Cyberattacks, fraud in foreign markets, global economic conditions, M&A plans and the sequester are among the topics that are expected to dominate the discussion at shareholder annual meetings this year, according to a survey by accounting firm BDO USA.
As the annual meeting season begins, shareholders are likely to focus on both opportunities and threats, with the record highs in the stock market fueling hopes for a rebound in the U.S. economy. However, with the budget sequester in Washington putting a crimp in government spending and continued economic uncertainty in Europe and China, investors are also facing a number of potential concerns.
The uncertain climate should make for an especially challenging annual meeting season this spring. BDO USA has compiled the following list of topics that corporate management and boards of directors should be prepared to address during their annual meetings this year:
• Global Economic Concerns: Investors have become well educated on how inter-related the world's economies have become, and now closely follow the economic health of Europe and China. Sovereign debt holders or any companies with exposure (facilities or sales operations) in Southern Europe or China need to be prepared for worst case scenarios. Shareholders will ask about contingency plans the company has in place should there be a major collapse.
• FCPA Risk: As the BRIC nations of Brazil, Russia, India and China become the prime markets for global expansion and the United States steps-up enforcement of the Foreign Corrupt Practices Act, businesses increasingly need to focus on the threat of corruption and bribery in foreign markets. Major corporations - including Wal-Mart and Avon - have recently disclosed spending hundreds of millions of dollars in FCPA-related multinational investigations. Boards should be prepared to address questions on whether management has put controls in place to protect the business from these types of losses.
• Cyberattacks: Every day brings new media reports of cyber attacks against American corporations and government agencies. The proliferation of these attacks on businesses suggest that many companies are less adept at managing cyberthreats as they are at handling risk in other areas. Weaknesses in networks and data security can expose businesses to significant losses in brand and market value. Shareholders may want to know how the company is taking a proactive and preemptive approach to cybersecurity.
• Social Media: Social media brings both opportunity and risk. Shareholders will want to know whether management is focused on both. Does the company have a proper strategy for engaging customers, employees, recruits, business partners and other stakeholders via social media? How is the company measuring the ROI of its investments in this medium? Does the business have controls in place to ensure that proprietary knowledge or "inside information" is not accidentally leaked via corporate blogs or Twitter initiatives? Is the company equipped with a rapid response strategy for mitigating bad news that goes viral on the web?
• Sequestration Impacts: Shareholders of any businesses that deal with the government (defense contractors, aerospace manufacturers, healthcare providers, non-profits and others) will want to know what impact the Sequester is likely to have on the company. What are the likely scenarios depending how long the sequester lasts and what contingency plans have been put in place?
• M&A Due Diligence/Contingency Planning: Merger and acquisition activity is at the top of many board agendas in 2013. Given the widely publicized controversy surrounding Hewlett-Packard's purchase of Autonomy and the subsequent $8.8 billion charge HP took due to alleged accounting improprieties at the newly acquired unit, shareholders will want assurances from management that any potential acquisitions will be properly vetted prior to pulling the trigger on a deal. By the same token, boards may also be asked whether the company has contingency takeover defenses in place to enable them to respond quickly to fend off attacks or maximize shareholder value should they be the target of a transaction.
• Going Private: Perhaps the ultimate takeover defense is taking a company private. In recent weeks, Dell Computer has confirmed plans to take the company private, while retailers such as Best Buy and Barnes & Noble have been rumored to be considering similar strategies. Any company dealing with a depressed share price, should be prepared to respond to questions on whether management has considered taking the business private and, if so, what share price they would seek to achieve.
• Executive Compensation: Criticism of executive compensation structures, levels of compensation and excessive perquisites has led to equity focused compensation models at public companies and increased communication with shareholders on the benefits of these programs. The advent of annual "say-on-pay" votes beginning in 2011 seems to confirm that shareholders approve of this shift as very few companies failed to receive shareholder endorsements of their compensation programs. However, given the egalitarian nature of today's executive compensation models, shareholders may want to know if the company's current program is sufficient to attract and retain the best and brightest executives and is consistent with the company's strategic plan.
• Health care: Is the company prepared for the new healthcare law taking effect in 2014? In preparing for the law, is management considering the big picture, and not just finances, in making decisions that will impact the company's image and performance?
• Rethinking Outsourcing: As the lower class moves into the middle class in Asia-Pacific countries, wages are increasing and businesses that outsourced to these countries are losing their competitive advantage. Considering the available workforce in the United States, shareholders may want management to consider bringing back previously outsourced services.
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