US businesses may soon find that deregulation comes with risks

Chief executives love to blame their struggles on bureaucratic red tape. If only time-consuming and pointless regulations could be removed, they say, their companies would be much more efficient and profitable.

In the US, that wish is on the brink of coming true. Late last month, six conservatives on the Supreme Court handed corporate America a scythe. The high court majority shredded a 40-year-old precedent known as the “Chevron deference” that required judges to defer to government experts when laws were ambiguous. They also ruled in a separate case that even long-settled rules can be challenged by new industry players. But CEOs should be careful what they wish for.

Those decisions, known as Loper Bright and Corner Post, are already reverberating across the country. The justices sent nine cases about wetlands, renewable energy and a range of other regulations back to lower courts to be reconsidered. A federal judge in Texas said last week that plaintiffs seeking to invalidate a Biden administration ban on non-compete agreements were likely to win now that judges rather than agencies have the final word on regulations.

Then on Tuesday, a federal appeals court asked how the Loper decision should affect the future of a different Biden rule that allows pension plans to use environmental, social and governance factors when choosing among investments with similar financial profiles. Environmentalists, and investor and consumer groups are despairing, while lawyers predict that US regulators will have to become more cautious about imposing new rules on everything from money managers to social media platforms and pharmaceutical groups.

That is just the start. Hospitals, utilities and even gun rights advocates are already lining up to use the decisions as a club to beat back new rules and challenge existing ones. Some corporate law firms are putting together kill lists of regulations they want to attack.

But many US businesses will be in for a shock when they see the real world consequences of tearing up a regulatory regime that America has lived with since 1984. There are multiple reasons why companies shouldn’t be cheering the Supreme Court too loudly.

First, government resources are finite. If agencies have to devote significantly more effort to defending their decisions in court, they will have that much less time to focus on their day-to-day work. Libertarians may like the idea of fewer rules. But companies that need official sanction to sell drugs, launch investment funds and build power plants are likely to have to wait longer for decisions.

When those approved products and permits face legal challenges from rivals, consumer groups or other opponents, they will be heard by judges who may be less inclined to respect agency decisions. Abortion opponents failed in their first effort to overturn the Food and Drug Administration’s approval of chemical abortions, but do not be surprised if they find a way to try again. Similarly, it already takes years to nail down permits for pipelines and factories. That process will probably become even more protracted.

There will also be no certainty. Until last week, most challenges to new regulations had to be brought within six years of enactment. But the Corner Post decision held that companies that were not around at the time are not bound by those limits. So all an industry has to do is start a new company and any rule becomes vulnerable at any time.

Given that the private funds industry recently created a brand new association in Texas to bring suit against the Securities and Exchange Commission in front of a particularly conservative appeals court, they and other industries are likely to repeat the trick.

“At least before there was a clear universe of things that could be challenged, and you’d have greater certainty after a certain amount of time,” says Varu Chilakamarri, a partner at K&L Gates.

CEOs will also need to watch out for regulation by enforcement. Agencies such as the SEC have a long history of using investigations and fines to set new standards instead of writing everything into regulation. The harder rulemaking becomes, the more tempting it will be to use a case involving one firm’s misdeeds to change the entire industry’s behaviour.

Finally, companies will need to get ready for different rules in different places. Now that the federal agencies no longer hold sway, individual judges may come to different conclusions. And if national standards are struck down, Democratic states such as New York and California may push forward with even more of them. The result, a crazy quilt of different rules, may not be a problem for a local business but it could be nightmarish for one that wants to sell nationwide.

“There are benefits within the market for regulation. It provides an equal playing field and stability,” says Rachel Weintraub, executive director of the Coalition for Sensible Safeguards, which lobbies for just that.

All this uncertainty makes it difficult to plan and discourages good corporate citizenship. Why should companies invest in the technology and equipment needed to play by the rules, when they know some competitors will stall and sue. Running a business while hemmed in by red tape can be frustrating; trying to do it on uneven and constantly shifting ground could be worse.

brooke.masters@ft.com

Follow Brooke Masters with myFT and on X

Letter in response to this article:

US courts vs agencies is not a left-right problem / From Patrick J Allen, River Forest, IL, US