When the Trump administration announced it would take a 10% stake in Intel to securitize the government’s funding of the company under the CHIPS Act, the markets were stunned. Many questioned this new course, asked how effective the government could be owning stocks, and wondered how the Administration could help or hinder Intel. Moreover, how would U.S. taxpayers benefit?
With the equity investment in Intel, as well as 10%-plus stakes in materials companies Trilogy Metals and MP Materials, the U.S. government is poised to become a major shareholder in corporate America, moving beyond grants and loans to taking direct equity stakes. Moreover, in the case of U.S. Steel, “golden share” veto power over management decisions injects politics into business.
These moves create a new precedent, establishing a playbook for future stakes in sectors deemed of strategic importance.
More boards, CEOs and investors are asking how the government might behave as a shareholder. Practically, what does it mean for investor relations? Investor relations is a critical company function whose job it is to communicate a company’s investment narrative, metrics on financial health, business strategy, and financial outlook to Wall Street. Investor Relations Officers (IROs) educate investors so they can make informed decisions about a company’s stock.
IROs must now be considering the impact on financial communications if the U.S. government is a major investor in their company’s shareholder base. Should they adapt how they engage with shareholders or will it be business as usual? Might they have a new activist investor to contend with? What questions or concerns will existing shareholders have that need to be addressed?
We’ve explored these topics with other IR experts, asking what’s top of mind for them. The key takeaway, golden share or not, is to be prepared. We expect the U.S. government as a shareholder will rattle existing shareholders. While golden shares are explicit veto power, even without them implicit veto power may still exist. Communication transparency will be critical.
How should companies navigate this situation:
- Absent golden shares, treat the U.S. government like a sovereign wealth fund. Having the U.S. government as a major shareholder will likely resemble having a sovereign wealth fund take a position. These funds often have strategic priorities but typically act as passive investors who support a sector ecosystem for their region. This is the stated approach with Intel, where the U.S. government said its investment is designed to strengthen U.S. leadership in semiconductors for economic and national security reasons.
IROs should treat the U.S. government as they would any sovereign wealth fund: a large, long-term investor that brings stability to the shareholder base. This may shift the investor base over time, as those seeking volatility gradually rotate out and those seeking stability buy in. The U.S. government will likely assign a portfolio manager who expects quarterly updates and one-on-one conversations with management (Reg FD boundaries still apply). Like any new large shareholder, the IRO will need to develop a relationship with that person. - Clarify and communicate the role and rights of the U.S. government to other shareholders. If there is an objective for the investment, say what it is. If the government claims ownership is passive, that should mean no board representation and no voting or special governance rights. If exceptions exist (explicitly or implicitly), communicate them. Existing shareholders expect anything unusual to be disclosed early and often.
- Work with the government to address areas of ambiguity. Seek clarity on which part of the government you are dealing with; is it direct ownership from the U.S. Treasury or from the Development Finance Corporation. The entities will have different governance and policy priorities over time. Determine answers to other concerns. Intel’s case shows how unclear some aspects can be:
- Did the government urge Nvidia to invest $5B in Intel?
- Does it intend to push U.S. companies to use Intel’s foundry?
- What “limited circumstances” could trigger the government moving from passive to active?
- What conditions trigger the warrant to purchase an additional 5%?
- Are there other circumstances in which ownership could increase?
- Anticipate shareholder concerns: IROs, along with senior execs and boards must prepare for new questions and concerns. Even as a passive investor, the U.S. government may exert influence that is not in the company’s or its customers’ best long-term interests. Investors will likely probe any apparent market distortions.
- Other potential conflicts of interest could emerge in bidding for government contracts, greater scrutiny on FCPA, tariffs, and more. Ask what the long-term effects might be, including agreements made with the current administration that may not work with future administrations. Consider conducting sensitivity analysis on these areas. Also anticipate tactical concerns such as how the U.S. government will sell its position without destabilizing the stock.
- Develop custom-fit activist shareholder early warning systems. Most IROs have standard systems that flag circling activist investors. The U.S. government may require unique monitoring tools. Activists typically criticize a company’s operations, governance, capital efficiency, or structure. If the U.S. government puts its thumb on the scale to affect markets, it may create a new category of activism. The most important issue is how the U.S. government might move from passive to active. In the Intel situation, forcing other semiconductor companies to use Intel’s foundry for chip manufacturing could qualify as activism. The same is true for reversing the decision to close US Steel’s Granite City plant. Other shareholders have the right to know about moves that directly impact revenue and earnings. Monitoring for changes in government (including with intelligence) and a dedicated strategy using company leadership to engage the White House, Capitol Hill, and regulators directly is essential.
We are in uncharted territory with these equity investments and golden shares. Much will be learned in time. But preparation is essential for IROs, senior executives, and boards, particularly in industries such as technology, materials, and national security. They must assess what having the U.S. government as a shareholder might mean for investor relations and how they might need to adjust communications and adapt to a new type of shareholder.