Playing ‘Bidenomics’ To Win

© AdobeStock
The White House’s multitrillion-dollar national industrial policy is more than just a once-in-a-generation  opportunity for companies—it’s also a vexing strategy challenge for boards. Some tips.

Industrial policy isn’t just in vogue in Washington these days: It has become a centerpiece of domestic policy for President Biden, the key to a “Bidenomics” platform that he hopes will get him reelected and potentially the start of a major long-term pivot for the United States to guide corporate investment much as most other advanced countries do.

The total of potential federal incentives plus matches, estimated at $2.4 trillion by AlixPartners consultants, has become a rather sudden pied piper to directors and CEOs of many American and foreign companies involved in industrial infrastructure and the manufacture of batteries, vehicles, microchips, their components and other products. 

“I’ve completely changed direction with the boards I’m on,” says Lior Susan, founder of Eclipse Ventures and a member of startup boards. “Before, I told everyone not to waste their time with government, but now we are in D.C. every week. There’s so much to do there.”

After four years of a U.S. administration whose idea of directing business was deciding which factory groundbreaking President Trump would attend, the Biden administration and Congress have unleashed a stream of huge and tightly directed financial incentives under the Infrastructure Investment and Jobs Act, the Inflation Reduction Act (IRA), the CHIPS and Science Act and other new pots of grants, loans and incentives that are reshaping not only companies and industries but the very structure of the domestic and global economy.

The United States is now directing “targeted and necessary investments in places that private markets are ill-suited to address on their own,” Jake Sullivan, the U.S. national security advisor, said in a recent speech at the Brookings Institution. Government now is “making long-term investments in sectors vital to our national well-being—not picking winners and losers.”

Yet as America has abruptly shoved its way to the global forefront of industrial policy, foreign-based firms are taking more advantage of some of the incentives than domestic companies. The new financial carrots are only adding to the growing appeal of the United States as the safest haven for capital investments from abroad.

Companies based abroad, especially in Asia, are pursuing clean-energy subsidies more aggressively than U.S.-based firms under last year’s IRA. More than 60 percent of IRA spending has gone to foreign firms, mostly for battery factories, The Wall Street Journal reported, including more than $2 billion in annual tax credits alone to Panasonic, the Japan-based giant that is operating or building battery plants in Nevada and Kansas.

“We saw the value before in doing this, because the world is regionalizing,” says Michael Finelli, chief of North America for Brussels-based chemical giant Solvay, which already had 35 plants in the United States and then decided to build an $850 million plant in Georgia with a partner to make coatings for lithium-ion batteries. “But a $178 million grant from the U.S. was the tipping point to make the decision.”

That competition will make it tougher to get your piece of the pie. The U.S. plunge into industrial policy is “very big,” Susan says, and most business leaders have only just begun to reckon with it. “It’s very complicated,” says Finelli. “It’s hard to navigate.” Here are some ideas for boards from governance advisors and directors on the front lines.

Start where you are. Be front-footed if you can. “Winning companies have already run and modeled various scenarios before the legislation,” says David Garfield, Global Head of Industries, AlixPartners. Yet, he says, “there will be pressures on companies to take advantage of incentives now offered in their marketplace.”

To win, remember that balance is key. “The board and CEO need to have a clear understanding of the policy landscape,” says Azaz Faruki, a principal with Kearney consultants. “Then understand how to take advantage to meet the organization’s goals and also tie it back to the long-term vision.”

Asutosh Padhi, managing partner for North America for McKinsey consultants, advises directors to “ground yourself in your value-creation strategy, then consider how tailwinds—like federal incentives—can help achieve those goals.”

As Padhi puts it, the new government handouts “could help you break into new markets or customer segments you may have been reluctant to enter before, either because the cost was prohibitive or due to market conditions. Ultimately, their purpose is to help catalyze and de-risk investments by creating a more favorable environment for companies.”

Find the open spigots. Under new energy-related policy, for instance, companies will continue to qualify for some tax credits regardless of their actual ability to reduce emissions, says Michael Wolf, global economist for Deloitte consultants. “The U.S. policy is all carrots.”

At the same time, Wolf says, knock-on benefits for many companies include the fact that the European Union, China and South Korea felt compelled to come up with their own versions of the U.S. CHIPS act. “This creates an opportunity for companies in sectors related to emissions reduction or semiconductors to benefit from competing subsidies across the globe,” he says.

Be wary of temptation. Padhi advises directors to avoid “pursuing incentives for the sake of it. Simply having access to lower-cost capital doesn’t mean you have to use it.”

Volkswagen North America, for instance, is in the midst of deciding whether to build its first U.S. plant for making Audi luxury vehicles, and IRA incentives have become a heavy influence. “It doesn’t make sense to drop everything we’re doing and say we’re going to start producing Audis in the U.S. market, but it changes the business model because it would increase our volume,” says Reinhard Fischer, head of strategy. “All of a sudden our competitiveness has improved.”

See the strings. Recipients of the new federal largess “are going to have to perform under the contract, and your commitments on the size of the plant and the time frame and jobs and a DEI component,” Finelli notes. “And the government retains a reversionary interest in the assets they’re paying for, so you’re not as free to do with the plant what you would have done if you’d done it yourself.”

And while the CHIPS act promises goodies for semiconductor fabricators to make microchips in the U.S., it also creates unprecedented constraints on them. “It’s going to limit significantly the ability for U.S companies to sell powerful chips to Saudi Arabia and China,” says Susan, whose current and recent board memberships have included Bright Machines, Lucira Health and Owlet Baby Care. “Even if you don’t dip into the CHIPS act, you’ll have those constraints.”

Faruki says private equity outfits and the companies they own could be especially disadvantaged. “If you’re going to exit the deal in a couple of years but you’ve borrowed money from the government, it comes with strings,” he says. “Taking grant money will limit your decision and moves when you want to exit the deal.”

Some aspects of the new industrial policy are—unapologetically—stalking horses for White House priorities and “are less focused on economic growth, job creation and inflation reduction,” Wolf says. 

Indeed, Sullivan said the administration’s industrial-policy philosophy includes a “global labor strategy that advances workers’ rights.” After Congress passed the CHIPS act, Commerce Secretary Gina Raimondo announced that her department had enhanced requirements for any company seeking to obtain more than $150 million of the $39 billion in aid provided: They need to submit an employee childcare plan “in tandem with community stakeholders,” which directors could interpret as code for unions and progressive groups. 

Form coalitions. Board members should be using their connections to forge partnerships across supply chains and entire industries to best take advantage of new industrial policy. That’s why, for instance, seven car companies recently created a joint venture for an electric-car charging network aimed at snagging funds from the infrastructure bill passed in 2021.

Companies also can engage regional and local economic-development agencies “to help channel their activities and help the government in its quest to develop regional innovation ecosystems” under the new industrial policy, says Arun Gupta, CEO of NobleReach, a not-for-profit organization that seeks to develop tech talent. “Partnering with universities, local organizations and capital providers can help align their business models and bolster the value chain.”

Look for state dollars, too. Many states’ treasuries are still bulging with billions of dollars of Covid-era funds that the federal government gave them for relief, and now the federal spigot is giving them many billions of dollars more under its industrial policy. 

For example, under the IRA, $7 billion for EV chargers “has been divided into each state, so each state has authority over their part of the funds, and companies need to prepare for how to engage with each state individually,” says Fischer, who also is a director of Electrify America, which is building EV-charging networks. 

Get a people plan. With the “paradigm shift in investment and economic priorities” under industrial policy, Wolf warns, comes “a rise in demand for new skills” that “could put further strain on the ability to attract and retain a workforce with the desired skills.” So companies “may need to reevaluate their human-capital policies.” 

For instance, Taiwan Semiconductor Manufacturing has been so hampered by a shortage of skilled workers for the plant it is building in Arizona that it might have to bring in specialists from Taiwan temporarily and is delaying the start of mass production of 4-nanometer chips there until 2025 from an earlier-planned 2024 launch. 

Meanwhile, all of the Detroit Three automakers are bracing for contract talks with the United Auto Workers union this fall that are likely to be combative, in part because of the impact of expanding EV production—which requires about 30 percent less labor than making traditional autos—on traditional jobs in engine and transmission plants.

Play for the long term. Susan warns directors that they need to commit heavily right away and then stick with their plan for the long term to optimize industrial policy for their companies. “It’s not just a 12- to 18-month process,” he says. 

Yet directors shouldn’t be panicked into acting, because the sheer magnitude of the new financial incentives means some suspect contractors will be trying to take advantage. Public-utility boards, for example, are at risk.

“If someone is going to build a thermal generator for you, are they looking to get as much value as they can and walk away, or are they committed to the assets through their expected life?” asks Mike Kolodner, leader of the global renewable energy and U.S. power practice for Marsh McLennan risk-management consultants. Such a facility “has to have as reasonable a probability of performing as expected in year 40 as when you build it in year one.” 

And then there are random curveballs that can pop up along the way. Ford, for example, was shocked when it ran into staunch community opposition in rural Marshall, Michigan, to its plan to build an EV-battery plant there with China’s Gotion. Some local denizens are anti-China, for sure, but there’s also tension about how the plant might hurt the local agricultural economy. 

And what if the lineup changes in Washington? This should not factor among the the risks and worries directors must contend with, almost everyone we spoke to said. The long-term commitments required for many of the new projects should foreclose an about-face even if the American electorate overturns the status quo in 2024. Also, the social urgency in favor of environmental mitigation is likely only to accelerate.

“You’re going to have a hard time reversing the energy portion of industrial policy, because people are coming to the point of realization of what has to happen on the climate,” says George Sakellaris, president and CEO of Ameresco, which develops renewable-energy systems.

Besides, assessing such risks “is all part of a board’s day job,” says Debra McCormack, lead partner for global board effectiveness and sustainability for Accenture consultants. “They don’t know what policies may change tomorrow, so they have to make the best decision they can, for the right strategy from what they know today, for what they believe is going to be their organization of the future.” 

  • Get the Corporate Board Member Newsletter

    Sign up today to get weekly access to exclusive analysis, insights and expert commentary from leading board practitioners.



    AI Unleashed: Oversight for a Changing Era




    20th Annual Boardroom Summit

    New York, NY