Tax law changes making uncertain impact on companies

Public companies are taking a cautious approach before making extensive changes in business strategy after receiving steep corporate tax cuts, according to a new survey of corporate board members by BDO USA.

The survey found a 61 percent majority of public company board members note a favorable impact from the Tax Cuts and Jobs Act, while 39 percent say the tax law changes had no impact at all on their business. That’s lower than in last year’s survey, however, when an overwhelming majority of 94 percent of public company board members expected that the anticipated changes to the tax law would have a favorable impact on their business. The TCJA passed in Congress last December, but many companies are still undecided about what to do.

Nearly two-thirds (64 percent) of the board directors polled reported making no changes to their business strategy yet due to tax reform, but 17 percent said their companies are reinvesting more capital in their business, 14 percent are increasing employee wages, and 11 percent are pursuing a merger or acquisition. Only 44 percent of the board members polled indicate they have a strong understanding of their organization’s total tax liability and how it affects the company’s tax strategy.

BDO New York offices
BDO New York offices

“While tax reform continues to make headlines in the U.S., it’s just one part of a complex set of tax issues facing businesses across all industries,” said BDO USA national tax managing partner Matthew Becker in a statement. “Getting a grasp on total tax liability is the next great challenge and opportunity for many companies—understanding where tax costs arise across the entire business and developing strategies to minimize their impact on the bottom line. Leading businesses will consider tax from a holistic perspective and use data-driven insights to develop comprehensive tax solutions.”

BDO also asked the board members about the use of non-GAAP measures, which the Securities and Exchange Commission has been warning companies about using. More than three-quarters (76 percent) of the survey respondents said they don’t believe additional guidance from regulators on non-GAAP measures and other key performance indicators in their financial statements is necessary. However, when they were asked if auditor involvement would promote higher investor confidence in non-GAAP measures, a 54 percent majority of public company directors said it would.

While sustainability disclosures were a priority for the public company board members polled in last year’s survey, the focus on sustainability may have been put on the back-burner for now. This year 74 percent of the public company board directors surveyed indicated they don’t believe that disclosures on sustainability matters are important to understanding a company’s business and helping investors make informed investment and voting decisions.

The survey also asked about board diversity. When asked if their board was addressing the issue of board diversity, 81 percent of the board directors polled said yes, an increase from 2017, when only 66 percent of respondents indicated they were addressing the issue. In addition, 19 percent of the directors said their board has room to grow in terms of diversity. To address the issue of board composition and turnover, 76 percent of the public companies surveyed said they use skill set reviews to make sure director expertise remains relevant, while 33 percent use diversity reviews to better reflect the gender, age and racial mix of the company’s customers. Twenty-eight percent limit the number of boards on which directors can serve, while 14 percent impose tenure limits on director service.

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