Tax Cuts Impacting Board Decisions: Survey

A survey from BDO said corporate directors are reevaluating launching new businesses as they conduct reviews of their firms' total tax liabilities.
William SprouseSeptember 12, 2018
Tax Cuts Impacting Board Decisions: Survey

Last year’s U.S. corporate tax cuts are prompting corporate directors to reconsider launching new businesses and as they conduct more comprehensive reviews of their companies’ total tax liabilities, according to an annual survey from the BDO Center for Corporate Governance and Financial Reporting.

The study found 61% of surveyed public company board members said the 2017 tax cuts had a favorable impact on their companies, while 39% said they had no impact. Last year, 94% said they anticipated that the tax law changes would favorably impact their businesses.

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While nearly two-thirds of directors (64%) said they have made no changes to their business strategy due to the Tax Cuts and Jobs Act, 17% of respondents reported reinvesting increased capital into their businesses. In addition, 14% said their companies increased wages, and 11% said they pursued a merger or acquisition.

“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 businesses’ total tax liabilities,” Amy Rojik, assurance partner and director at the center, said.

board decisionsMatthew Becker, a managing partner at BDO, said that “… understanding where tax costs arise across the entire business and developing strategies to minimize their impact on the bottom line” were the next great challenges for companies and boards of directors.  “Leading businesses will consider tax from a holistic perspective and use data-driven insights to develop comprehensive tax solutions,” he added.

Besides tax, non-GAAP financial reporting measures, board composition and diversity, and information governance were also top-of-mind issues for many directors this year.

On non-GAAP metrics, more than three-quarters (76%) of corporate board directors said they do not believe additional guidance from regulators on non-GAAP and other KPIs in their financial statements is necessary. However, a majority (54%) indicated that higher investor confidence in non-GAAP metrics could be promoted by the involvement of auditors.

Many corporate directors also indicated that their companies were being proactive in tackling the issues of board diversity and expertise.

About 81% of directors said their boards were addressing the diversity issue, with 33% indicating their companies use diversity reviews to ensure the board’s composition better reflects the gender, age, and racial mix of the company’s audience. On the other hand, nearly one-fifth (19%) of directors said their boards had room to grow on the diversity issue.

Meanwhile, the survey results showed that the concern with sustainability disclosures may be ending up on the back burner. While institutional investors and asset managers are still pushing for greater board accountability on sustainability metrics, 74% of directors did not believe that disclosures regarding sustainability matters were important to understanding a company’s business and helping investors make informed investment and voting decisions.

BDO surveyed 140 corporate directors of public companies in July and August 2018.

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