Tax Reform, Cybersecurity, Board Refreshment and Executive Misconduct Among Top Issues at 2018 Shareholder Meetings
A return of volatility to the stock market, executive misconduct, seemingly endless reports of cyber breaches, global economic concerns, demands for transparency, and historic changes brought about by the new tax law are just a few of the topics being discussed in corporate board rooms around the country. These issues and many more will make for an intriguing annual meeting season this Spring.
* Tax Reform. The new tax law is having far-reaching impact on tax reporting/planning and financial statement reporting. The lower corporate tax rate increases the competitiveness of doing business in the
* M&A Opportunities. The reductions to the corporate tax rate and tax on repatriation of foreign earnings are expected to provide businesses with more funds to pursue mergers and acquisitions in 2018. Shareholders will want to know if management is seeking out both:
* sell side opportunities to dispose of assets that no longer align with corporate goals but could yield favorable returns.
* buy side opportunities that can enhance strategic growth. Boards should ensure that potential acquisitions are properly vetted, and that management has sound integration policies in place to assimilate target businesses into a corporate culture supported by strong governance.
* Global Economic Concerns. Last week,
* Cybersecurity.
* Critically assessing cyber-breach response plans to mitigate damage from attacks.
* Emphasizing the need to report breaches in a timely fashion. Companies are taking too long to report incidents. The
* Vetting management reports on any cyber-breaches with external experts to ensure the company is getting the best advice.
* Establishing cyber-risk management requirements for third-party vendors - a major source of cyber-attacks.
* Sharing information from cyber-breaches with external entities. The 2017
* Executive Misconduct.
* Board Refreshment/Diversity. A year ago, the
* Tenure Limits. Continuity is a valuable asset to any board, but it can also be a clear detriment to independence. Moreover, when you have directors serving for 20 odd years, it is difficult to refresh and tackle challenges like diversity in a timely fashion. Tenure limits and mandatory retirement ages can be useful tools to gracefully move directors out the door.
* Skill Sets Reviews. Defining a matrix of notable gaps in skills required in the coming years can sometimes help boards focus on which directors may have overstayed their welcome.
* Limits on Board Seats. According to the
* Composition Reviews. Timely reviews as to the adequacy of board composition through the lens of diversification and independence, can be a powerful tool for a board in carrying out its oversight responsibilities. Good business sense encourages boards to bring in new members to better reflect the gender, age and racial mix of their customers.
* New GAAP. Public companies are currently dealing with the most historic accounting changes in decades. New accounting standards for revenue recognition (ASC 606/ IFRS 15), effective for 2018 reporting cycles, followed by lease accounting (ASC 842/ IFRS 16), and credit loss and financial instrument standards (ASC 326 & 825 / IFRS 9 ), will each have a major impact on financial statements and profitability. Management, with board oversight, needs to communicate transparently with shareholders and other stakeholders at to how these changes will impact financial statements.
* Sustainability. Shareholder proposals on environmental and social issues have taken on new significance and boards should be prepared to listen. Last year, close to two-thirds of
* Deregulation. The Trump administration has made deregulation one of the pillars of its agenda. According to the Unified Regulatory and Deregulatory Agenda published by the
* CEO/Median Employee Pay Ratio. The new
If you would like to discuss these topics further with a
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