Business firms, like people, are touched directly and indirectly by political/legal influences at all levels of government (central, state, and local). These influences run the alphabetic gamut from antitrust to zoning. The scale of central intervention in business is matched only by its turbulence.
In addition to serving as regulatory bodies, governments also represent a major factor in the private sector through fiscal policy. Taxation and government spending can represent both opportunities and threats, depending upon the nature, timing, and position of the impacted enterprise. And, of course, fiscal policy can have dramatic impacts on the overall economic climate of the firm.
Shareholders are affected by government interventions in a variety of ways. Changes in tax structures can affect tax exposure on corporate payouts when treatments of capital recovery versus earnings distributions are considered. To the extent that corporations themselves are shareholders, inter-corporate shareholding can be can affect the “tradability” of shares as well as dictate corporate disclosures. Laws dealing with pension funds and other forms of institutional investing can exhilarate or impair changes in investor profiles. Incorporation laws often constrain flexibility in capital restructuring. All of these impositions, in turn, requirements. Governments-mandated sales prohibitions (e.g., on certain firearms) can limit markets. Similarly, export restrictions can impose market constraints. Conversely, public policies targeting industries for rejuvenation or expansion can open up a host of market opportunities. Social legislation (e.g., environmental protection, health, consumer protection) can create markets for new classes of products and services as well as limit those where noncompliance exists.
Politics and law are influenced by, and have an impact on, competitors. Antitrust can sustain or impair industry structures and thereby affect the nature of present and future competition. Import restriction can limit foreign competitions. Patent laws provide competitive protection for patent holders. Governments themselves can be suppliers (e.g., mineral rights). And, of course the viability of suppliers as a whole can be affected by all forms of political/legal influences.
Protection of employees is clearly a major matter in any firm. Wage laws, labor statutes, equal employment opportunity, occupational safety and health, employee privacy,and pension funds controls all represent areas of strategy concern. Further the public sector competes with the private sector for employees through support of education and training programs, the public sector also represents a source of labor.
Finally,the political/legal climate is both a function and a determinant of public sentiments. Public expectations of business behavior can cause, and be caused by, shifts in partition politics, which in turn can affect the overall socioeconomic climate in which private sector enterprises operate.
Assessing and forecasting the political/legal environment require creativity and sensitivity to industry-specific matters. Unlike the economic environment, the political/legal environment requires largely “soft” calculus where numerical relationships and extrapolations are often unavailable or inappropriate.