Chevron Ruling’s Implications for Companies and Boards

It is important for companies and their boards to stay abreast of significant legal developments that may impact their operations and strategic planning. The U.S. Supreme Court's decisions in the cases Loper Bright Enterprises et al. v. Raimondo and Relentless, Inc. v. Department of Commerce are two such developments. Together, these decisions overruled a longstanding judicial precedent by which courts typically deferred to federal agency interpretations of federal statutes (the “Chevron Doctrine”), with the effect of impacting the ability of federal regulatory agencies to promulgate rules and to otherwise act in ways that Congress did not expressly contemplate.

To dissect the implications of these landmark rulings, the Nasdaq Center for Board Excellence hosted a webinar, Regulatory Update: The Chevron Ruling and its Implications for Companies. Speakers, Greg Garre, Partner at Latham & Watkins LLP and Chair of the firm’s Supreme Court and Appellate Practice Group, Doris Meister, CEO of Cove Hollow Advisors LLC and Chairman & CEO Emeritus of the Wilmington Trust Company, and Brett Kitt, Vice President & Deputy General Counsel at Nasdaq, discussed the U.S. Supreme Court's decision and practical implications for companies and their boards.

Based on panelists’ insights, this blog post provides an overview of the Chevron doctrine and highlights five key takeaways for boards in light of the ruling.

Important Context: The Chevron Doctrine

For 40 years, the Chevron Doctrine had been a cornerstone of administrative case law. It provided for federal courts to defer to a federal agency's reasonable interpretation of any ambiguities that exist in its statutory authorities. The Chevron Doctrine afforded discretion to federal agencies to interpret their authorities broadly when promulgating rules and pursuing novel enforcement actions, with little risk of judicial second guessing.

In the June 2024 Loper Bright and Relentless decisions, the Supreme Court overruled and discarded the Chevron doctrine, stating that it usurped the proper role of Congress to determine what laws to make as well as the proper role of the courts to determine what laws mean. The rulings thus require courts to scrutinize the propriety of agency actions more closely, especially when Congress isn’t clear about its intentions, and to no longer defer to agencies’ expertise and judgments. This increased scrutiny of federal agency actions is expected to result in more legal challenges to such actions as well as a greater chances of success in such challenges than has been the case historically.  Under the Chevron Doctrine, litigants challenging agency actions succeeded only 20 percent of the time. 

The ruling is seen as a move to rein in the administrative state and could lead to a more cautious and collaborative approach by agencies to their regulatory agendas. It may prompt agencies to seek clearer guidance from Congress and industry input prior to proposing controversial rules. Alternatively, it may resort to enforcement actions and adjudications as a less risky means to achieve regulatory objectives than rulemakings.

Considerations for Companies and Their Boards

The Loper Bright and Relentless rulings will impact companies across a wide range of industries, with highly regulated companies such as financial services, healthcare, and technology being particularly affected. Companies and their boards might consider reassessing their regulatory strategies and engaging more actively in the regulatory process to navigate this new landscape. Here are five guiding considerations:

1. Increased Regulatory Scrutiny. Boards should anticipate and prepare for a more rigorous judicial review of agency actions. The demise of Chevron deference means that courts will no longer defer to an agency's interpretation of ambiguous statutes. This shift could lead to increased legal challenges and a need for boards to closely monitor regulatory developments impacting their companies.

2. Proactive Regulatory Strategy. Companies should consider reassessing their regulatory compliance strategies following the Supreme Court’s decision. Companies may consider adopting a proactive approach to regulatory policy, including a thorough review of past decisions and interpretations that were made under the assumption of Chevron deference—particularly those that might have placed the company at a disadvantage. Boards should engage with management to assess the long-term impact of regulatory changes on their business models and strategies. This involves evaluating potential risks and opportunities presented by a more dynamic regulatory environment and overseeing the development of contingency plans for various regulatory scenarios. Moreover, boards should consider taking a more active role in tracking potential regulatory changes and advocating for legislative language that is clear and unambiguous to reduce the likelihood of misinterpretation and subsequent legal challenges. Lastly, it is important for boards to consider the broader political landscape, as shifts in power could lead to efforts to reinstate or counteract this ruling.

3. Opportunity to Shape the Regulatory Landscape. It is crucial for boards to proactively encourage their executives to engage more deeply with regulatory bodies. Strategic engagement presents a significant opportunity for companies to shape the regulatory landscape in a manner that considers industry perspectives and concerns. Boards should play a role in guiding their executives to not only stay abreast of regulatory changes but also actively participate in formulating these regulations. This elevated involvement can include submitting detailed comment letters during notice-and-comment periods, which allows companies to directly convey their insights and concerns about proposed rules. Additionally, participating in industry associations offers a collective platform to advocate for regulatory interpretations that are more aligned with industry needs and realities. By fostering a regulatory environment that is receptive to industry input, boards can help ensure their companies are not only compliant but also influential in shaping a favorable regulatory framework.

4. Dialogue and Relationship with Regulators. Despite the shift in power dynamics, maintaining a constructive relationship with regulators remains crucial. Boards should oversee the development of communication strategies that foster respect and mutual understanding with regulatory bodies, while also encouraging management to build and sustain open lines of communication with regulatory agencies. This approach helps ensure regulators consider practical implications of their decisions on businesses, including costs and benefits, which might be more rigorously scrutinized under the new framework. Furthermore, it may offer understanding of the regulators' perspectives, impact policy development, and ensure the company's views are considered in the regulatory process.

5. Board Oversight and Expertise. It is important that boards have the necessary expertise to understand and oversee regulatory risks. This may involve recruiting directors with regulatory, legal, or compliance backgrounds or providing ongoing education to current board members by bringing in external experts. Boards should also regularly review and discuss the company's regulatory strategy and the implications of significant legal and regulatory developments.

The Supreme Court's Loper Bright and Relentless decisions are more than a legal pivot; they are a call to action for public companies to reassess and fortify their regulatory strategies. Moreover, they underscore the importance of active board involvement in regulatory matters, the need for strategic foresight in regulatory compliance, and the value of constructive engagement with policymakers and regulators. As the implications of this decision continue to unfold, companies and their boards should be vigilant and adaptable to navigate the evolving landscape of administrative law.

To learn more about Loper Bright and Relentless rulings and their implications for companies and their boards, watch the webinar replay: Regulatory Update: The Chevron Ruling and its Implications for Companies.

To receive exclusive corporate governance insights and shape the future of corporate governance, join the Nasdaq Center for Board Excellence.

Thank you to contributors: Amma Anaman, Senior Associate General Counsel at Nasdaq; Greg Garre, Partner at Latham & Watkins LLP and Chair of the firm’s Supreme Court and Appellate Practice Group; Brett Kitt, Vice President & Deputy General Counsel at Nasdaq; Doris Meister, CEO of Cove Hollow Advisors LLC and Chairman & CEO Emeritus of the Wilmington Trust Company

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