17/12/2025
Corporate Strategies in the Shadow of Politics: Uncertainty, Connections, and the Power of “Information”
The boundaries between politics and economics are perhaps more permeable in the 21st century than ever before. We are in an era where government decisions can instantly disrupt markets, and close relationships with the state can be transformed into a strategic advantage. Companies are forced to analyze not only economic data but also political signals across a wide spectrum, from electoral uncertainties to foreign policy moves. In this new order, private sector figures can sometimes find themselves at the center of public policy. For example, Elon Musk—as the head of giants like Tesla, SpaceX, and X—has become not only a market actor but also a figure who occasionally influences political decision-making processes. His appointment to head the Department of Government Efficiency, established under the Trump administration, is perhaps the most symbolic example of this new symbiotic relationship.
But are such political affinities truly a strategic advantage for companies? A 2023 article by Bünyamin Önal from Sabancı University seeks a systematic answer to this question. The study, entitled “Do politically connected directors play an information role under policy uncertainty?”, examines the role of politically connected individuals in company management during periods of policy uncertainty, using the example of China. The study shows that in a highly centralized economy like China, such connections make a decisive difference in companies' decision-making processes. Companies that can anticipate potential government actions are less affected by uncertainty, particularly in investment decisions.
Companies' Nightmare: Unpredictability
One of the biggest concerns for companies is the inability to predict the future. The uncertainty or frequent changes in the direction of government policies can affect many strategic steps, from investment decisions to mergers. Global surveys conducted by PwC also reveal that CEOs struggle most with geopolitical risks and political uncertainties. So, can the presence of individuals with political connections on the board of directors reduce this uncertainty? Can the insider information flow provided by these individuals be guiding, especially in major investment decisions? Bünyamin Önal's research reveals how political connections provide companies with a strategic foresight capacity in China, where the state is a powerful and interventionist actor in the economic field.
Tiger Hunt and Rule 18: The Repercussions of Reform in China
Chinese President Xi Jinping's anti-corruption campaign, launched in 2012, profoundly affected not only the political and military elite but also the business world. This campaign, dubbed "Tiger Hunt," involved investigations into over 200,000 people; hundreds of high-ranking officials were dismissed.
A significant extension of these efforts was "Rule 18," which came into effect in October 2013. This regulation aimed to limit the advantages that political connections could create by prohibiting members of the Chinese Communist Party from serving as corporate directors. The result: Hundreds of directors were forced to leave their positions.
Using this critical period and a comprehensive, hand-compiled dataset, Bünyamin Önal's research seeks to answer the question: Do political connections truly provide an information advantage? The findings are clear. The presence of politically connected individuals on corporate boards allows companies to see more clearly ahead, especially during periods of uncertainty. This makes it unnecessary to postpone major decisions such as mergers and acquisitions.
What Does Political Connection Provide, and Where Does it Stop?
Another striking finding of the research, which covers private companies and excludes state-owned enterprises, is this: Information provided by individuals close to the government reduces concerns about uncertainty on boards of directors. This reduces the need to determine direction by constantly monitoring market indicators. However, it is noted that the same effect is not seen in R&D investments.
For companies seeking ways to cope with uncertainty, the role of political connections is becoming increasingly significant. The idea that these relationships are unique to weak democracies is gradually losing its validity. Even in countries with strong institutional structures, such as Denmark, political contacts can influence company strategies.
Companies Searching for Direction as Democracy Declines
The Economist Intelligence Unit’s 2024 Democracy Index underscores a global decline in democracy. While China continues its efforts to reshape the link between politics and the market through its fight against corruption, in the US, it remains unclear how the political agenda will affect companies.
When the compass of the global order goes astray, it is often the unseen relationships, rather than the visible ones, that determine the direction of companies. This does not present a very bright picture for the world's trajectory in terms of sustainability, accountability, and transparency.
Key findings:
• Companies with politically connected directors on their boards navigate more easily during periods of uncertainty and avoid having to postpone investments.
• Companies without political connections are much more affected by uncertainty.
• Companies that lack direct information about potential government actions try to determine their direction using indirect signals such as stock market indicators.
• The departure of politically connected directors affects companies' investment decisions; however, the same effect is not observed in R&D decisions.
Önal, Bünyamin, Do Politically Connected Directors Play an Information Role Under Policy Uncertainty? Available at SSRN: https://ssrn.com/abstract=4243952
