Everything from the new Tax Act to the”#Metoo” movement to changes in compensation for public companies to the rapidly developing focus on sustainability will create new and significant agenda items in 2018 for corporate boards and their committees.
An expert panel convened in Boston on January 9 by the New England Chapter of the National Association of Corporate Directors outlined anticipated areas of intensified board focus:
What does that Tax Act mean for your company? What disclosures must you make if you are public? What impact will the Tax Act have on your underlying business and profitability? On your financial statements in terms of both content and format? How will the Tax Act affect your earnings guidance, so as to avoid surprising the Market?
For public companies, the Tax Act repeals the Safe Harbor in Section 162(m) of the Code, which permits public companies to deduct senior executive compensation above one million dollars a year only if such compensation is “performance-based.” (Private companies can continue to take such deductions without regard to whether or not compensation in excess of one million dollars is performance-based.) This change for public companies will likely drive alterations in compensation schemes, but may also be liberating for compensation committees, which now can fix compensation based on changing company-specific metrics without suffering variances in tax treatment. Attention must also be given to how the compensation changes are reported in the publicly filed CD&A.
Culture may be elusive to define. Cultural tone may be set at the top. “Culture” is a very broad concept, hard to understand and yet the Board is responsible for making sure that the “right culture” obtains. Part of the “culture” issue has to do with sexual harassment. But part of it has to do with sensitivity to sustainability (for more on sustainability, see below). Corporate culture has ramifications not only in the price of your shares, but also resonates in the hiring (or non-hiring) of desired millennials, and may affect the acceptability of your products and services in the consumer marketplace.
Sustainability, part of the growingly popular acronym “ESG” (Environmental, Social and Governance factors), is of importance to a variety of constituencies. It is of great interest to professional shareholders which are, more and more, studying sustainability in making investments. (One audience member challenged this general comment by suggesting that private equity acquisition firms are at present not focused on sustainability). One speaker suggested that companies should have a separate “sustainability committee.” Such committee might focus on a variety of functions: internal training (citing the Equifax hack), proxy transparency particularly with respect to climate matters, and (for private companies) addressing “sustainability” so that public companies to which they sell products and services can advise their own constituencies that their own sustainability programs apply not only to internal matters but also to their vendors and business partners.
A final word about environmental issues; there was tacit consensus that the environmental aspects of ESG will continue to be a major focus, and it “doesn’t depend on who is in the White House.”