Stability and predictability are essential for good business, and for companies and their boards making decisions that have some likelihood of being accurate.  Did the expert panel believe that the new administration would provide such predictability?  The answer was mixed; it depended on what sector you were looking at.  Those sectors will be explored in future posts.  BUT there were a couple of general themes:

First, business generally has been optimistic about a Republican administration and in some sectors that will be justified.

Second, the left wing of the Democratic party was described as arming itself for many fights.  This was characterized as the wrong posture.  The basic posture of the Democratic Party, based on its sweeping loss, is going to be reconsidered based on the new reality, and the liberal wing will not call those shots and should not because continued internal war based on historical causes neither works (the election itself being proof) nor addresses the needs of the country.  The country needs engaged counterbalance to what may well be new directions, and influence will come only by engaging the issues rather than drawing battle lines.  There will be many matters where the benefit of new directions clearly will be positive.  To fight all the time impedes progress, upsets businesses and spooks the stock market, the investment climate and the M&A process. It was noted that in some areas, the people being proposed for governance roles are centrists (putting aside the flack about the character flaws of others which are not ultimately central to the business of America).

Finally, be ready for material change.  Putting aside the promise to punish the enemy within, which by the way the panel thought would occur to some degree in the early stages of the new administration because Trump said it, believes in it and will be compelled to act upon it, the broader economic picture will be very disruptive.  Both Trump and Musk are masterful disrupters and they will act true to form.  After a passing reference to issues of Musk’s personality, the panel thought that this new duo would have positive material impact on many aspects of US business: scientific advances including in climate and medicine, and  AI (much more about AI later as the panel thought this the key to both near term and long term business health and also the US’s position in the business and geo-political world arenas as well as fundamental to national defense concerns).

Future posts will address: immigration and the sensitivity that Trump will have as to economic impact; how governance will proceed and the roles of Congress, personnel appointed and use of Executive Orders; the role of China in geo-politics and the impact of Chinese inroads vs domestic problems, and possible impact on world peace; the consideration of the EU given that all big business in the US is involved there; the interplay of interest rates, the bond market, inflation and CapX; how directors need to conduct their business in the new environment; how the administration ought to deal with Mexico and particularly Canada (our governments may be at odds but Canada is our biggest trading partner and the most logical source of the massive power we need to keep data centers alive 24-7 as that is the key to the vital task of winning the AI war); the future of ESG; how all this impacts the Middle East and Ukraine.

AI and Antitrust

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My prior post set forth in broad strokes the current Federal focus on bringing antitrust actions against major American tech companies based on alleged monopoly power derived from sheer size.  Commentators warn that, with the incredible potential power of AI, government must address the growing AI marketplace with the same jaundiced view– or perhaps, with the same great care for American commerce and politics.

Google monopolizes search engines, Amazon monopolizes retail, Meta monopolizes social media, Apple monopolizes the devices which disseminate the output of these companies.   If AI is used improperly, whether consciously or not, all affected markets will be misled, manipulated, corrupted.

Timothy Wu, former presidential adviser and author of “The Curse of Bigness: Antitrust in the New Gilded Age,” claims that today’s actions against big tech and search engine platform dominance will be seen in the future as “all about who’s going to control artificial intelligence.”  Microsoft CEO Satya Nadella testified at trial that her company used its powerful search engines to obtain consumer data to train their AI to make their search engines dominant.

FTC Chair Lina Khan has noted that  the AI field is “fast-moving” and that the FTC wants to assure “that the opportunity for competition and the potential for disruption are preserved, rather than this moment being co-opted by some of the existing dominant firms to double down on their dominance.”  Given the head-start of the giants, it is feared that all small AI companies of merit will be crushed, or will be sucked up into the giants to obtain their technology or to “capture and kill” competition.

The future here is unclear but, remember, the Government won the Google case and now we are awaiting what action will occur as remedy.  We are headed for interesting times, with impact not only on society and its commercial and political market-places but also with respect to your investment portfolio, the way in which new capital is deployed to tech companies, and how the next Administration will process all this– it is noted that during all the political battles this year, with all the hot-point political issues being debated, neither Presidential candidate has taken any specific position on tech antitrust.

The New/Old Antitrust Initiatives

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Today, the United States Department of Justice is litigating against the largest tech companies, claiming they constitute illegal monopolies.  This also is not just a Democratic-party aggressive liberal effort at control: in 2019 the Trump DOJ launched investigations of Google, Meta, Apple and Amazon.  This new intensity follows a couple of decades of antitrust apathy.  Today, there are antitrust suits pending against Amazon, Apple,  Meta (owns Facebook) and Google.  Why this new wave?

First, understand that this is a revival of classic antitrust activity and not a reinterpretation of the underling laws  (1890 and 1914 Federal legislation).  In the “old days” companies were sued and indeed broken up based on sheer size which had the effect of creating, well, large and hence dominant enterprises in particular markets– recall that Standard Oil and AT&T and American Tobacco were chopped up in the good old days.  It is not very hard to look at sheer size, creating substantial market control, and conclude that there is societal risk.  And it is not very hard to see how size begat more size and to then  track the steps to get there, and fairly conclude that such growth involved absorbing competitors, blocking competitors, tying up customers and generally acting like, well, monopolies.

In 2020, the House Committee on the Judiciary investigated  the state of the digital economy and warned that this vital aspect of commercial life and social and political discourse was becoming highly concentrated.  And since classic practice was to identify monopoly by size and to find steps taken to build that monopoly that excluded competitors which were of course smaller enterprises–voila, litigation.  (I do not even address the active European antitrust efforts to similar effect.)

This Fall’s issue of Harvard Law (the school’s alumni publication) quotes Timothy Wu, special assistant to the president for technology and competition policy, as he set down the philosophical basis of current thinking: antitrust law is seen as “almost a companion to the Constitution.  In the sense that the Constitution is a check on public power, the antirust laws are a backstop or limit on corporate and private power.” The article goes on to cite, among other proofs of massive private power to big tech, that “Google controls 80% of the internet search business in the U.S.  In a survey of 2,000 consumers last year, 75% of respondents indicated they check prices and product review on Amazon before making a purchase.” While in the short term this may in fact be benign, one can imagine that in the long run that power can be used to wholly control pricing of whatever is sold and content of whatever is believed.

Mr. Wu should be taken with a grain of salt.  No doubt there is social risk here, but when he argues (in his book “The Curse of Bigness: Antitrust in the New Gilded Age”) that the rise of political strongmen can be traced to increased corporate power and wealth disparities, one can only suspect that there are a lot of other factors contributing to whatever the political landscape looks like.

With this a backdrop, and with the shape of our future allegedly hanging on the promise/risk of AI, we will in a following post consider how the government is perceiving the growth of AI in this time of  alleged tech monopolies.