The 2019 BDO Board Survey, conducted by Market Measurement, Inc., an independent market research consulting firm on behalf of the Corporate Governance Practice of BDO USA, examined the opinions of 180 corporate directors of public company boards.
Respondents represent a distribution of organizations across industries and market value, from less than $200M to more than $10B.
Re: impact of the Tax Cuts and Jobs Act (TCJA), approx. 47% of the respondents were affected by the reduced Federal tax rate, although less than 20% were impacted by tax losses, foreign earnings impact or interest expense limitations. This is very surprising with the TCJA GILTI provisions.
Almost two-thirds of directors (65%) report a high or moderate understanding of their company’s total tax liability.
Page 7 of the report is interesting, as it illustrates actions pursued as a result of tax reform. These actions include MA&A, stock buy-backs, increased dividends and repatriation of cash to the US.
This informative study by Accenture is based on a survey of 446 organizations, with the phrase “Action is not optional” as a key driver for its insights.
The value of this study is initially revealed in the Contents, including the following topics:
Current market pressures
Becoming a high-performance risk organization
Risk management talent
Four things to do differently:
Treat risk management as a people game
Look ahead, as new risks are relentless
Manage compliance through a transformational lens
Focus on insight, not just data and analytics
Key excerpts from the study:
It is easy to say what the risks are, but if you do not have the instruments to see them or hear them coming, that is a problem.
96% of risk management owners now report directly to the CEO.
“Risk Masters” are organizations with highly developed risk capabilities, likely to have a CRO, active Board involvement, adequate resources and budgets, integration of risk management in strategic decision-making, focus on strategic and emerging risk, talented staff and training programs and are ahead of the curve in using risk analytics.
Weighted priority on compliance requirements ahead of business value and newer hazards.
Risk management ownership is an executive board-level position, moving from the CFO to the CRO and CEO.
The goal is to infuse risk management comprehensively into business processes.
The least developed risk capability is risk organization and governance.
HIgh-performance risk management organizations have a people strategy of identifying, training and rewarding risk management talent.
Focusing on the “next war” may require a strategic plan for the risk management function, an integrated approach and direct involvement of senior management.
All Multinationals should have a prioritized objective for global risk management, and this study is instrumental in developing “Risk Masters” capabilities.
Two excellent articles are linked to review Best Practices for tax risk management from a Board perspective. The first article is by the Canadian Chartered Professional Accountants and poses various questions and concepts for Directors to ask. The second article, approached from a practitioners point of view, was written by a KPMG partner. A related article is also attached as reference at the end of this posting.
The first article reviews various tax risks, including risks of tax planning and subsequent implementation, financial disclosures, tax compliance and audits. Examples of interesting insights and questions include the following:
Are outside consultants an integral part of tax planning?
Are direct, and indirect, tax risks addressed?
What are the capabilities of internal resources?
Are post implementation monitoring processes in place?
What are the trends of tax authorities in major jurisdictions?
How does the company keep up with change?
Is reputational risk considered in tax appeals or court filings?
What is the mindset of internal management in foreign jurisdictions re: alignment of overall strategies?
What are the source of tax planning ideas?
Have tax saving opportunities been missed?
The second article entitled “Tax Risk Management and Board Responsibility” defines a tax philosophy and establishment of a Tax Risk Framework. A tax philosophy pyramid is presented that correlates to tax risk. In addition, the following components of a Tax Risk Management Strategy are discussed:
Tax profile, relationships and communication
Processes and technology
Internal qualifications of tax staff
Both articles are excellent reading, and should form a basis for Best Practices to ensure alignment with Board responsibilities and expectations.