Incumbency used to be a reliable predictor of electoral success. Not this time around. The primaries, run-offs, and special elections held in 12 states on June 8 provided fresh evidence that this is going to be a raucous, rebellious political season. Neither party is in control, given the level of public disenchantment over the economy and the Washington Establishment. Veteran lawmakers, the recipients of long-running investments by lobbyists and business leaders, have been swept out of office at a dizzying pace.
For business leaders, the result is a climate of chaos that denies them the certainty they crave. No one knows this better than Ralph Izzo, the chief executive officer of Public Service Enterprise Group (PEG), New Jersey's largest utility. "The big unknown is whether or not Congress will take action on carbon dioxide," says Izzo. "Absent clear environmental regulations, your long-term strategy is something you really have to equivocate on."
Energy policy is by no means the only great unknown. Taxes, trade, immigration, jobs programs, and runaway entitlements—to name just a handful of major issues pending in Congress—all hinge on who controls the levers of power. Already trying to absorb what the new health-care law and soon-to-be-passed financial regulation reforms might do to profits, executives nationwide don't know when, or if, Congress will move on any of the other high-stakes issues.
Women Win Big
The only discernible trend from the latest primary results is that women won big, though money or Tea Party backing seemed to matter more than gender. In California, former Hewlett-Packard (HPQ) CEO Carly Fiorina was chosen by state Republicans to face Democratic Senator Barbara Boxer this fall. Meg Whitman, the former eBay (EBAY) chief who spent $71 million of her own money on the Republican gubernatorial primary, triumphed and will face Jerry Brown, a former governor, in November.
In Nevada, Sharron Angle, a candidate backed by Tea Party activists, beat two establishment Republicans and will square off against Senator Harry Reid, the majority leader and a top Republican target. Senator Blanche Lincoln of Arkansas narrowly survived a Democratic primary challenge from the left, though she will face an even bigger challenge this fall against Republican Representative John Boozman, who now enjoys a 20-point lead in the polls.
Some of the June 8 wins make business leaders nervous, for fear that both parties are moving to ideological extremes. Angle, for example, opposes funding for Obama's health-care law, wants the Education Dept. eliminated, and has called for the current tax code to be scrapped—views shared by many Tea Party activists. "This kind of extremism makes it much harder to plan from a business perspective," says John Castellani, chief executive officer of the Business Roundtable.
Castellani describes a record level of anxiety among his member CEOs, more than 70 of whom attended a quarterly meeting last week, while 90 participated in February, the largest turnout in his decade with the business group. His members, nearly all heads of multinational corporations, are particularly concerned about stalled free-trade agreements and new taxes on foreign income. "People are trying to discern what the trends are," he says. "Are these candidates who are going to understand that 95 percent of the world lives outside the United States, or isolationists?"
Expecting a "Recentered" Congress
William Lane, Washington director for Caterpillar (CAT), watched the Arkansas race closely. The world's largest maker of construction equipment backed Lincoln, the chairwoman of the Senate Agriculture Committee and someone known to champion the agribusinesses Caterpillar sells to, because she is a "probusiness" Democrat, says Lane. "None of us knows whether Republicans are going to have moderate success, significant success, or historic success," Lane says. "But one thing that is clear is that the Congress is going to be recentered after November."
If that's the case, Lane sees a silver lining, predicting that business will be able to play a greater role in shaping policy amid an environment where the parties may be even more inclined to appease their respective bases. "Business is going to have a unique role to play, and it's just absolutely critical that it plays that role," he says.
For Lewis Hay, CEO of Juno Beach (Fla.)-based NextEra Energy (FPL), the largest renewable energy producer in North America, the results of individual races are less important than what party controls Congress—and gets the power to set the agenda. "One senator from Florida isn't going to impact what we do in Florida very much, but the composition of the House and the Senate could very well have an impact," he says.
Hay is following what he calls a "no regrets" investment strategy for NextEra. If Congress passes legislation setting a national mandate for alternative energy sources like wind and solar, those industries will prove to be "very, very good investments," Hay says. If Congress fails to act, the investments will still be good, although definitely less profitable. "We would clearly invest a lot more, with more clarity on our climate and energy policy," he says. "There's a lot of capital sitting on the sidelines."
While he hasn't started tracking exit polls—at least not yet—Izzo is closely monitoring elections in regions where PSEG operates and other major races. "I'm a little more worried about how things change post-November than before," he says. "Each day Congress waits puts us a little bit more behind."
The bottom line The exodus of veteran lawmakers vexes companies and lobbyists hoping to shape tax, energy, and regulatory policies in the months ahead.