Plotting Paths Through Controversial Issues & Trade Tumult

October 2019


Plotting Paths Through Controversial Issues


As boards of directors and management teams begin discussions on 2020 business strategy and risks, there is no shortage of key issues to tackle.
 
Chief among them: the economy. After an extended bull market, more and more economic indicators and analysts signal that a downturn may be ahead. Meanwhile, the economy has been impacted by significant market volatility surrounding trade negotiations and policy changes.
 
Boards are also addressing changing political and cultural dynamics. While Brexit and the 2020 U.S. election are rarely noted as the most discussed items in the boardroom, roughly one in ten board members report that their company has taken proactive steps to address the potential impacts. Separately, disclosure of sustainability and corporate stewardship is an increasing focus for boards, with almost one in four taking action to address growing and evolving demands from stakeholders for proactive corporate responsibility.
 
The Business Roundtable, which represents CEOs of leading U.S. companies, recently posited that the purpose of a company is to serve the needs of its customers, employees and communities, in addition to maximizing profit for shareholders. While this announcement was met with some skepticism, we are seeing more high-profile companies take a leadership position on key cultural issues—from the environment to equality to privacy—and others suffer consequences when their brand’s stated purpose is misaligned with their actions. With Axios recently calling top CEOs the nation’s “new politicians,” boards will need to consider the role of directors amid shifting governance definitions.
 
Considering broader stakeholders is also a part of many companies’ workforce strategies. As Millennials and Generation Zers become more influential in the workforce and as investors, companies are working to meet their needs, and that increasingly includes ensuring the organization’s policies and practices are sensitive to changing business dynamics and societal pressures. In a competitive job market, executing a strategy to source new and retain top talent is a top priority for 40% of board directors.
 
“To describe 2019 as a turbulent year for companies would be an understatement. Now, more than ever, public company board members are providing a steady hand through strategic direction, oversight and risk management—making them an essential voice when planning for issues from digital disruption to market volatility.”

Professional headshot of Amy RojikAMY ROJIK
BDO USA’s National Assurance Partner - Communications and Governance
 

Chart of top issues discussed in the boardroom & actions taken to address them
 
 

Trade Tumult

 
The “will they or won’t they” and then “how much” discussion around tariffs with China and Mexico over the past year has made trade a hot potato in the news and a hot button for companies. Nearly half of directors (48 percent) report a high or moderate impact to their organizations from trade tensions, representing the pressures that companies across nearly all sectors are facing.
 
Chart of impact of trade tensions
 
To address the impact of trade tensions on their businesses, almost one-third of directors (30%) report discussing trade tensions as a regular agenda item at board meetings, and 29% say their company has been proactively considering other countries for sourcing. Nineteen percent of directors have studied the direct and indirect impact of current and potential tariffs.
 
While businesses have taken a reactive approach to tariffs in the past, more proactive planning will be essential for the coming year, as the 2020 election is likely to create additional turbulence around the issue. Boards should ensure that management is taking into account the companies’ total tariff liability as they work to develop their customs and international trade strategy and risk mitigation plan for 2020.

Chart of actions taken on trade

 
 
“Trade policy in 2019 has brought more questions than answers, and companies are understandably concerned about the volatility of expenses and tax exposures. Boards are right to prioritize this issue and keep an open mind about potential actions to mitigate exposure and risk. Trade issues in 2020, a U.S. presidential election year, promise to be just as tumultuous as 2019, if not more so.”

Professional headshot of Damon V. PikeDAMON V. PIKE
BDO USA’s Customs & International Trade Services Leader