Companies Must Navigate Partisan Regulatory Agendas From States

Companies operating across state lines are confronting an increasingly fragmented regulatory landscape as state attorneys general adopt a more aggressive posture toward advancing their policy goals.

In recent years, state attorney generals have escalated their use of investigative demands, warning letters, and enforcement actions, frequently coordinating in ideologically aligned coalitions.

These actions increasingly drive a bifurcated landscape where policies approved, of or even demanded by, Democratic attorneys general threaten to draw the ire of Republican attorneys general and vice versa.

As a result, companies with a significant presence across the country must figure out how to respond when competing coalitions of state law enforcement officials exert conflicting pressures.

Companies therefore must adopt compliance strategies that account for jurisdictional variation and the likelihood of enforcement from multiple directions. Specific advice must be tailored to individual businesses’ unique circumstances, but some broader principles apply across the board.

Opposite Directions

Republican and Democratic attorneys general remain largely aligned on certain fronts, such as antitrust, opioids, and classic consumer protection suits, especially with respect to technology companies. But on many other issues, they are pressuring companies in opposite directions. The most prominent of these include corporate goals; energy and climate-related policies; and diversity, equity, and inclusion.

Broadly speaking, Democratic attorneys general want companies to continue emphasizing environmental, social, and governance factors in their operations and goals. These Democrats have pushed for robust ESG reporting, including climate-risk disclosures, framing such requirements as necessary for prudent investment decisions and to properly inform investors.

By contrast, Republican attorneys general have scrutinized ESG commitments as misleading shareholders. In a prominent case that settled last year, for example, the Tennessee attorney general brought consumer protection claims against BlackRock, the world’s largest asset manager, for failing to adequately disclose its reliance on ESG considerations and for overstating the financial benefits of its ESG-related strategies.

Climate and energy topics present related challenges. Republican-led states have investigated whether financial institutions violated antitrust laws or state investment laws by disfavoring fossil fuel companies.

Eleven Republican attorneys general filed a lawsuit in Texas federal court that last year survived a motion to dismiss. The complaint alleges that several large asset managers engaged in an illegal boycott of the coal industry.

Several Democrat-led states including California, Michigan, and New Jersey have sued fossil fuel companies for climate-related harms, and enacted “climate superfund” acts that allow states to fine these companies for greenhouse gas emissions. And that says nothing of ongoing battles over state electric vehicle mandates.

DEI Divergence

DEI represents perhaps the most pronounced area of divergence. Companies have already adapted to a rapid about-face on this issue with the change of federal administration, but they face continued scrutiny from both Republican and Democratic attorneys general in different directions.

Coalitions of Republican attorneys general have penned letters to Fortune 100 companies and major financial institutions warning that affirmative action in favor of minority groups constitutes illegal race discrimination and demanding information about their practices.

By contrast, a coalition of Democratic attorneys general issued a multistate guidance for private employers last year advising not only that DEI programs are lawful but also “reduce litigation risk,” and warning that their absence “may be a factor considered by enforcement authorities.

Diverging enforcement priorities in these and other areas, such as health care, financial services, and technology, generate a fragmented and politically fraught regulatory environment.

Taking Action

Companies should prioritize engagement with key state attorneys general across the political spectrum. Finding areas outside of the issue in question in which to constructively engage with states builds goodwill that pays dividends when push back becomes necessary.

Retaining the services of attorneys and government relations professionals with longstanding relationships with state officials and robust knowledge of attorney general practice dynamics is critical for smoothly navigating state attorney general scrutiny or even heading it off at the beginning.

Companies should rigorously assess enforcement risk. Not every policy position translates into litigation or regulatory action. A thorough assessment would account for the likelihood of adverse action, what form it would take, its expected impact, and potential second-order ramifications such as scrutiny of other aspects of company operations.

The mere fact that one or more state attorneys general have staked out a policy position on a particular issue doesn’t compel a company to give credence to it absent an assessment that they are likely to take adverse action.

To the extent companies perceive competing directives from both sides to carry risk of enforcement action, they should strive to identify potential avenues for structuring their operations in a way that complies with both directives, whether by creative legal strategies, jurisdiction-targeted approaches, or other company-specific measures.

Additionally, if companies determine that they can’t avoid complying with one of two competing directives at the expense of the other, they should undertake a thorough legal analysis of the relative merits of the directives, being mindful of the likely forum and posture of an enforcement action or challenge.

As state attorneys general continue to play an increasingly prominent role in shaping national policy debates, companies operating across jurisdictions will face ongoing uncertainty.

By crafting creative and proactive strategies tailored to their business goals, in consultation with subject-matter experts, companies can steer an optimal course through these turbulent waters while complying with state and federal law.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Jonathan Lienhard and Brandon Smith are partners, and Andrew Wilson is an associate, at Holtzman Vogel Baran Torchinsky and Josefiak.

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