Corporations in Public-Private Partnerships: Emerging Risks for Boards
By Rolin P. Bissell, Partner, Young Conaway Stargatt & Taylor, LLP, and Guest Contributor
The post-Cold War globalization wave beginning in the 1990’s created a boom in the US governments’ use in private corporations rather than their own departments and agencies to advance governmental goals and policies. Following the 9/11 terrorist attacks and the global financial meltdown of 2008 globalization slowed, nationalism and economic decoupling gained steam, and great-power rivalry intensified. In this more volatile geo-political environment, the interests of government and private corporations are increasingly prone conflict. Although the increased potential for conflict of interests has not dampened the appetite for public-private partnerships, it has made those partnerships more difficult to manage and created added risks for private corporations. This article concludes by discussing how corporations, their directors and officers and advisers can manage those risks. But first, it gives a thumb-nail history of the use public-private partnerships in the US and then discusses the trends in the last three decades that have made it more difficult to manage the risks that are inherent to the public-private partnership structure.
Public-Private Partnerships Are Part of the US Economy’s DNA
Public-private partnerships have been around for centuries and have played a long and storied role in US history. Columbus’s exploration of the America’s was a proto-public-private partnership between Spanish Crown, Columbus and Genoese merchant-investors. Before 1776, most of the American colonies were charter companies (the Virginia Company and the Massachusetts Bay Company) or proprietary colonies (Pennsylvania, Maryland and the Carolinas) that were public-private partnerships. In 1791, four years after the U.S Constitution was ratified, Congress created the First Bank of the United States. In the 1800’s, public-private partnerships were the vehicle for the bulk of the development of the canal and railroad systems and the gas lighting, water systems and street railways in major cities.
There is no single template for a public-private partnership. They do tend to share some common characteristics. They allow the government’s favorable access to capital by allowing the government to advance projects without bearing the full upfront costs and shift financial and delivery risks to private firms. It also allows the government to access innovative technology and business practices from private corporations. Ideally, the public-private partnership will combine in private sector capital and efficiency with public sector oversight and legitimacy.
Public-private partnerships have the internal tensions that are inherent to all relationships between the government and private entities. Private entities, even not-for-profit corporations with charitable missions, are subject to the profit motive—they like to make a profit and not lose money in connection with projects. The government’s interest is to secure benefits for the public and the lowest cost. Similarly, the government will tend to want to exert strong oversight and control over projects its funds through contracting or regulation. Private entities generally want to minimize regulation and controls to preserve their freedom of action and reduce their costs of compliance. These tensions are commonplace and manageable tensions, but, as discussed further below, managing them can becomes harder when public and private interests diverge.
Unlike a simple government contract to provide goods (e.g., selling office supplies to a federal agency), public-private partnerships involve negotiating complex, often long-term, relational contracts designed for repeat interactions rather than one off transactions. Because not all contingencies concerning the public-private partnership can be spelled out in advance and the need for flexibility and adaptability, operating a public-private partnership depends on mutual trust and norms rather than the legal enforcement of clear written contractual terms. As a result, public-private partnerships can be prone to blurred responsibilities when it is unclear who bears the ultimate responsibility when things go wrong. Often by design public-private partnerships also can be less transparent than purely public endeavors. This makes oversight and accountability more difficult, especially when societal trust in government and business is low.
The Halcyon Era of Public-Private Partnerships—Post-WWII Science Policy
Before examining trends in the last three decades that are making public-private partnerships more difficult to manage, let’s examine a set of public-private partnerships that are arguably the most successful in history. In his 1945 report Science, the Endless Frontier, the architect of US post-World War II science policy, Vannevar Bush, argued forcefully that basic research was the foundation of national progress and that it was in the US national interest for the government to fund civilian research. The fundamental premise was that basic scientific research was a public good and governmental support of private scientific research was justified because of the long-term public benefits for national security, public health, energy, agriculture and economic growth that research would create. Reflecting the belief that the autonomy of the scientific community in setting research priorities was key to spurring innovation, the research would be run by civilian institutions and not controlled by the military or political agencies, as much of it was during World War II. The federal government provided large scale funding for research, but civilian scientists at universities, independent agencies and in industry would control that research.
The “Vannevar Bush Consensus” enjoyed broad bipartisan political support for nearly four decades until it began to fray in the late 1970’s. It gave birth to or expanded several enduring institutions including the National Science Foundation (established 1950), the National Institute of Health (expanded 1940’s through 1960’s), the Office of Naval Research (established 1946), the Advanced Research Projects Agency (established 1958 and later known as the Defense Advanced Research Projects Agency or DARPA), the National Aeronautics and Space Administration (established in 1958). Wartime nuclear weapon laboratories, like Los Almos and Oak Ridge, were transferred from military control to the civilian controlled Atomic Energy Commission. The federal government funded the construction of major research labs at universities.
The research and development carried out through these institutions and programs is credited with the development of many public goods in health and medicine, space exploration, defense technology, the Interstate Highway System, and nuclear technology. It also contributed to the creation of many advances and benefits in the private sector. In her 2019 book, The Code: Silicon Valley and the Remaking of America, Margeret O’Mara sets forth convincingly how the US achievements in high-tech and innovation owe as much to government investment in research for defense and aerospace as to the dazzling exploits of Silicon Valley’s iconic entrepreneurs. And indeed, it is not hard to draw a line between government funded research for defense and the creation of the internet, semiconductors, GPS, cellphone technology and Artificial Intelligence.
The Vannevar Bush Consensus has had its critics, and we should not overstate its accomplishments or ignore its shortcomings. Over the last 25 years, its critics have pushed for a US science policy that is market oriented and accountable to short-term priorities. Nonetheless, many of the policies and institutions the Consensus put in place have been durable and many persist to this day.
The Cold War Ends: Globalization Takes Off
It is not overstatement to suggest that he Vannevar Bush Consensus likely helped position the United States come out on top in the Cold War. The end of the Cold War kicked globalization into high gear. Paradoxically, globalization drove three trends that have added to the complexity and conflicts endemic public-private partnerships— the sheer bigness and super-national interests of the globalized mega-corporation, the privatization wave that put many traditional state functions in private hands, and the US’s growing preference to manage geo-political conflict through the wielding US economic power and less reliance on kinetic military action.
Globalized Mega Corporation has Multi-National Interests
When the long-term strategic interests of private corporations and the federal government are naturally aligned, the public-private relationship is symbiotic and can be a happy and tranquil marriage. In 1953, during his Senate confirmation hearings for the position of Secretary of the Department of Defense, Charles Wilson, then the CEO of General Motors, was asked if as Secretary of Defense he could make a decision adverse to the interests of General Motors. Wilson answered affirmatively and quaintly added that he could not even conceive of a conflict “because for years I thought what was good for the country was good for General Motors and vice versa." In the 1950’s, some viewed Wilson’s statement with skepticism, but it was at least plausible he was sincere in his belief. The long-term interests of a US headquartered corporation (even a large one like GM) and the US government were highly aligned.
The existence of a naturally occurring alignment the interests of the US government and the modern global corporations seems less plausible today. The chief reason is the sheer size and scope of the largest US corporations. Today’s large multinational corporations dwarf the largest corporations of the 1950’s. For example, in 1955, General Motors had $9.8 billion in revenue ($113.2 billion in 2024 dollars) and $806 million in profits ($9.3 billion in 2024 dollars). In 2023 Apple had $383 billion in revenue and a net income of $97 billion—over three times the revenue and ten times the profit as 1950’s GM. In addition, although GM did operate abroad in the 1950’s, GM held 40-45 percent of total US automotive sales and its employee, customer, manufacturing base and investors were highly concentrated in the US. Today, Apple’s manufacturing, employees, customers, and investors are spread across the globe. The components of iPhones are sourced globally and most of them are assembled in Zhengzhou, China (aka “iPhone City”).
The bigness trend is true for not-for-profits such as universities as well. According to the foreign gift and contract data reports Harvard files with the US Department of Education between January 2020 and October 2024, Harvard received $1.1 billion from foreign donors, with $151 million of that coming from foreign governments. In 2024, 27% of Harvard’s student body was made up if international students. Harvard’s has significant interests that extend well beyond the US.
In the globalization era, the self-interests of nations were seen as converging, and a corporation having multi-national interests was consistent with US policy that spreading capitalism (or economic liberalization) would naturally foster the spread of democracy. Fast forward, the spread of capitalism did not lead to the spread of democracy and instead great power rivalry has revived. Today, the multi-national corporation must straddle the often divergent and antagonistic interests of the nations in which it does business. The need to manage the divergent interests between the US and other nations makes it harder for a corporation to manage its relations within a US based public-private partnership.
The Government Devolves Power Through Privatization
Following the end of the Cold War, the US privatized, outsourced, or opened for competition several programs that the government historically managed itself. For example, from the time of the Manhattan Project developed the first atomic bombs during World War II and until five decades later, the US government enriched uranium for its atomic weapons programs and for civilian use. In 1998, the US Government privatized the United States Enrichment Corporation, which owned the plants and other assets US government used for enriching uranium for private use. Even though private efforts in space exploration and satellite communication have a long history, it was a government lead and dominated endeavor until about a decade ago when the private space company boom took off. Similarly, in the 1990s and early 2000’s the US government outsourced security work to Private Military Corporations, so called “PMCs” (e.g., Academi (formerly known as Blackwater) and Triple Canopy) and outsourced incarceration to private prisons and detention centers (e.g., Core Civic and GEO Group). Following the mass closure of large state mental hospitals as part of deinstitutionalization movement in the late 1960’s through early 1980’s, states have contracted with a growing number of private mental healthcare providers to care for the mentally ill. This is far from an exhaustive list of privatizations.
Privatizing or outsourcing programs that historically were managed by the government may have significant benefits. These include avoiding expansion of the federal workforce or the uniformed armed forces. Privatizations can create cost efficiencies and allow the government to access skill sets that would be difficult for the government to develop. The amount of the efficiencies, how they vary by industry, and whether they decrease over time are all subjects of empirical research and debate. Similarly, outsourcing of government functions has been criticized as leading to a diminishment of state capacity through the loss of institutional knowledge and expertise within the government and causing dependency on private contractors which can create vendor lock-in as switching providers becomes more difficult for the government. Significantly, privatization can be prone to conflicts of interest between state policy and private interests charged with conducting those policies.
Two unrelated events occurring in connection with the Russian invasion of Ukraine also show how governmental and private corporate interest can suddenly and dramatically diverge. Two days following Russia’s invasion, Elon Musk offered Ukraine free use of the Starlink satellite communications system, which Ukraine could use to target Russian military assets. Starlink limited how the Ukrainians could use its targeting capabilities so that Ukraine could not use Starlink to target strikes into Russian territory. Starlink quickly figured out that it, as a private company, did not want to be in the business of shaping and implementing US national security policy. The Department of Defense took over the decision making about when US technology could be used for targeting consistent with US defense policy.
A year later, Russian state-funded PMC, The Wagner Group, was fighting on behalf of Russia in Ukraine. In May 2023, its leader, Yevgeny Prigozhin, started to publicly criticize the policies of the Russian military. In June 2023, Prigozhin rebelled, and Wagner’s mercenaries began to advance toward Moscow. Wagner halted its advance after a few days and gave up on its rebellion. Putin felt it wise to disband Wagner and fold its fighters into the Russian Army. Putin showed less clemency toward Prigozhin. He perished a few months later when the plane he was flying in mysteriously blew up.
Regardless of whether one views the privatization wave on balance as a good thing or a bad thing, it can make the management of public-private partnership more unruly. Again, one of the potential pitfalls of the public-private partnership is murky division of responsibilities and decreased accountability for when things go wrong. When private corporations act in capacities that are traditionally public functions it can blur these already fuzzy lines.
War by Way of Financial Sanctions
The privatization trend intersects with a second post-Cold War trend: the US has developed a proclivity for using economic warfare and soft power rather than deploying large military forces to advance geopolitical goals. Since the 1990’s, the US has increasingly used financial sanctions as a key tool to support US national security and foreign policy goals. When US government uses financial sanctions as a tool of foreign policy it effectively cuts a country, a business, a group, or persons from the US financial system. The Office of Foreign Asset Control of the US Department of the Treasury oversees implementing financial sanctions, but the sanctions are effectively enforced by private banks and financial intermediaries who face penalties for transacting with the sanctioned nation and its affiliates. Historically, national security was a core governmental function. More and more, the US government depends on the private banks to carry out this core function.
Given the wide-spread public dissatisfaction with the two-decade long deployments of large numbers of US troops to Afghanistan and Iraq following September 11, the US government’s preference for economic warfare over large scale kinetic warfare seems more likely to expand than to contract.
Even when the US takes part in kinetic warfare it signals its reluctance to deploy force and that its involvement in combat is limited and defensive. Although the US has provided weaponry to Ukraine to assist it in turning back the Russian invasion, the US has ruled out US sending troops to Ukraine. The US has also imposed conditions on how Ukraine can use that weaponry, insisting that the Ukrainians use US missiles to attack targets inside Ukraine and not attack targets in Russia. The chief weapon the US has wielded against Russia directly have been financial sanctions.
Most of the US’s efforts to contain Iranian power have come in the form of economic sanctions and not the outright use of force. Biden Administration provided massive military to Isreal in its defense against Iran’s massive ballistic missile strikes in April and October 2024, but the Administration made clear that US support was defensive and not a prelude to an escalation of US military involvement in the ongoing conflict between Isreal and Iran. The June 2025 bombing strikes the US made on Iranian nuclear weapon sites was similarly accompanied with messaging that they were limited and not part of widening hostility by the US against Iran.
As with the privatization trend, the government’s use of private corporations to carry out foreign policy through financial sanctions blurs the distinction between public and private roles.
Globalization Meets Its Discontents Now in Cold War II
The post-Cold War optimism that global economic liberalization and democratization would lead to a more tranquil world order is long gone. In the last decade, globalization has decelerated, and in some cases reversed into decoupling, and nationalism and great power competition, particularly between China and the US, has intensified. During the first Trump Administration, some commentators began to describe the new reality as “Cold War II.”
It is ironic that globalization made public-private partnerships more difficult to manage and that the reversal of globalization is having the same effect. But this is precisely the case. In the Cold War II period, there are two related trends that have increased the potential for divergence of governmental and private interests—an assertive Executive Branch that governs with little input from Congress and changes hands every four years, and the growing use of trade policy as a weapon in foreign policy.
The Dominant and Volatile Executive Branch
Trends in how the US government formulates and changes policy make it more difficult for private corporations to align their interests with US national interests. A perpetually deadlocked Congress means policy is increasingly made by the President issuing rapid-fire executive orders and emergency declarations rather than through slower paced legislative deliberation and compromise. A near evenly divided electorate has caused the presidency to switch hands every four years. After each of the last three presidential election, US government policy has changed abruptly. When a new administration prohibits a policy that its predecessor administration mandated, corporations can be whipsawed by the policy reversal.
For example, the Trump Administration’s barrage of executive orders countermanding Biden era ESG and DEI policies has forced private corporations to reconsider and rescind pro DEI and ESG polices they adopted just a few years ago. In response to a barrage of anti-DEI Executive Order, some universities are challenging these Executive Orders as unconstitutional or without statutory authority while others are seeking quick settlements. In these disputes, the Trump Administration has expressed it willingness to cut federal funding for unrelated programs if the universities resist the Administration on DEI issues. Put differently, a private university’s partnership with the US government on medical research has become a hostage the government is holding to compel the private university to become the enforcer of the Trump Administration’s anti-DEI policy.
The Perpetual National Security Crisis
As discussed above, the US has increasingly used economic power to achieve geopolitical aims since the end of the Cold War. Two of the Trump Administration approaches to policy making have added highly combustible fuel to an already hot-burning geo-politics. First, all international trade is an extension of geopolitical conflict and thus a national security issue. Second, all national security issues are emergencies that require rapid presidential action.
The US has moved away from a free trade policy and has embraced tariffs, export controls and trade sanctions not only to address trade imbalances and raise revenue, but also as a foreign policy tool to advance the US’ national security and geo-political interests. The US Constitution gives the power to impose tariffs to the Congress and not the President. The Executive Orders through which the Trump Administration has imposed sweeping tariffs rely, some contend improperly, on the International Emergency Economic Powers Act. Through that Act, Congress delegated the power to impose trade sanctions to the President in times of national emergency. As shown by its frequent use of emergency declarations, policies and rhetoric, the Trump Administration regards a large number of economic competition issues as security crisis or threats. The Administration uses these emergencies to justify sidestepping Congress and taking immediate executive action.
The President’s ability to threaten spot tariffs gives the government leverage over private businesses in ways that were previously unimaginable. For example, in August 2025, Apple agreed $100 billion of new investment in the US and to switch to US based suppliers of glass and semiconductors to avoid a threatened tariff on iPhones manufactured in China. In the Trump tariff wars, the front-line soldiers are the private businesses who are affected by or looking to avoid the tariffs, not the soldiers of the Army or civil servants at the Department of Commerce. Whether the affected corporations like it or not, the US has conscripted them into national service.
Government by executive order and the conversion of economic and trade issues into national security issues make managing public-private partnerships more difficult. Public-private partnerships are typically long-term and are based on relational contracts and work best when the policy environment is stable and the relationship between government and business is predictable and collaborative. Government through executive order and emergency declarations means that rules and incentives can shift dramatically and with little warning, in effect unpredictably and unilaterally.
Managing Enterprise Risks Associated with Public-Private Collaborations
The trends described above make the job of managing the risks and conflicts inherent to public-private partnerships more difficult. A corporation involved in a public-private partnership needs to be comfortable that the corporation has developed sufficient legal and political capability to manage these risks and conflicts.
When a corporation is involved in collaboration with the government, its board needs a system in place to monitor for conflicts that may arise between fiduciary duties the board owes to the corporation and its stockholders to maximize the long-term value of the corporation and the obligations it may have undertaken to serve the public interest by collaborating with the government. This can lead to tough decisions for boards and managers. For example, the employees of several large tech companies have refused to work on projects with the Department of Defense or ICE because of those employees’ human rights and ethical concerns about how the government will use that work. In these situations, the board must balance the business risk posed by losing key members of their talent pool if they take the work and the risk of turning down an important project related to national security for the most powerful nation on earth. As cybersecurity and development of AI have become high priority defense issues, this will become an increasing hard tight rope for the board of high-tech corporations to walk.
According to the OECD and World Bank studies, bribery tends to be more prevalent in government contracts than transactions between private parties. Part of this sad reality stems from the nature of many government contracts. The government official making the award has broad authority and there is no market competition to discipline the government official or bribe-giver. In addition, there is a tendency for lobbying to veer into improper influence buying and bribery. The board and managers need to be sure that the corporation has strong internal controls to prevent violations of the Foreign Corrupt Practices Act, the False Claims Act, and other anti-corruption laws and regulations.
Collaboration with the government will typically subject the corporation to higher levels of disclosure and transparency than when it is pursing purely private endeavors. This can include public reporting requirements, governmental inspection rights, open meetings laws, freedom of information act compliance, and the increased public interest that come along with being involved in public affairs. Corporations must navigate protecting proprietary information and competitive advantages while meeting public accountability standards.
The public nature of government collaboration magnifies reputational risks from miscues and failures. Corporate decisions face public scrutiny and ethical lapses can result in both damage to government partnerships and business in general. Having entered the public arena, a corporation may be subject to partisan attacks that its participation in a public-private partisanship is a partisan act itself, and that the corporation’s participation compromises it ethically or politically.
Close collaboration with government exposes corporations to political risk that goes beyond typical regulatory risk. A change in an administration can not only alter the terms of government contract or a project’s overall viability, but it can also lead to a wholesale change to policy. Booz Allen, which touts itself as the leading provider of cybersecurity services to the US government, receives 98% of its revenue from government contracts. Falling out of favor with an administration poses and existential risk to it. Corporations must develop political strategies that allow the corporation to maintain business continuity during rapid and seismic changes in the political climate.
Directors and managers of corporations involved in public-private partnerships also face personal risks. Directors must be vigilant that they do not let their personal political and social preferences cloud their decision-making about what is in the best interest of the corporation and its stockholders. The duty of loyalty requires directors to act in the best interest of the corporation and its stockholders. There is no crisis-of-conscience-out to the duty of loyalty. Directors who believe their personal convictions prevent them from pursuing the corporation’s best interest have a conflict, and they should recuse themselves from decision-making on those issues. Similarly, directors may find their duties to pursue the best interest of a corporation limit their personal ability to criticize an administration or speak-out on public policy issues. The director may face a difficult choice: resign from the board to speak openly or remain on the board and stay silent.
Despite the complexities and hazards described above, the use of public-private partnerships will continue to grow. Complex economic and social problems will require solutions that are built on increasingly hybridized mix of government and private approaches and expertise. As discussed above, public-private partnerships can be effective, but they also be conflict riven, lack unaccountability, and be vehicles for corruption and fraud. Managing the conflicts of interest and accountability problems inherent in public-private partnerships will require increased C-suite and board attention and the development of increasingly sophisticated monitoring approaches. Artificial Intelligence, with its capability for real time monitoring, anomaly detection and predictive analytics has enormous potential for fraud prevention and detection. With diligence, the public-private partnership beast may yet be tamed.