Transformation Prompts Boards to Examine Tax Strategy, Diversity and Metrics

Chicago, IL – Recent tax law changes affecting public companies are leading corporate board directors to reevaluate launching new business initiatives as they develop a more comprehensive evaluation of their firms’ total tax liability, according to BDO USA, LLP’s 2018 Board Survey . The survey results, released today, highlight the ways in which ongoing tax reform and technological changes are impacting corporate strategy and key performance indicators (KPIs), while corporate directors navigate myriad disruptive changes in business models.
“This year’s BDO Board Survey shows that public company board directors see recent tax law changes as positively impacting their companies, but many are taking a ‘wait and see’ approach to launching new business initiatives, as they look to develop a more thorough understanding of their business’ total tax liability,” said Amy Rojik, assurance partner and director of BDO’s Center for Corporate Governance and Financial Reporting. “Tax reform is just one of the many significant areas of focus for corporate directors, as non-GAAP financial measures, board composition and diversity, sustainability, and information governance continue to be top of mind as well.”
The survey, which is conducted annually through the BDO Center for Corporate Governance and Financial Reporting, measures the opinion of public company directors regarding timely and relevant corporate governance and financial reporting issues. Survey participants provided their insights on how boards are managing regulatory uncertainty and significant tax law changes, including placing a greater emphasis on holistic tax planning. Most directors indicated that their boards are proactively addressing intense scrutiny of board diversity and composition, more so than last year.
Tax Reform
The Tax Cuts and Jobs Act of 2017 initiated the most significant changes to U.S. tax laws in a generation. In the survey, public company board members identified how their companies have been affected:

  • A majority (61 percent) of public company board members note a favorable impact, while 39 percent say the tax law changes had no impact at all on their business. That’s in contrast to the optimism shown last year, when an overwhelming majority (94 percent) of public company board members anticipated that changes to the tax law would have a favorable impact on their business.

  • While nearly two-thirds (64 percent) of directors report making no changes to their business strategy yet due to tax reform, others report reinvesting increased capital into their business (17 percent), boosting employee wages (14 percent), and pursuing a merger or acquisition (11 percent).

Total Tax Liability
Having a complete picture of a company’s total tax liability, including consideration of varying tax dynamics, is critical for public company board members. Only 44 percent indicate a strong understanding of their organization’s total tax liability and how it impacts the company’s tax strategy.
Matthew Becker, National Tax Managing Partner at BDO USA, stated, “While tax reform continues to make headlines in the U.S., it’s just one part of a complex set of tax issues facing businesses across all industries. Getting a grasp on total tax liability is the next great challenge and opportunity for many companies—understanding where tax costs arise across the entire business and developing strategies to minimize their impact on the bottom line. Leading businesses will consider tax from a holistic perspective and use data-driven insights to develop comprehensive tax solutions.”
Non-GAAP Measures & KPIs
As public company business models shift in response to technological changes, organizations are seeking additional ways to provide insights into operations, financial position and liquidity—beyond what is required by statute. Many companies have turned to non-GAAP financial measures, such as “adjusted EPS” and “community-adjusted EBITDA,” to showcase these results.

  • More than three-quarters (76 percent) of corporate board directors say they do not believe additional guidance from regulators on non-GAAP and other KPIs in their financial statements is necessary.

  • However, when asked if auditor involvement would promote higher investor confidence in non-GAAP measures, a majority (54 percent) of public company directors say that it would.

Sustainability Reporting
Institutional investors and asset managers serving large and mid-market companies continue to push for greater board accountability and focus on sustainability metrics. While sustainability disclosures were a priority for public company board members in last year’s survey, this year’s results indicate the focus on sustainability has perhaps temporarily been put on the back-burner. 74 percent of public company board directors surveyed do not believe that disclosures regarding sustainability matters are important to understanding a company’s business and helping investors make informed investment and voting decisions. However, as the pace of change and availability of instant data continues to drive toward a more globally conscious economy, companies may feel increased pressure to publicly address accountability as to what they are doing to promote good environmental, social and corporate governance (ESG) practices within their organizations.
Diversity & Service Limits
With the backdrop of a rapidly evolving business world and the SEC considering the current state of disclosures on diversity, board composition and appropriate skill set mix is increasingly becoming more important to the health of an organization.

  • Bearing this in mind, when asked if their board was addressing the issue of board diversity, more than 8-in-10 (81 percent) directors said yes, an increase from 2017, when only 66 percent of respondents said the same.

  • Nearly one-fifth (19 percent) of directors believe their board has room to grow on this measure.

  • To encourage board refreshment and address the issue of board composition, 76 percent of companies surveyed use skill set reviews to ensure director expertise remains relevant, and one-third (33 percent) use diversity reviews to better reflect the gender, age and racial mix of the company’s audience. Twenty-eight percent utilize limitations on the number of boards directors may serve on, while 14 percent place tenure limits on director service.

About the BDO Board Survey
Conducted in July and August 2018, this year’s survey examines the opinions of 140 corporate directors of public company boards. BDO USA’s Corporate Governance Practice is a valued business advisor to corporate boards. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on myriad accounting, tax, risk management and forensic investigation issues.
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 550 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 73,800 people working out of 1,500 offices across 162 countries.
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