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Public policy and regulatory risks have become a top-tier threat to business performance in 2025. Companies face an environment of prolific rulemaking, high compliance costs, and political uncertainty that can directly impact their bottom line:
- Soaring Compliance Costs: A recent study suggests that regulatory compliance costs American businesses roughly $300 billion annually. In just the first days of 2025, federal agencies proposed rules adding an estimated $36.6 billion in new costs, illustrating how quickly regulatory burdens can mount.
- Earnings and Value at Stake: Research shows about 30% of corporate earnings are “at stake” from government and regulatory intervention in most industries. In highly regulated sectors like banking, this figure can exceed 50%. In other words, policy decisions can swing fortunes by billions, underscoring the need to actively manage these risks.
- Executive Risk Perceptions: Two-thirds of executives predict government and regulatory involvement in their industry will increase in coming years, according to McKinsey. Over 40% expect government policy changes to hurt their future operating income (only one-third expect a positive impact).
- Uncertainty and Volatility: In today’s uncertain environment, what is required or permissible one year may be overturned the next, making it “difficult to plan and invest for the future,” as the U.S. Chamber of Commerce warns. Constant regulatory uncertainty itself becomes a risk, discouraging long-term business investment and innovation.
Why it matters: With such large portions of earnings and operations influenced by government action, ignoring public policy is not an option. The data shows that policy risks are material and growing – effective engagement in the policy arena is necessary to protect business value and stability in 2025.
Federal Developments in 2025: New Rules and Executive Actions
At the federal level, 2025 has already brought significant actions that affect corporate operations and competitiveness. A change in administration and policy priorities means companies must quickly adjust to new rules (or the rollback of previous ones). Key developments include:
Aggressive Regulatory Rollback Order
In January 2025, a sweeping executive order was issued to “unleash” deregulation and reduce compliance costs. It directs agencies that for each new regulation introduced, at least 10 existing regulations must be identified for elimination. Additionally, agencies are instructed to ensure the total incremental cost of new regulations is negative (i.e. net cost reduction) for fiscal year 2025.
This “one-in, ten-out” mandate signals a dramatic policy shift aimed at relieving businesses of regulatory burdens. For companies, this could mean relief from certain rules, but also requires vigilance as agencies rapidly review and potentially repeal longstanding regulations. Compliance departments will need to track which rules are rescinded or changed under this order.
AI Policy Overhaul for Competitiveness
U.S. policy on artificial intelligence took a new direction in 2025 through executive action. An Executive Order on “Removing Barriers to American Leadership in Artificial Intelligence” revoked prior AI directives and set a course to prioritize innovation and competitiveness. The order asserts that AI systems should be free from “ideological bias” and that the U.S. must solidify its position as the global leader in AI.
Federal agencies are now revisiting pending AI regulations to align with this pro-innovation approach. For tech companies and any businesses deploying AI, this policy shift may ease certain compliance requirements but also foreshadows new standards and action plans for AI development to be released in 2025.
Keeping close tabs on evolving federal AI guidelines will be critical for maintaining compliance and competitiveness in AI-driven markets.
Major Regulatory Proposals with Operational Impact
Federal agencies continue to advance significant rulemakings that carry heavy operational and cost impacts for businesses. For example, the Department of Health & Human Services proposed a rule in early 2025 to strengthen the HIPAA Security Rule for healthcare data, citing the need to modernize cybersecurity for electronic health information.
Similarly, environmental and financial regulators are expected to roll out new rules that will demand adjustments in corporate processes. Even as some regulations are rolled back, new ones in areas like data security, tech, and ESG are moving forward — companies must stay engaged with federal agencies to shape implementation timelines, advocate for feasible standards, and plan for compliance costs.
Tax and Trade Policy Changes
Shifts in federal policy are also affecting the competitive landscape. For instance, U.S. trade and tax posture is in flux. Such moves will alter supply chains, import costs, and how companies structure operations internationally. Businesses that engage early with policymakers on trade and tax proposals can better navigate (or even help mitigate) the impacts on their markets. Overall, the federal policy landscape in 2025 is anything but static: executives need their government affairs teams plugged in to Washington, D.C., to monitor and influence these fast-evolving policy changes.
Action item: Ensure your government affairs team is tracking federal executive orders and agency rulemaking closely. Proactive engagement (through comments, meetings, and coalitions) can help your organization adapt to or even capitalize on changes – whether it’s leveraging a deregulatory opportunity, guiding reasonable implementation of a new rule, or securing relief via delayed enforcement. Federal policy shifts in 2025 will directly affect compliance requirements, costs, and competitive dynamics, so an active presence in Washington is essential.
SLED Dynamics: State, Local & Education Policy Challenges
Public policy risks are not confined to Washington – state and local governments are equally busy enacting laws and regulations that demand corporate attention. In fact, many states have taken the lead on issues where federal policy is gridlocked, creating a patchwork of requirements that companies must manage across different jurisdictions. Key state/local developments making government affairs engagement imperative:
Data Privacy Fragmentation
The momentum of state-level privacy legislation is accelerating, affecting any business that handles consumer data. Eight new state privacy laws are taking effect in 2025, adding to an already complex web of data protection rules. Each law has its own nuances on consumer rights, data handling, and enforcement, contributing to an “increasingly fragmented landscape” of state regulations.
Workplace and HR Mandates
States and even cities are stepping in with their own labor and employment regulations, affecting employer obligations. Paid family leave is a prime example. In the absence of a federal paid leave law, 10 U.S. jurisdictions (9 states plus D.C.) now require employers to participate in state-run paid family and medical leave programs.
Each program has different contribution rates, eligibility, and paperwork. Likewise, more than a dozen states (and some cities) have recently raised minimum wages or enacted pay transparency laws. California amended its laws to regulate AI in employment decisions (requiring that AI tools handling personal info comply with privacy rules).
Education Sector and Local Government Engagement
Policy decisions by school boards, state education departments, or city councils can open or restrict business opportunities. For example, local content requirements or school safety regulations might dictate what products can be sold into public schools. Additionally, the flow of federal funds (from bills like the Infrastructure Investment and Jobs Act or American Rescue Plan) into state and local projects means businesses must engage with SLED entities to capitalize on those projects.
Government affairs professionals should build relationships not only with state legislators, but also with local government officials and education administrators where relevant. Being present in local discussions can help your organization anticipate ordinances (such as city-level data security or environmental rules) and position for contracts or partnerships in the public sector.
Bottom line: The SLED landscape in 2025 is a patchwork of diverse policies – from state privacy and labor laws to local regulations – that can significantly impact operations. Companies that invest in state and local government affairs are better equipped to ensure compliance everywhere they do business and to avoid surprises from new mandates. A robust monitoring system for state legislation, active participation in state business coalitions, and outreach to local officials are all strategic investments that guard against costly regulatory surprises at the sub-federal level.
The Payoff: Financial and Operational Benefits of Active Engagement
Investing in a strong government affairs capacity is not just about risk mitigation — it also creates positive financial and operational value for organizations. Companies that actively engage in public policy can shape outcomes in their favor, unlock growth opportunities, and improve internal efficiency. Consider the following evidence of ROI on government affairs:
Protecting Revenue and Reducing Costs
Studies have quantified the “value at stake” in getting government policy right. McKinsey’s analysis finds that effective external engagement can protect a significant share of earnings (since ~30% of EBITDA is subject to regulatory influence). In practice, this means millions in earnings preserved by averting an onerous regulation or by securing a government incentive.
Operational Efficiency and Competitive Edge
Engaging in policy advocacy can make a company more efficient and productive. A 2023 Yale study showed that companies which lobby experience 22% less resource misallocation compared to peers, because they can streamline operations in response to favorable policy environments
In fact, lobbying accounted for a 3.2% improvement in firms’ productivity over two decades. By influencing policy, businesses achieved lower production costs and higher profit margins, which enabled them to expand their networks of suppliers and customers.
In short, smart government affairs work can translate into leaner operations and market expansion. Companies that proactively shape legislation and regulation often gain a competitive edge, as they can plan investments with greater certainty and capitalize on rules that reward their business model. Meanwhile, rivals who are less engaged may find themselves reacting late to new compliance requirements or missing out on government-driven market opportunities.
Risk Mitigation and Business Continuity
There are tangible benefits to having early warning and influence over policy changes. Active government affairs engagement helps avoid costly surprises like sudden fines, lawsuits, or forced product changes due to new laws. It also positions companies to manage crises. For example, during the COVID-19 pandemic and other recent social upheavals, companies with strong government affairs and public affairs teams were able to navigate shutdown orders, access relief programs, and shape reopening guidelines to better suit their operations.
Key takeaway: An active government affairs strategy yields measurable financial returns (through cost avoidance, captured opportunities, and efficiency gains) and strengthens operational resilience. It ensures the company is not just reacting to government decisions, but shaping and leveraging them. In 2025’s unpredictable political climate, that engagement is a source of competitive advantage.
Conclusion: From Imperative to Action
In 2025, investing in government affairs is not a luxury — it is a strategic imperative for any organization that wants to thrive amid regulatory upheaval and political uncertainty. Companies that prioritize government affairs are reaping tangible benefits by managing risks and seizing opportunities that less engaged competitors will miss.
To make these insights actionable, consider the following steps:
- Integrate Policy Risk into Enterprise Risk Management: Treat regulatory and legislative changes as a core business risk, on par with market and financial risks. Ensure your team has early-warning systems (bill tracking, issue monitoring) for federal, state, and local levels.
- Engage Early and Often: Proactive engagement beats reactive compliance. Build relationships with policymakers and regulators before critical decisions are on the table.
- Resource the Function for Impact: Given the high ROI of government affairs, secure adequate budget and talent for your team. Benchmark against peers — if most companies are increasing public affairs staffing and half now have direct CEO access, ensure your function isn’t sidelined. Invest in tools and expertise to navigate the complex SLED environment
- Align Government Affairs with Business Strategy: Make government affairs a strategic partner to business units. For every major corporate initiative (a new product, market expansion, M&A, etc.), assess the policy landscape: What approvals are needed? What political risks or public issues could arise?
- Demonstrate Value Continuously: Finally, continually communicate the wins and value of government affairs engagement. Use clear metrics and stories — e.g. dollars saved from a defeated harmful bill, contracts won, crises managed, brand uplift from a public policy stance — to show executives the payoff of engagement.
By taking these actions, organizations will not only mitigate the risks that 2025’s policy environment presents, but also capitalize on the opportunities it offers. In a year of new rules and new realities, investing in government affairs capabilities is investing in the company’s long-term competitiveness and success. The most agile and informed companies – those who make government affairs a strategic pillar – will navigate 2025 with confidence, influence outcomes to their advantage, and emerge as leaders in their industries.