Quite appropriately, boards may wish to enhance oversight, and should ensure that management has in fact identified the company’s specific risk profile and undertaken thoughtful, responsive measures to address it. While doing so, however, board members should remain mindful that their role (and one that provides them substantial protection from personal liability under Delaware corporate law) is to oversee corporate affairs and not to manage them. Preserving this distinction allows boards and management to function in the areas where they are best suited, while maintaining the personal protection afforded directors in their oversight role.

Market developments will ensure that many of these issues will continue to dominate discussion in the board room. Activist investors are expanding their reach, seeking to force governance reforms as well as shape company strategy. With additional disclosures expected from the SEC, boards will also see continued and enhanced scrutiny of their executive pay decisions. Topics like climate change, the growth of social media, and the increasing need for innovation in the digital age are all affecting business strategy. Each of these issues impacts our clients differently, depending on their business, size, and market position. However, they all offer market-leading opportunities for the innovative and demand that directors stay informed and increasingly focused, not only on their company’s business, but on broader trends in the increasingly interdependent and volatile world economy in which companies must operate

Given this environment, boards are on the hot seat to assure that management has implemented an effective compliance program and detective controls that permit management (and the board) to assess and rank those risks of most threat to the business. It is advisable for companies to take a comprehensive approach to risk identification, assessment, and mitigation. By considering such issues as product lines, geographic coverage, industry sector, and applicable regulatory environment, they are able to flag those risk areas of most concern, which typically range from cybersecurity, fraud, competition, bribery/corruption, money laundering, and export controls/sanctions, to intellectual property, labor/workforce issues, and whistleblowers, to name just a few. By assessing the company’s existing compliance program and function, as well as its existing controls systems, they are able to better leverage those systems and assure that they are operating effectively and efficiently.

The first is uncertainty regarding antitrust regulation. In the U.S., the Federal Trade Commission (FTC) is the regulatory agency that reviews healthcare and life sciences transactions. The FTC has been intensifying its scrutiny over the past couple of years and is unlikely to lighten its focus. The reasons for this increased scrutiny are: (1) political pressures to provide consumers with greater protection against price increases, (2) the fact that several seats on the FTC are unfilled and the current members are all more “hawkish” on enforcement, and (3) a general toughening of enforcement by the Department of Justice (the other antitrust regulatory agency) has upped the overall enforcement climate for the FTC. 

The second is uncertainty regarding healthcare regulation. The Affordable Care Act (known informally as Obamacare) has been stumbling recently, with several big healthcare providers either leaving the regime or threatening to. As a result, there is a low rumble in Washington about the need to make changes to the Act. However, the nature and extent of any potential changes are unclear. The upcoming U.S. presidential campaign has inevitably created a period of uncertainty until the new administration is established and its policies and lead personnel are in place.

Over the past decade, foreign real estate investment has been subject to significant restriction and scrutiny. Foreign investors were concerned about receiving the necessary approvals and—even if deals were likely to be approved—their timing. In a recent regulatory change, now foreign real estate investors are only required to file at the local counterpart of the Ministry of Commerce, except for investments in restricted sectors such as large theme parks and prohibited investment sectors such as golf courses. This is a much more streamlined process, and significantly reduces the time between the execution of definitive documents and transaction closing—from two-to-three months to potentially less than one month. Now, the challenge for foreign investors is increasingly the same one they face in other markets: finding good deals.

China’s outbound real estate investment is subject to the same macroeconomic forces described above, which have somewhat opposite effects on the ability to receive approval to make these investments as the government makes efforts to restrict outbound investments and limit capital outflows. Notwithstanding additional scrutiny of outbound capital flows, we expect Chinese institutional investors to continue to pursue outbound investments. The Chinese pursuing outbound real estate investments are some of the largest institutional investors in the world. As they continue to invest, their level of sophistication is steadily increasing and, with it, their investment appetite is broadening on both a geographical and real estate sector basis.

From the U.S. perspective, the November elections may have a profound impact on these laws. Potential changes include revised patent litigation venue rules, increased restrictions on “pay-for-delay” patent settlements, revised antitrust enforcement priorities, laws targeted at speeding drug and medical device approval, and revisions to the Affordable Care Act. There is great uncertainty about the direction of these and other relevant laws under the new administration and Congress.

In the broadcast sector, the FCC has liberalized its rules for foreign ownership, opening potential new sources of capital for the industry. At the same time, the Commission has imposed new limits on the use of “joint sales agreements” among same-market stations. Taken together, these developments point to a media-telecom ecosystem in which counterforces among regulators, market dynamics, and technological developments will drive tectonic changes that will reshape the industry landscape.

Second, antitrust regulators have woken up to the intangible asset value of big data and the effect that large-scale mergers may have on customer privacy and choice. Navigating merger control rules will become more complex as companies consider what valuation models will work best for their particular situation. Paradoxically, the ubiquitous nature of European data protection law may assist this analysis rather than hinder it.

To date, private debt has become increasingly interested and active in European finance, and this is a trend that is likely to continue for the right opportunities. Similarly, interest in cross-border deals which further cement brand values and market presence has slowed but not stalled—there was more volume heading out of the region than within it. EU outbound deals accounted for 44% of all cross-regional M&A value in Q3. Deals from the EU into North America saw record values with US$105bn from 121 deals, an increase of 32% year over year. Cross-regional EU inbound deal volume, however, fell by 24% compared to Q3 2015.

In contrast to being the subject of enforcement actions by government authorities, companies are encouraged to self-report potential FCPA issues. The FCPA Enforcement Plan and Guidance pilot program was announced by DOJ on April 5, 2016. This program intends to provide more clearly defined incentives to encourage self-disclosure of potential FCPA issues. On the flip side, the pilot program also includes fairly rigorous requirements on making the self-disclosures in order to receive cooperation credit. As such, the net effect of the pilot program remains to be seen. 

Of the nine SEC cases against the healthcare industry from July 2015 to September 2016, seven were related to China. It is increasingly critical and resource intense for pharmaceutical companies operating in China to meet compliance requirements.

Considerable opportunities nonetheless arise for the astute buyer. Europe has continued to develop its wide range of sophisticated industries but the spread of attractive targets reaches up and down the production chain for interested buyers and investors. The UK has invested heavily in fintech and now holds a leading position in the field, along with payments technology and the integrated use of Bitcoin. The major challenge is how Europe’s regulatory structure will be shaped following the departure of the UK, and whether we are likely to see a more liberal M&A regime emerging for transactions originating out of the UK in response.

On the litigation side, we expect Korean companies to continue to face the risks of international patent infringement and trade secret misappropriation lawsuits. Given the risks of adverse outcomes, which include injunctions barring exports of the infringing products, our clients face challenges and opportunities to take proactive measures. These include eliminating or reducing legal risks by invalidating competitors’ patents using PTAB proceedings, and establishing and implementing enhanced compliance programs, including a document retention policy.

Increased Chinese investment in U.S. industries that are seen as “sensitive” or “critical” has also resulted in an uptick in CFIUS reviews of Chinese deals, leading to greater focus by deal parties on how the CFIUS process affects their timing and outcomes. The more sophisticated the target, the more likely a CFIUS filing will be warranted and entail a lengthy and searching review. In some cases (such as Fairchild Semiconductor’s recent rejection of a bid from China Resources Microelectronics and Hua Capital Management), U.S. firms are actually walking away from lucrative Chinese offers out of concern that the takeover might not survive CFIUS review.

To address these issues, Chinese investors are exploring non-U.S. companies with a strong tech or engineering base. But this has its limitations. First, the U.S. is still home to a substantial number of companies undertaking cutting-edge R&D in technology and related areas. Second, even acquiring a non-U.S.-based company can generate CFIUS risks if the acquisition has U.S. business operations. This was the reason why CNOOC’s acquisition of Canadian company Nexen triggered a major CFIUS review—the target had operating assets in the Gulf of Mexico. Chinese outbound investors must be aware of the full range of potential CFIUS exposures in assessing potential deals.

In addition to massive investment expected to flow into the energy industry, the creation of the REIT structure in Mexico revolutionized real estate investment. Mexico has produced some of the world’s largest real estate companies in just six years since REITs were introduced. Whether it be real estate, consumer goods for Mexico’s burgeoning middle class, or the fast-growing aerospace and automotive industries, Mexico may now be the world’s most attractive emerging market for international investment. Nevertheless, many economic challenges remain. Global uncertainties have led to plummeting oil prices, and many companies have been hit by the sharp devaluation in the Mexico peso versus the U.S. dollar. With both commodity prices and currency rates remaining volatile, Mexican companies, together with their advisors, must be ready to react to these rapidly changing circumstances.

President Temer is addressing this issue by building a strong and reliable cabinet, and launching programs such as the Investment Partnership Program (IPP), focused on developing new projects and on privatizing a large number of assets. We are seeing a lot of opportunities in the M&A area, not only those related to distressed assets or to the favorable exchange rate—which have been trends over the last year—but also those resulting from strategic local divestments and from the announced government privatizations.

The main areas for M&A would include the energy, agribusiness, technology, education, health, and aviation sectors, as well as airport, road, and railroad privatizations and regulated markets. We also expect to continue to see a strong focus on restructuring, dispute resolution, and compliance activities. Finally, as Brazil continues to be a huge market with immense potential for growth, there is an acute need for large infrastructure development. Given that investment into Brazil has continued over the past few years, we believe there will be even greater opportunities for new project work, a revival of entrepreneurism, and support for business innovation and reform.