BDO in the Boardroom

Key Takeaways and Tax Planning Points:Enacted as part of the Inflation Reduction Act (IRA), corporations are now subject to a 15% minimum tax on book income of $1 billion or more. The IRA also provided $80 billion of funding for IRS – with $46 billion earmarked specifically for enforcement. Enacted as part of the 2023 Omnibus Appropriations legislation, the SECURE Act of 2022 contains a host of retirement provisions such as changes to 401k, IRS, Roth, and other plan rules. While the current Administration’s “Green Book” on tax policy has not yet been released, a few tax proposals were discussed during the February 2023 State of the Union Address: Establishment of a new increase from a 1% excise tax on stock buybacks (enacted August 2022) to 4% excise tax Establishment of a new “billionaires” tax – households with net wealth exceeding $100 million would pay a minimum rate of 20% on an expanded computation of income, which would include unrealized capital gains. Reaffirmation by President Biden that the government would not raise taxes on anyone earning under $400,000/year. As Congress is split politically, it remains difficult for meaningful new tax legislation to make it through both houses and clear the President’s desk in the near term.Resources: Navigating the Intersection of Tax & ESG Is Your Company Effectively Managing Tax Risk?How to Benefit from Total Tax Transparency

Key Takeaways:The discipline of modern governance today is really in a global realm – can no longer be thought of in simply local or regional terms.Governance should be viewed as a discipline and thus, your individual board “packaging” is critical to you being identified as a serious board candidate.Board Documents are not comprised of a resume or CV but rather are highly structured and specific tools and should be reflective of your core leadership traits, your “major” and “minors” with respect to the depth of your experience and your governance skills and how these link ethics, values, and culture to strategy and risk oversight. The time and energy put into crafting Board Documents is an important exercise for your board journey.The Board interview is a two-way dialogues and vetting process that allows: (1) the company to understand how well you understand the particular linkage of values, culture, risk and strategy to governance and (2) specifically, how well you will fit into the board and whether your depth and experience will enable you to be accretive to the board’s operations. Don’t be afraid to ask thoughtful questions and be intentional in developing linkage between yourself and the board dynamics. Resources: Becoming an Exceptional Board Director Candidate Education & Certification CourseAcross the Board: The Modern Architecture Behind an Effective Board of Directors

Key Takeaways:Be mindful of identifying material impacts of climate risk and whether you are satisfying current disclosure requirementsDon’t be lulled into complacency or the belief that mid-term elections may derail final rule-makingReview carefully current financial risk disclosures in line with other information being disclosed by the company Consider the resources you will need to implement expanded disclosures and leverage advisors to help you navigate the complexities of climate-related disclosures Remain abreast of developments – not only I the U.S. but globally, particular if your organization has significant international operationsResources:SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for InvestorsThe Enhancement and Standardization of Climate-Related Disclosures for Investors – SEC Comment Letter

Key Takeaways:As with any insurance, directors and officers need to have a clear understanding of the purpose of D&O insurance and what it is designed to cover and what is not included – e.g., deliberate fraud, criminal acts, and uninsurable fines and penalties as well as other exclusions or limitations including thresholds for triggering coverage.The velocity, volatility, and interconnectedness of risk evolves over time even though D&O policies are typically written for one year terms. Does your company have a framework for evaluating risk, risk tolerance, and risk mitigation in the longer term?It’s not uncommon for companies –particularly when in an early stage - to make concessions on the amount or scope of coverage in order to manage pricing. But it’s important that those decisions are anchored in an awareness of the external and internal risk landscape, and contemplate future strategic and financial objectives for the company. Traditionally, most securities class actions involve financial misrepresentations, but boards should be aware that in the past several years there has seen a significant increase in ‘event driven’ securities litigation. These claims can often be classified as “ESG-related events” given the broadness of the category.

Key Takeaways: Shareholder proposal trends to anticipate continuing into 2023: Increasing shareholder proposals – made easier by prior years’ SEC regulations allowing more access for shareholders Certain commitments made by companies in previous periods (e.g., racial equity audits, DEI and other social aspects) likely to be scrutinized by shareholders, reflective of societal concernsIndividual directors expected to be held accountable on a variety of issues (e.g., lack of movement on commitments made previously, over boarding of directors, etc.) through ‘no’ votes for re-election Prepare your investor engagement strategy on a “clear day” (advanced warning system before issues arise), based on stage and profile of company, to take in information from investors to inform the strategyEstablishing a robust board evaluation and refreshment process will allow companies to both satisfy changing needs of the company AND more easily “comply with or explain” via increasing disclosure expectations for how board composition is determined and why this composition makes sense for the company.Beware of ESG “fatigue” - Don’t allow yourself to get side-tracked by confusion over timing/content of regulatory direction. Boards need to look critically at, and articulate, the material ESG factors impacting their companies and how these are managed with respect to ERM and strategy.

Key Takeaways:Data protection, which encompasses data governance, data privacy and cybersecurity, should be considered as part of the board’s oversight of risk and strategyThe board’s responsibilities related to data protection include identifying director(s) or advisor(s) with the appropriate skills and experience, stating explicit accountability within the board, keeping management accountable and ensuring compliance with laws and regulations. Board best practices in their oversight of data protection include good data governance hygiene, frequent and robust communications, expertise, and continuing education. Resources:The Board’s Role in Data Protection (practice aid)Board Oversight of Cybersecurity (publication and resources)BDO Digital 2022 Cybersecurity Month ResourcesBDO Digital Governance, Risk & Compliance

Key TakeawaysFlexibility is dynamic way of operating business across workplaces, spaces and time with strategic coordinated intention to achieve high levels of performance and engagement.Lead with the what (not the where): Flexibility is about organizing around the work itself and how, when and where it happens best, no longer around the workplace.Boards and management teams, who have already instilled strong core values and a culture of innovation, experience fewer challenges in executing flexibility strategies.Not simply a human resource policy: A flexibility strategy requires the mind shift from “I” to “we” – requiring a framework that includes full leadership buy-in, organization-wide training, communication and the permission to experiment and innovate.

Key Takeaways:Each change to a business represents new strategic opportunities, but those changes also present new potential risk of and to the corporate strategy. Boards need to understand how the executive team approaches risk informed decision making to assess effectiveness. Streamlining and optimizing risk management require proper structure, process, and timing of risk assessment and mitigation activities and programs (e.g., insurance, internal audit, product recall, business continuity, cybersecurity, etc.) Corporate culture should include enterprise-wide risk awareness to consistently identify and address emerging and rapidly evolving risks (e.g., COVID, Russia, etc.). Macroeconomic trends in risk management should be part of regular dialogue with the executive team and include consideration of bringing in leading experts to educate and advise in particular areas of risk.Directors should challenge organizations to make appropriate investments in risk management while building incentives for managing rapidly evolving risks.

Key Takeaways:Audit committees can ensure smooth ICFR implementation by encouraging early planning, helping secure adequate resources, being familiar with management’s process to identify risks and management’s processes and controls in place to manage those risks.Boards should be particularly focused on controls addressing areas of the business that are inherently higher risk.IT systems are critical and thorough evaluations of the IT environment and the IT general controls should be done early to avoid the late detection of control flaws over systems and relevant data that may have pervasive impacts on the effectiveness of the entire internal control environment.Depending on the severity of any deficiencies, the board should understand the root cause of the deficiency and what management’s plans are to remediate; and further, hold management accountable to their remediation plans.Board should ensure that the control environment is continually reviewed and that management takes into account, among other things, changes in risks, policies and procedures that may require enhancements to the controls environment.

Key Takeaways:Today’s organizations are being called to contribute positively as part of the greater ecosystem, which is compelling directors to embrace the role of change catalysts and “intraprenuers.”People, as our greatest assets, need board directors to oversee the creation of work environments that value employees to allow them to ‘bring their whole selves to work.”Assembling a board composition strategy today needs to begin with a robust review of the skills matrix to ensure attributes such as curiosity, digital savviness and enterprise risk management, among others, are part of the consideration of current and future directors.