Agenda for Boards of Directors and Corporate Management Defined by the Forces Driving Business Growth and Risk
Chicago (March 27, 2019) — Digital transformation, diversity, executive compensation, tax reform and acquisitions are just some of the topics in the spotlight as shareholders gather for annual meetings this spring, according to BDO USA, LLP, one of the nation’s leading accounting and advisory firms. Meanwhile, growing concerns over a potential market downturn and uncertainty around trade policy and regulatory change have shareholders eager to hear about stability and long-term sustainability strategy.
“The issues confronting corporate management and board directors at public companies are more complex than ever before, and it is critical that executive leaders are prepared to address them during upcoming shareholder meetings,” said Amy Rojik, National Assurance Partner and Director of BDO’s Center for Corporate Governance and Financial Reporting. “Although innovation is the name of the game, leaders should be aware that a lack of a preventative strategy around risks and the wrong tenor at the top can damage the reputations of even the most innovative businesses.”
BDO has compiled the following priority issues that corporate management and boards of directors should be prepared to address in 2019 shareholder meetings:
- Sustainability Reporting Shaping Decision-Making — In addition to traditional financial reporting and disclosures, more companies are turning to non-financial “sustainability” reporting out of the perceived need to provide additional information about how companies are managing environmental, social, and human capitals, as well as corporate governance, to enhance a decision maker’s understanding of the company’s material risks and long-term value proposition.
- Leadership Diversity Dominates the Agenda — Gender diversity in both senior management positions and among board directors has a notably positive effect on company performance. According to BDO’s 2018 Board Survey, nearly one-fifth (19 percent) of directors believe their board has room to grow on this measure, and only one-third said their board uses formal diversity reviews to address the topic. This topic continues to be at the forefront, fueled by proxy advisory firms through policy updates, regulators through legislation like the California Senate Bill 826, and by shareholders through annual “CEO” letters and the shareholder proposal process relative to board slates. Boards and management need to be able to clearly demonstrate and articulate how their organizations are assessing and addressing leadership diversity.
- Data Protection and Cybersecurity Puts Reputations at Stake — Cyberattacks, increasing in frequency and in sophistication, continue to undermine public trust in business. Shareholders have brought cybersecurity class actions alleging violations of the federal securities laws, along with derivative suits alleging companies’ boards of directors failed to take adequate steps to prevent cyber incidents. As emphasis on cybersecurity concerns escalates, so does the interest in protecting large amounts of data being generated and maintained in today’s business environment.
- Digital Transformation is a Priority — Having a digital transformation strategy is no longer optional; it is necessary for survival in today’s digital economy. Shareholders may question how much is being spent on digital transformation, who is leading the strategy, what the return on investment is and how the organization compares to its peers.
- Corporate Culture Drives Company Values — Examples of executive misconduct abound. The #MeToo activist movement continues to make an impact in the boardroom against the backdrop of high-profile firings. Rigorous board oversight, zero tolerance for misconduct and transparency are the best ways to assuage investor concerns. That tone should start from the top of the organization and extend throughout the company with clear consequences for bad behavior.
- Executive Compensation Still in Sharp Focus — Executive pay remains a target for many activist shareholders, and scrutiny is unlikely to relent. Public sentiment has shifted from skepticism to outright hostility for those organizations that are deemed to offer excessive pay that does not appear to align with the organization’s performance.
- Preparing for the Future of Talent — Creating and achieving human capital strategies has become significantly more complex due to a variety of shifting societal-, economic- and technology-driven factors. Shareholders are keenly aware of today’s talent-related risks and expect the board to have strong oversight in change management. While automation of manual, repetitive work is generally viewed favorably by shareholders, it hastens the need for more advanced technological and analytical employee skill sets.
- Geopolitical and Market Climate Rife with Uncertainty — Amid one of the longest bull markets in history, many analysts are quite certain a downturn is on the horizon and it is just a matter of how soon it will occur. Shareholders will undoubtedly have questions about how companies are planning for a slowdown in economic growth and the strategy for recession-proofing the business. Tariff and trade embattlement are further disrupting supply chains and may lead to questions as to how companies are “stress-testing” their current business models.
- Heated M&A Environment — Despite concerns around an impending dip in the economy, reductions to the corporate tax rate and tax on repatriation of foreign earnings are providing businesses with motivation to pursue mergers and acquisitions (M&A) in 2019. In 2018, deal volume declined slightly, but deal value grew due to mega-deals across numerous industries. Shareholders will want to know if M&A is a potential avenue for growth and how market volatility and a company’s ability to perform adequate due diligence and integration may impact plans.
- Tackling Tax Reform and Tracking Total Tax Liability — Tax reform continues to be the springboard for organizations to take a hard look at their tax exposures and opportunities. For board members, understanding a company’s total tax liability — the sum amount of all taxes owed at the international, federal, state and local levels — is critical to effective financial oversight and strategic decision-making. Given the significant U.S. tax law changes and the growing complexity of global tax regimes, seemingly small changes in corporate strategy can have meaningful consequences on a company’s total tax liabilities across jurisdictions.
- New Reporting Standards — Boards and corporate management must be well acquainted with new regulations and accounting standards, including Revenue Recognition, Lease Accounting and Current Expected Credit Loss (CECL), in order to anticipate their impact on their companies’ policies, reporting requirements and organizational systems and controls. Shareholders may be looking to understand the changes in reporting that new standards require and how this is reflected within the overall financial picture that companies are sharing publicly.
For the complete report and additional resources, please see BDO’s 2019 Shareholder Meeting Agenda.
About BDO USA
BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, and advisory services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 650 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of over 80,000 people working out of 1,591 offices across 162 countries.
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