An Early Peek at the Midterm’s Impact

Divided government returns. It could shift the nation’s economy and even its culture.

Now that the midterm elections have come and gone, there's once more a major shift in the government’s landscape.

The Democrats won a majority of seats in the House of Representatives, while the Republicans maintained control of the Senate. The end of one-party rule (Republicans controlled Congress, the Senate and the White House) could affect everything from future tax policy to regulations, which no CEO or board can ignore. “Leaders are anticipating the need to make slight adjustments, correct course, or pivot in their corporate or public affairs strategy,” says Nels Olson, a Korn Ferry vice chairman and co-leader of the firm’s Board and CEO Services practice.

Midterm elections may take a back seat to presidential election years, but they can have significant impact on the nation’s policies and climate. The 1858 contest was the birth of the modern Republican party, giving it control of Congress for the first time. The lawmakers who won in 1874 were responsible for ending post-Civil War Reconstruction. More recently, the results of the 1994 election solidified the Republican control of southern states that the party has today.

In addition to immigration policy, budget, healthcare strategy, and other national issues, for instance, the election’s results will also impact workplace talent planning. Three quarters of corporate leaders in the US surveyed by Korn Ferry recently said the election’s results would influence their company’s future hiring decisions. Nearly a quarter said the results would have a significant impact on hiring.

All 435 seats in the House of Representatives and 35 Senate seats were up for grabs. The votes were still being tallied in some close races Wednesday morning, but it was clear that the Democrats controlled at least 219 House seats while Republicans held 51 Senate seats. Typically, the party that controls the White House loses seats in Congress, the Senate, or both.

The change of control in Congress means new leaders of the oversight committee chairmanships, and that could impact multiple highly regulated industries, including manufacturing, energy, or banking. The stock market has been volatile; October ended as one of the worst months for US stocks since the financial crisis, with companies in the S&P 500 alone losing close to $2 trillion. Economists attribute some of the losses to uncertainty leading up to the midterms.

To be sure, the S&P 500 and other indexes have recovered some of those losses over the last couple of trading days. Plus, if history is any guide, next year will be a positive one for stocks—the S&P 500 has increased in the year following a midterm election for the last 70 years, in part because, with the uncertainty removed, money flows back into the market. “The fact is that long-term decisions such as whether to invest in a new plant or make significant capital expenditures aren’t affected by political rhetoric,” says Olson. “Regardless of the outcome, there is always another election around the corner.”

The election results could cause some workers to be angry, sad, or frustrated. Private-sector leaders also can play a role in making their employees feel more welcome, says Andrés Tapia, a Korn Ferry senior client partner and one of the leaders in the firm’s global Diversity and Inclusion practice. “The majority of citizens and employees hunger for a way to bridge the divides rather than to widen them. Many would welcome an invitation to come to a space at work where they can share their fears and pain.”