Forty years ago, as a young analyst, I had an embarrassing event. I was following a company that ran a fleet of moving vans. I wanted to know whether they might start paying a dividend, for the company seemed to be profitable and had a decent bal­ance sheet. The company CFO was encouraging but ambigu­ous, as was the Annual Report. The SEC documents on file were sketchy, but I thought a dividend was likely. The company did not initiate a dividend, and we eventually sold the stock at a loss. What I had missed — the moving van company was considered a truck line, and so was regulated by the ICC, not the SEC. The ICC filings made it clear that no dividend was forthcoming. Don’t you make a similar error; be familiar with the regulatory bodies governing any industry you follow. It is very important to know what agencies control the industry you are looking at.

We all that know that legislation affects us in many ways. Two of last year’s major laws have yet to be implemented, the Patient Protection & Affordable Care Act (PPACA), which gov­erns healthcare, and Dodd-Frank that regulates financial insti­tutions, including you and me. Both of these laws are incredibly long, not very well written, and undoubtedly filled with unfore­seen consequences. Each adds new powers for existing agencies and sets up completely new agencies. Most of the regulations by which these laws will operate have not yet been written.

The passage of these two major laws was time consuming, contentious, and partisan. Does the president want to go to bat for another new major law? None has been announced. I do not believe that any new big law is being planned. No one in the White House or Congress has the energy for another fight, and the 2012 election will soon be the only subject of interest.

This does not mean that important policy changes are not coming. They will not be from legislation; they will be from regulation. We are all used to regulations from major agencies such as the SEC, the EPA, and the FDA. They will continue to bring out new rules which will be important for analysts. For example, the new Consumer Financial Protection Bureau, a cu­riously structured agency, will have vast power over mortgages, credit cards, and installment loans, with powerful impact on those businesses.

President Obama has been appointing union officials to many regulatory boards. That means that many agencies will be issuing rules to empower labor unions. You have probably read about the NLRB ruling that Boeing may not operate their new 787 assembly plant in South Carolina. The NLRB has also proposed rules to shorten the time for a union certification elec­tion. The NLRB has a new chairman, Ms. Wilma B. Liebman, previously general counsel for the International Union of Brick­layers and Allied Craftworkers, and before that, senior attorney for the International Brotherhood of Teamsters. Another board appointment, Craig Becker, was Associate General Counsel to the AFL-CIO and the Service Employees International Union (SEIU). Mr. Becker was a recess appointment because his pro-union bias made him unconfirmable by the Senate.

Be careful if you are following non-union companies that may run into labor strife. An obvious example is Walmart, which can expect to undergo strong efforts by the unions to or­ganize the company.

You might be blind-sighted by an important new rule com­ing out of an agency that you never heard of. Last month, I first discovered the National Mediation Board (NMB). This agency was set up by the New Deal in 1934 to “facilitate harmonious labor-management relations for the railroad and airline indus­tries”. The new chairman of the NMB is Ms. Linda Puchala, whose previous experience included International President of the Association of Flight Attendants. One of the cases coming up shortly is the attempt of the Delta Airlines flight attendants to unionize.

The NMB has also changed the rule to allow airline and rail­road employees to form a union by a simple majority of those voting. Under the old rule, workers who didn’t vote were treated as “no” votes. Republicans have objected to this rule change and have responded by blocking legislation to extend the FAA’s operating authority. The FAA ban suspended all construction work at airports. It was even possible that air traffic control would be affected, messing up airline travel. After a few days, a compromise was reached, and the FAA returned to normal.

In summary, changes to regulations will be frequent. You will have to find out which ones will affect your investment re­search and revise your opinions on affected companies accord­ingly. If you cannot figure out the effect of a new rule, talk to some company officers, because the potential effects can be very different from what your first opinion might be.

Ralph Wanger, CFA, Senior Advisor,
Wanger Investment Management, Inc.