Shareholders concerned about tax reform and non-GAAP metrics
Deregulation, new accounting standards and an overhaul of the corporate tax code are among the topics likely to come up during annual shareholder meetings this year, according to BDO USA.
BDO’s annual list of the top issues at shareholder meetings puts some of the Trump administration’s initiatives at the top of the heap this year.
BDO predicts shareholders will want to know from management if they are keeping track of how the potential changes can affect the bottom line and whether contingency plans have been drawn up to react to them. In the area of deregulation, for example, the Trump administration has moved to ease regulations, issuing a sweeping executive order that would require two regulations to be identified for elimination for every new regulation proposed.
Future SEC action on implementing certain rules from the Dodd-Frank Act of 2010 is also being questioned. Acting SEC chairman Michael Piwowar has requested companies to comment on the implementation challenges they face from the CEO pay ratio rule in the Dodd-Frank Act. Piwowar is also asking the SEC’s staff to review the Dodd-Frank Act’s conflict minerals rule.
The incoming SEC chair, Jay Clayton, is also expected to roll back Dodd-Frank corporate disclosure requirements and perhaps other regulations perceived as burdensome for small businesses. The changing regulatory landscape needs to be monitored closely in order to plan effectively.
On the tax reform front, the Trump administration is promising to roll out the most comprehensive overhaul of the tax code in over 30 years. House Republicans and the president want to reduce the corporate tax rate and taxes on investment income. They have also proposed a border adjustment tax on imported goods. BDO suggested businesses should stay informed about the proposals and be prepared to adjust their tax strategies to align with the final tax laws.
In the area of accounting standards, BDO noted that many public companies should already be preparing for the most historic accounting changes in decades. New accounting standards for revenue recognition, lease accounting and financial instruments will be taking effect in the next few years, and are expected to have a major impact on financial statements and profitability. The SEC is expecting increased disclosures from companies this year on the impact of these new standards. BDO suggested management, with board oversight, should communicate with shareholders, regulators and other stakeholders about the changes to avoid unpleasant surprises on their financial statements.
Non-GAAP financial measures could also come up during annual shareholder meetings. Last spring, with a growing majority of public companies using non-GAAP metrics in their financial statements, the SEC provided guidance on the appropriate use of them. When offering non-GAAP disclosures in financial statements, the SEC suggested management should communicate the reason for presenting the non-GAAP measure, make sure the information is not misleading or positioned as prominently as GAAP disclosures, and the non-GAAP metric should be applied consistently across reporting periods. The SEC is already bringing charges against companies for improper use of non-GAAP measures and sending comment letters to companies, so investors may be asking how the board is making sure management is following the SEC’s new guidance.
Other subjects expected to come up at annual shareholder meetings include the impact of the Trump administration’s trade policies, along with cybersecurity, whistleblower policies, virtual-only shareholder meetings, M&A opportunities, presidential tweets, global economic concerns and director expertise, diversity and time.