BDO in the Boardroom

Key Takeaways:AI can be viewed as a necessity for growth to drive both cost savings and revenue growth.Establishing a strong governance framework is crucial for managing risks associated with AI, such as data breaches and compliance with regulations like HIPAA and PCI.AI can be used both reactively to address immediate pain points and proactively to predict and optimize future business operations.While speed and scale are important, startups must ensure they do not compromise on compliance and governance, which are vital for sustainable growth.Developing an AI use policy is a best practice to guide internal and external applications of AI, ensuring responsible and effective usage.

Key Takeaways:    Have a clear understanding of entire supply chain – from where merchandise originates to where it is assembled or manufactured Gather and analyze transactional data to understand the financial impact of tariffs Review the customs triangle levers: tariff classification, country of origin, and value reported to customs Manage the tension between transfer pricing and customs valuation, as these both work in opposite directions Consider the long-term strategy of relocating manufacturing taking in factors such as: cost savings, labor rates, and potential free trade agreements Consider ethical sourcing and sustainability issues, such as compliance with forced labor prevention laws and environmental impact regulations Companies without in-house expertise to address complexity of global customs and trade issues may need to seek outside advisors with specialized knowledge to ensure informed strategic decision-making from both a legal and tax perspective Resources:      BDO Talks Tariffs: Your 30 Min Monthly Briefing Webcast SeriesCustoms & International Trade Services

Key Takeaways:Engaging with Stakeholders: Consider the importance of addressing every inbound inquiry, whether from activists, institutional investors, or shareholders. This involves methodical rigor and balanced engagement to understand and address the underlying concerns.Evaluating Board Performance: Allows for continuous evaluation of board performance, effectiveness, and skills. This includes assessing vulnerabilities and ensuring that the board is equipped to address current trends and macro-environmental impacts.Succession Planning: Nom/Gov committee plays a critical role in defining long-term succession objectives and plans and considering the viability of leadership in multiple levels of the organization for selection, retention, and refreshment/removal of the CEO, C-suite along with the “plus 1's and 2's (next level management) as well the board itself. This involves evaluating the needs of the organization and ensuring there are no critical skills gaps.Committee Structure and Allocation: Be accountable for reviewing and optimizing the allocation of responsibilities among all standing and potential other committees of the board. This includes considering rotations and refreshes based on a rationale thought process.5. Corporate Resilience, Culture, and Talent Management: Stress the importance of focusing on the futureproofing of the company by ensuring good due diligence, strong corporate culture, and effective talent management across the organization. This includes considering evolving and shifting regulatory, competitor, and M&A landscapes while integrating new technologies and understanding their impact on people and culture.

To prepare for potential continuation of and/or changes in tax regulations, boards should be taking a vigilant watch and see approach and monitoring respective timing, effective dates and expiration dates: Confer with management to review financial models – e.g., changes in tax rates, deductions, credits, and exclusions. Get regular updates on tax policy changes to anticipate potential impacts on international and global tax strategies. Weigh the more likely scenario that legislative activity taken may allow more permanent actions to extend expiring provisions under current tax laws. Understand the organization's tax risk management policies, focusing on compliance, reporting, and consulting to assess how changes in tax law or procedure could affect the company's risk profile. Consult with external tax advisors to stay abreast of tax policy changes and ensure coordination with the organization's internal tax team.

Key Takeaways:The SEC and DOJ are imposing record-breaking financial penalties to hold wrongdoers accountable for misconduct, while also offering credit to those who proactively self-monitor, self-report, and remediate misconduct.As highlighted by recent cases, internal investigation procedures and remedial actions are commonly cited as key factors related to the regulator's view of cooperation and the determination of reduced penalties. Boards must ensure the company has established protocols and resources to identify, investigate, discipline, and remediate violations of laws, regulations, or company policy. Conducting a timely and thorough internal investigation can demonstrate to regulators the Board's commitment to compliance, potentially helping to avoid or reduce penalties and support a healthy compliance culture. Where misconduct is identified, the board must determine suitable corrective measures and establish an action plan.Related Resources:Podcast: Audit Committee: Alleged Fraud, Now What?Archived Webinars: The Board's Oversight of Fraud

Key Takeaways and Tax Planning Points: To prepare for changes in tax regulations, boards should:Confer with management to review financial models – e.g., changes in tax rates, deductions, credits, and exclusions. Stay informed on tax policy changes and reviewing with management to understand realistic scenarios. Consider the possibility of a divided government scenario, which may result in sluggish legislative activity and short-term extenders for expiring provisions. Understand the organization's tax risk management policies, focusing on compliance, reporting, and consulting to assess how changes in tax law or procedure could affect the risk profile. Get regular updates on tax policy changes, especially after the election, to anticipate potential impacts on international and global tax strategies. Ensure that tax policy aligns with the firm's social policies, particularly in relation to ESG policies and tax credits promoting certain behaviors or investments. Consult with external tax advisors to stay abreast of tax policy changes and ensure coordination with the organization's internal tax team. Resources: 2024 BDO Tax Strategist Survey

Key Takeaways:GenAI can be used to enhance the efficiency and effectiveness in financial reporting and internal controls over financial reporting. Currently, GenAI can help with tasks such as drafting financial statement disclosures, summarizing key contract terms, categorizing expense transactions, and preparing travel and expense reports.However, GenAI is predictive technology that provides users with a probable response, so it's not going to be 100% accurate and requires human oversight, review, and judgment.Boards should consider the rigor of their GenAI-related governance policies for:- Responsible, ethical use- Expertise and training requirements- Data privacy and security requirements- Deployment, technology testing, and monitoring - Mitigating fraud, legal, regulatory and associated compliance risks Boards should engage in critical conversation with management about their decisions to use GenAI and how they are assessing related risks, including risk introduced by third parties, and the need for new/enhanced controls.Boards should also apply an appropriate risk framework. Asking the auditor how audit procedures are being adjusted to evaluate significant risks associated with use of data and the GenAI models in developing estimates, judgments and other information that has an impact financial reporting and disclosure. This would further include understanding technologies that the auditor may be using to perform their audits.Additional Resources:• CAQ Publication: Auditing in the Age of AI• CAQ Audit in Action: The Age of Generative AI: How the Profession Can Respond

Key Takeaways:Audit Committees should have a playbook when allegations of fraud arise. The Audit Committee's response level to a particular allegation will depend on the scope of the allegation and the corporate environment.Determining when an independent investigation is necessary and how independent it needs to be is determined by the context of fraud allegations. Timeliness is critical. Care should be taken in communicating with stakeholders.

Key Takeaways:One of the roles of a board of directors is to continually assess the company and make decisions in the best interest of sustaining value for the long-term.Decisions to change business models should be weighed against the core purpose of the organization.Significant strategic changes necessitate the board to broadly evaluate the impacts on significant internal and external stakeholders. References: SEC Chief Accountant Statement: Audit Independence and Ethical Responsibilities: Critical Points to Consider when Contemplating and Audit Firm RestructuringBDO as an ESOP Company

Join BDO's Amy Rojik as she and Tom Bradbury, Founder/CEO of Broad-Gauge, discuss culture within organizations – specifically how it is measured and what the board's role is around culture. Key Takeaways• Culture is a team sport that requires the right data for the right stakeholder (including the Board). • Protecting culture is just as important as strengthening your culture. • There is a measurable ROI to culture. • A proxy for culture is measuring organization effectiveness.Resources:     • Nominating & Governance Committee Priorities for 2024: Excelling in Board Leadership • CalPERS, Schroders Launch Framework Tying Human Capital Management and Value

Key Takeaways:While simple in structure, these new requirements have complex implications for companies, many of which may not be already gathering and reporting this level of climate data.The laws were years in the making but have now pre-empted the country-level SEC climate rules that many have been anticipating. Scope 3 reporting will be required for some companies, which includes the full value chain. Third-party assurance will be required in some cases.Even though the full extent of the requirements won't come into force until 2030, the first requirements will be in 2026 covering the year 2025, so companies should get started now.Resources:Prepare Now: California Climate Laws Impact Thousands of BusinessesSustainability and ESG Regulations Are GrowingThe Greenhouse Gas Protocol: Measuring Scope 1, 2 and 3 EmissionsPreparing for the Proposed SEC Climate Disclosure RuleBDO Sustainability and ESG Services

Key Takeaways:Establishing a “safe” environment for AI isn't just a protective stance, it is itself a strategy that accelerates innovation, builds trust, and ensures long-term success.In making the decisions to address entity- readiness to greenlight AI initiatives, boards' due diligence includes: understanding how competitors, customers, employees as well as supply chains are using or would like to use/leverage AI; establishing a robust management risk management and oversight governance framework that provide appropriate mechanisms to protect proprietary data; and ensuring internal organizational parameters of AI use consider ethics, explainability, data reliance/privacy/security, talent/expertise, and strategic fit; andapplying standardization for consistent and ethical development and deployment.

Key Takeaways:Using AI and predictive capability is not new but generative AI brings AI to the mainstream due to its human-like communication and ease of accessibility to companies of all sizes. For boards to properly oversee AI risk, they need to require management to establish a model risk management process along with a model risk governance framework around AI implementation that includes standardization of algorithms, governance and ethical considerations as well as validation of data inputs and outputs.Moving to AI changes the human role and underscores the need for a strong risk culture and exercising of healthy skepticism to contend with potential bias, complexity and lack of integrity within both data sets and AI algorithms.Underlying data sets must be of high quality and representative of population they are intending to serve – free from bias, properly labeled and annotated.Boards, management and auditors will need to continue to stay apprised of what is sure to be a continually evolving standard setting and rule-making environment as technologies continue to evolve.

Key Takeaways:Leveraging data analytics for strategic decision-making: Use of data analytics in the boardroom to is becoming increasingly important to help directors make informed, evidence-based decisions that drive growth and efficiency. By incorporating data-driven insights, businesses can better understand their customers, optimize operations, and identify new opportunities.Overcoming challenges in implementing data analytics: Organizations need to be prepared to face significant challenges when adopting data analytics, such as data quality, integration, and fostering a data-driven culture. Listen to best practices and practical advice for overcoming these obstacles and ensuring a successful analytics implementation.Board's role in promoting data-driven culture: The board can play a critical role in promoting a data-driven culture within the organization. By asking the right questions, setting expectations, and ensuring alignment with business objectives, boards can support management teams in harnessing the full potential of data analytics for the organization's success.

Boards need to work with management team to continue to identify and prioritize opportunities in automation to enhance all aspects of operations, product development and service delivery. Challenges in implementing automation need to be identified and incorporate into a strong change management program to ensure enterprise-wide acceptance and adoption.Boards can play a significant oversight role in the automation process by helping management establish guardrails – policies, protocols and controls – and require reporting back on progress as an accountability mechanism in driving change. Become and remain familiar with emerging automation technologies and methods to be competitive and optimize the business' capabilities.

Key Takeaways:1. Approaching embedding AI into a service delivery model requires: Identifying and prioritizing AI business processes and use cases that align with your business objectivesAssessing the feasibility and potential impact of each use caseDeveloping a detailed implementation plan that contemplates the steps, resources, and timelines required for successful AI adoptionKeeping cybersecurity at top of mind as well as quality assurance approaches. 2. Adoption and use of AI requires encouragement of curiosity and innovation tempered with a good understanding of the risk and challenges AI poses to current methods of obtaining and authenticating data.3. Compliance with regulatory standards needs to factor into AI change management along with corporate culture, policies and procedures regarding the use of AI.4. Auditors are currently embracing AI in measured approaches – e.g.: Leveraging digital assistants as a gateway to demystify technologies and to bring the talent pool up to speed on the basics – what it is, how they work, and general best practices.Using generative AI environments to streamline and further standardize the firm's service delivery models and build capacity.Embedding AI into existing tools to surface unusual and irregular transactions that the humans may otherwise miss as quality focused.Considering AI-powered image recognition in verifying physical assets and reconciling with financial records.

Key Takeaways:Service delivery models demand that auditors demonstrate their efforts are directed principally to potential risks and anomalies and areas of higher risk.Boards that derive the most value from audits that leverage data analytics are those that have pretty specific views of what constitute outliers or anomalies for the business and that understand the auditors' demonstrations of how their analytic tools can quickly surface and identify risks and patterns that may not be immediately apparent through traditional audit methods. Boards have potential opportunities to enhance both the value of the audit as well as the reporting information provided by management – e.g., address disparate systems, enhance limited data hygiene and inexact controls around data. Greater scrutiny of information, including relevant controls over data and data integrity, requires auditors to focus on modernizing their professionals' experience, as well as audit technology development, as they are the agents of change in enhancing audit quality. Boards should be asking their auditors to show them the value that data analytics is providing and become better informed as to: how difficult is the data to extract; how much cleansing is necessary; does it reconcile; how well is it controlled; etc.

Key Takeaways:Use of technological automation in the audit can yield increased efficiency, improved accuracy, consistency and quality. Complexity, data quality, lack of flexibility, resistance to change and over-reliance on technology are challenges to automating auditing procedures that need specific consideration.Auditors are intentionally and systematically focusing on automating aspects of the audit that build capacity and streamline systems but that also focus on feedback and enablement of adoption.Board members should be asking auditors about automation use cases and recommendations for improvements to apply to their own financial accounting, reporting and controls areas.

Key Takeaways:Building corporate sustainability is not about “being responsible for” but rather recognizing “how to work in concert with” a broader group of stakeholders to reduce friction and produce better results.Innovation in a staid industry requires: - Creation of an environment to embrace and enable change – first speak about what will remain the same and season in what the change will be.- Recognition that incumbency is NOT powerful (i.e., faulty assumption that formulas in the past will work in the future)- Innovate by embracing what is evolving – e.g., technologyAdopt a simple "Measure/Report/Reduce” framework – allows managements to act and the board to make informed decisions based on data-driven metrics to drive accountability and achieve whatever the “reduction” goals are – e.g., emissions, talent attrition, customer loss, use of resources, barriers to entry, etc. Don't make the mistake of focusing heavily on low hanging fruit instead of looking broadly at both risk and opportunityOversight tool: Instead of asking management “How do we make this?” consider the asking “How do we make this better?”Resources:Book: BOOM! Deciphering Innovation: How Disruption Drives Companies to Transform or DieResource Center: BDO ESG Center of Excellence

Key Takeaways:The NEED: Data governance programs exist to manage change in data assets overtime. The WHAT: Data is an intangible asset that is constantly evolving and has a host of characteristics that make it difficult to manage compared to traditional assets. THE WAKE-UP CALL: When surveyed, 95% of respondents felt data governance programs were unsuccessful.The PITFALLS: Poor data governance stems from: poor data quality, lack of enforcement of policies and procedures; and data security and privacy practice that don't evolve with hacker sophistication.The HOW: - Board directors should be asking corporate management the following: - Does the company have a data governance program? - Is the data governance program working? How do you know? - What assistance does the data governance program need from the board? Directors should encourage management to decompose data governance problems into smaller initiatives and ask for stratification of data governance decision-making so that people at the right level are making decisions about data.Resources:Data Privacy and Governance Checklist for the Board

Key Takeaways:The basic tenants of succession planning require continuous focus and consensus and can provide an outline for preparation and vigilance. These include:Agreement on short- and long-term company goalsNeeded skills for the position - Keeping the job description of the upcoming vacancy current Keep a pipeline of candidates that span an array of various disciplines and experiences Boards should build in process and policy around board refreshment.Board composition should be built for purpose - Consider directors with multiple skills and experiences so there is overlap existing in the boardroom.Succession doesn't end with appointment – it further requires a robust onboarding system for the new director. Expanding the board to accommodate new board members before the departure of a retiring director can efficiently provide transfer of institutional knowledge and avoid “reinventing the wheel.”A board member with shareholder engagement skills and investor understanding that can help management articulate their story is the best defense against activists. Resources:  “What ‘Succession' Gets Right (and Wrong) About Business Continuity Planning [Spoilers]Think Like an Activist

Key Takeaways:Funding for the CHIPS Act has been signed into law. This act provides tremendous opportunities for semiconductor industry organizations to expand production in the U.S. and additionally, provides many other benefits to the economy. This podcast discusses:Opportunities for national economic initiatives for organizations that can pass threshold question – How does the project enhance national economic security? Under the Act, lessons have been learned from PPP funding during COVID and the need for attestations to counter fraudulent/inappropriate use of funding, which came back to haunt many companies who could not support their use of PPP funds after the fact. Resources:Archive Webinar - The CHIPS Act Has Passed: Now What?What Semiconductor Organizations Need to Know about the CHIPS For America ActSemiconductor Industry Association

Key Takeaways:   Suppliers have become an integral part of a company's ESG performance against targets and laws, and therefore have an outsized impact on operational and financial performance Boards should set clear expectations for including supply chain risk within Enterprise Risk Management and require detailed management action plans to address and mitigate risks as well as identify opportunities. Good questions to ask include: Has the company mapped their supply chain and knows their 3rd party vendors beyond Tier 1, globally? Have we evidenced processes and policies for supplier onboarding and data management?Is our existing technology adequate to collect and maintain large amounts of supplier data and documentation? How can our supplier management program of 3rd party vendors be verified to mitigate supply chain disruption due to ESG compliance issues? Is the board engaging with the right cross-functional operational leaders responsible for supply chain management? Is management monitoring industry trends and regulations and embedding those in supply chain planning, optimization, and monitoring? Resources:     Supply Chain Disruption isn't Going Anywhere Three Key Supply Chain Management Questions for 2023 Ahead of Time Supply Chain Model eBook U.S. Senate Committee Expands Alleged Forced Labor Probe Involving Major Automakers to Suppliers.

Key Takeaways:Stakeholder-Centric: Ensure a communication strategy is developed around sustainability reporting that is driven by stakeholder needsDon't neglect the passive or potential investorsDepth and Frequency: Don't just stop at the launch date plans, have a plan for targeted communications specific to multiple audiences year-roundMulti-Channeled: Leverage multiple communication and media platforms, as stakeholders consume information in different waysSpokespeople: Identify and educate, from employees to the board, on how to tell your ESG storyAs ESG should be part of your sustainable risk strategy, so should the approach to ensuring consistency in public disclosures within and external to your financial reporting

Key Takeaways:Pillar Two comes in effect for accounting periods beginning on or after 1 January 2024 for multi-national companies with global revenue in excess of Euro 750m.Complexity will arise from both the detailed calculations involved as well as timing related to the phased-in approach by jurisdiction as to when each country will require implementation of global tax rules. Immediate steps to be undertaking by multinationals include an impact assessment and inventory of entities in different jurisdictions to determine potential increase in effective tax rates or cash tax increase, as well as financial statement and tax return compliance.Establish a strategic roadmap that considers accounting, systems, policy choices, resources, controls, disclosures and reporting requirements.Create the proper governance structure to properly monitor and drive accountability in both current and future decisions impacting the business. Resources:OCED Releases Additional Pillar Two Guidance

Key Takeaways and Tax Planning Points:Enacted as part of the Inflation Reduction Act (IRA), corporations are now subject to a 15% minimum tax on book income of $1 billion or more. The IRA also provided $80 billion of funding for IRS – with $46 billion earmarked specifically for enforcement. Enacted as part of the 2023 Omnibus Appropriations legislation, the SECURE Act of 2022 contains a host of retirement provisions such as changes to 401k, IRS, Roth, and other plan rules. While the current Administration's “Green Book” on tax policy has not yet been released, a few tax proposals were discussed during the February 2023 State of the Union Address: Establishment of a new increase from a 1% excise tax on stock buybacks (enacted August 2022) to 4% excise tax Establishment of a new “billionaires” tax – households with net wealth exceeding $100 million would pay a minimum rate of 20% on an expanded computation of income, which would include unrealized capital gains. Reaffirmation by President Biden that the government would not raise taxes on anyone earning under $400,000/year. As Congress is split politically, it remains difficult for meaningful new tax legislation to make it through both houses and clear the President's desk in the near term.Resources: Navigating the Intersection of Tax & ESG Is Your Company Effectively Managing Tax Risk?How to Benefit from Total Tax Transparency

Key Takeaways:The discipline of modern governance today is really in a global realm – can no longer be thought of in simply local or regional terms.Governance should be viewed as a discipline and thus, your individual board “packaging” is critical to you being identified as a serious board candidate.Board Documents are not comprised of a resume or CV but rather are highly structured and specific tools and should be reflective of your core leadership traits, your “major” and “minors” with respect to the depth of your experience and your governance skills and how these link ethics, values, and culture to strategy and risk oversight. The time and energy put into crafting Board Documents is an important exercise for your board journey.The Board interview is a two-way dialogues and vetting process that allows: (1) the company to understand how well you understand the particular linkage of values, culture, risk and strategy to governance and (2) specifically, how well you will fit into the board and whether your depth and experience will enable you to be accretive to the board's operations. Don't be afraid to ask thoughtful questions and be intentional in developing linkage between yourself and the board dynamics. Resources: Becoming an Exceptional Board Director Candidate Education & Certification CourseAcross the Board: The Modern Architecture Behind an Effective Board of Directors

Key Takeaways:Be mindful of identifying material impacts of climate risk and whether you are satisfying current disclosure requirementsDon't be lulled into complacency or the belief that mid-term elections may derail final rule-makingReview carefully current financial risk disclosures in line with other information being disclosed by the company Consider the resources you will need to implement expanded disclosures and leverage advisors to help you navigate the complexities of climate-related disclosures Remain abreast of developments – not only I the U.S. but globally, particular if your organization has significant international operationsResources:SEC Proposes Rules to Enhance and Standardize Climate-Related Disclosures for InvestorsThe Enhancement and Standardization of Climate-Related Disclosures for Investors – SEC Comment Letter

Key Takeaways:As with any insurance, directors and officers need to have a clear understanding of the purpose of D&O insurance and what it is designed to cover and what is not included – e.g., deliberate fraud, criminal acts, and uninsurable fines and penalties as well as other exclusions or limitations including thresholds for triggering coverage.The velocity, volatility, and interconnectedness of risk evolves over time even though D&O policies are typically written for one year terms. Does your company have a framework for evaluating risk, risk tolerance, and risk mitigation in the longer term?It's not uncommon for companies –particularly when in an early stage - to make concessions on the amount or scope of coverage in order to manage pricing. But it's important that those decisions are anchored in an awareness of the external and internal risk landscape, and contemplate future strategic and financial objectives for the company. Traditionally, most securities class actions involve financial misrepresentations, but boards should be aware that in the past several years there has seen a significant increase in ‘event driven' securities litigation. These claims can often be classified as “ESG-related events” given the broadness of the category.

Key Takeaways: Shareholder proposal trends to anticipate continuing into 2023: Increasing shareholder proposals – made easier by prior years' SEC regulations allowing more access for shareholders Certain commitments made by companies in previous periods (e.g., racial equity audits, DEI and other social aspects) likely to be scrutinized by shareholders, reflective of societal concernsIndividual directors expected to be held accountable on a variety of issues (e.g., lack of movement on commitments made previously, over boarding of directors, etc.) through ‘no' votes for re-election Prepare your investor engagement strategy on a “clear day” (advanced warning system before issues arise), based on stage and profile of company, to take in information from investors to inform the strategyEstablishing a robust board evaluation and refreshment process will allow companies to both satisfy changing needs of the company AND more easily “comply with or explain” via increasing disclosure expectations for how board composition is determined and why this composition makes sense for the company.Beware of ESG “fatigue” - Don't allow yourself to get side-tracked by confusion over timing/content of regulatory direction. Boards need to look critically at, and articulate, the material ESG factors impacting their companies and how these are managed with respect to ERM and strategy.

Key Takeaways:Data protection, which encompasses data governance, data privacy and cybersecurity, should be considered as part of the board's oversight of risk and strategyThe board's responsibilities related to data protection include identifying director(s) or advisor(s) with the appropriate skills and experience, stating explicit accountability within the board, keeping management accountable and ensuring compliance with laws and regulations. Board best practices in their oversight of data protection include good data governance hygiene, frequent and robust communications, expertise, and continuing education. Resources:The Board's Role in Data Protection (practice aid)Board Oversight of Cybersecurity (publication and resources)BDO Digital 2022 Cybersecurity Month ResourcesBDO Digital Governance, Risk & Compliance

Key TakeawaysFlexibility is dynamic way of operating business across workplaces, spaces and time with strategic coordinated intention to achieve high levels of performance and engagement.Lead with the what (not the where): Flexibility is about organizing around the work itself and how, when and where it happens best, no longer around the workplace.Boards and management teams, who have already instilled strong core values and a culture of innovation, experience fewer challenges in executing flexibility strategies.Not simply a human resource policy: A flexibility strategy requires the mind shift from “I” to “we” – requiring a framework that includes full leadership buy-in, organization-wide training, communication and the permission to experiment and innovate.

Key Takeaways:Each change to a business represents new strategic opportunities, but those changes also present new potential risk of and to the corporate strategy. Boards need to understand how the executive team approaches risk informed decision making to assess effectiveness. Streamlining and optimizing risk management require proper structure, process, and timing of risk assessment and mitigation activities and programs (e.g., insurance, internal audit, product recall, business continuity, cybersecurity, etc.) Corporate culture should include enterprise-wide risk awareness to consistently identify and address emerging and rapidly evolving risks (e.g., COVID, Russia, etc.). Macroeconomic trends in risk management should be part of regular dialogue with the executive team and include consideration of bringing in leading experts to educate and advise in particular areas of risk.Directors should challenge organizations to make appropriate investments in risk management while building incentives for managing rapidly evolving risks.

Key Takeaways:Audit committees can ensure smooth ICFR implementation by encouraging early planning, helping secure adequate resources, being familiar with management's process to identify risks and management's processes and controls in place to manage those risks.Boards should be particularly focused on controls addressing areas of the business that are inherently higher risk.IT systems are critical and thorough evaluations of the IT environment and the IT general controls should be done early to avoid the late detection of control flaws over systems and relevant data that may have pervasive impacts on the effectiveness of the entire internal control environment.Depending on the severity of any deficiencies, the board should understand the root cause of the deficiency and what management's plans are to remediate; and further, hold management accountable to their remediation plans.Board should ensure that the control environment is continually reviewed and that management takes into account, among other things, changes in risks, policies and procedures that may require enhancements to the controls environment.

Key Takeaways:Today's organizations are being called to contribute positively as part of the greater ecosystem, which is compelling directors to embrace the role of change catalysts and “intraprenuers.”People, as our greatest assets, need board directors to oversee the creation of work environments that value employees to allow them to ‘bring their whole selves to work.”Assembling a board composition strategy today needs to begin with a robust review of the skills matrix to ensure attributes such as curiosity, digital savviness and enterprise risk management, among others, are part of the consideration of current and future directors.

Join BDO's Center for Corporate Governance Amy Rojik as she and her colleague Todd Simmens, National Managing Partner of Tax Risk Management, to discuss how the board's oversight of corporate strategy and risk management would be remiss without an understanding and consideration of evolving global and domestic tax regulations anticipated to significantly impact decision-making at the board level. Key Takeaways:Companies are advised to continue to remain abreast of legislative activity to inform on-going scenario planning, inclusive of the tax department and appropriate advisors. Tax implications need to be considered early on in contemplation of transactions as well as operational decisions and human resource matters.Expectations for a robust tax bill in 2022 under the Biden Administration's ‘Build Back Better' plans may have lost sight of the power that individual members of the House and Senate can have.Mid-term U.S. political elections may put some of the more contentious progressive tax increases being considered on the back burner.With regard to Biden's budget (aka the Green Book): As a reminder, certain of the Jobs Act provisions expire in 2025/2026; other provisions are permanent (e.g. Corporate Tax Rate increase from 21% to 28%, individual rates and capital gains as well as international regulations and policy changes such as the replacement of BEATS and onshoring of taxes) and would require legislation to enact tax changes.Internationally, companies are advised to be in tune to the OECD's agendaThe IRS continues to experience operational challenges including staffing issues, processing, refund delays and extended communication response times. Filers are advised to communicate with the IRS using certified mail or other form to demonstrate proof on communications. It is the responsibility of board of directors to be very aware of what tax professionals have to say about what is going on at the business level. Resources:2022 BDO Tax Outlook Survey

Join BDO's Center for Corporate Governance Amy Rojik as she and her colleague Mike Stiglianese, who serves as the Managing Director in BDO Consulting's Technology Advisory Services Practice, discuss the SEC's recently proposed rules on cybersecurity risk management, strategy, governance and incident disclosure and the impacts and considerations these rules may have on those charged with governance. Key Takeaways:The SEC proposed cybersecurity disclosure rules are intended to formalize currently expected disclosures around aspects of cybersecurity that are useful to investorsThe board will be required to provide disclosure about the cyber expertise that exists within the organization's governance structureCybersecurity should be thought of and treated as necessary risk management processes and proceduresCyber incident response plans need to be planned in advanced, involve key stakeholders, be well thought out and practiced and be adjusted continually to reflect the changing risk landscapeDocumentation by the organization of the cyber risk management program is critical – including the identification, protection and disposal of data – along with testing of the programProcess and metrics shared with the board needs to be at the right level – By analogy: The audit committee wants to see the financial statements not the general ledger…Resources:SEC Proposes Rules on Cybersecurity Risk Management, Strategy, Governance, and Incident DisclosureA Modern Approach to Cybersecurity

Join BDO's Center for Corporate Governance Amy Rojik as she and her colleague Dan Fuller, Managing Partner Tax ESG Strategy and Services Leader, discuss opportunities to align the board's oversight of ESG strategy with taxation considerations to be truly impactful in corporate decisions-making in this evolving area. Key Takeaways:Where is the “T” in ESG? – Given that the majority of business transactions, including those involving ESG factors, have related tax impacts to consider, tax directors want to be included in the company's evolving discussions around ESG and can be highly valuable to the board.For those companies outlining or updating their integration of tax into their ESG journey, three critical steps need to occur:Outline your approach to tax by defining regulatory compliance and interaction with tax authoritiesEstablish a robust tax governance, control and risk management framework to support the company's sustainability strategyQuantify and provide qualitative context around an organization's total tax liability to meet demand for transparencyFrom a governance and risk management lens, proper tax governance can ensure that there is appropriate oversight over an organization's tax strategy and decisions, ensuring they align with overarching business objectives and stakeholder communications around tax reporting.Leverage the BDO ESG Tax Cipher to strengthen risk awareness, improve decision-making on risk mitigation, and increase transparency, accountability and strategy.Tax strategy can often be a “solution” in the ESG space – through credits, mitigation strategies, etc.Resources:Navigating the Intersection of Tax & ESGBDO Center of Excellence

Join BDO's Hitesh Shah, leader of our San Jose Board Roundtable series, in discussion with Raj Sisodia, Co-founder of Conscious Capitalism movement, as they discuss the importance of the board's role in supporting conscious leadership and building a conscious business. Key Takeaways:The board's role is critical in helping management define the purpose of the company to build and support a conscious organization – without it, C-suite efforts are likely to fail.Under the traditional business paradigm, companies invest much less in their futures and tend to take on massive risk when primarily focused on shareholder primacy, fiduciary duty and financial performance. A conscious business is set up to hit both purpose and performance benchmarks far into the future.Conversations at the board level around culture, purpose, and core values that align all stakeholders send a very strong signal to management and lead to a successful business strategy.ESG is an increasingly important topic in the boardroom but often seen as a compliance exercise or obligation rather than as an opportunity to build a conscious business with a defined purpose to truly generate and sustain long-term value creation for many stakeholders. Boards can play a very important role in helping their companies tackle the largest existential threats like climate change, income inequality and inclusion by being informed and being active in the conversations on these topics with company management.Succession planning is a critical role of the board especially when you've built a conscious business - selecting the wrong leader for a conscious company can destroy decades worth of work. Additional Resources:To learn more, BDO has partnered with Raj Sisodia and Neha Sangwan, MD to create the Conscious Business Leadership Academy (CBLA) to support leaders looking to maximize their personal potential while optimizing value and benefits for their organizations and stakeholders.Raj Sisodia - Co-founder of the Conscious Capitalism movement

Join BDO's Hitesh Shah, leader of our San Jose Board Roundtable series, in discussion with Raj Sisodia, Co-founder of the Conscious Capitalism movement, as he introduces the concept of Conscious Capitalism and the potential impacts of embracing the movement in your organization.Key Takeaways: Conscious Capitalism is a philosophy based on the belief that a better form of capitalism is emerging that holds the potential for enhancing corporate performance while simultaneously advancing quality of life for people globally.Conscious Capitalism is grounded in four tenets: higher purpose, stakeholder integration, conscious leadership and conscious & caring cultureConscious Capitalism explores the possibility of embracing all the positives of capitalism while simultaneously reducing the negative impacts of business in the support and advancement of humanity.There are many benefits of being a conscious business that can counter some of the more significant issues facing companies today: increased employee engagement in the attraction and retention of talent; promotion of customer loyalty/advocacy; development of stronger supplier relationships; uplifting of communities, etc. While you may be successful operating your business in the traditional manner of maximizing profit and share price, broader stakeholders are increasingly demanding more and companies who do not embrace a conscious model increase the risk to their future business strategies and competitiveness.Additional Resources:To learn more, BDO has partnered with Raj Sisodia and Neha Sangwan, MD to create the Conscious Business Leadership Academy (CBLA) to support leaders looking to maximize their personal potential while optimizing value and benefits for their organizations and stakeholders.Raj Sisodia - Co-founder of the Conscious Capitalism movement

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Amanda Shpiner, Managing Director at Gasthalter & Co. LP, to discuss considerations for board communications as part of an overall governance strategy in the face of numerous disruptions impacting the business. Key Takeaways:• Boards have the responsibility to continuously monitor vulnerabilities and hold management accountable to address these via strategy and consistent, transparent communications with stakeholders• Communication to stakeholders needs to be thoughtful and clear – don't underestimate the power of the varied traditional and social media channels, engagement and stakeholder polling – to differentiate from your industry peer set• Just because you may not have a complete plan in place to address an issue, it should not hold you back from communicating objectives and your thinking on the actions to undertake to achieve them• Activist positions are usually very well thought out with significant research and analysis behind them; company boards/management have day jobs and these fights can be extremely time consuming and expensive • Activism is morphing from perceived “corporate raiders” to “engaged shareowners/investors” for investors who hold their positions for long periods with a mission to change companies for the better through policies and performance enhancements• When faced with an activist challenge (e.g., 13D filing), speed of response is critical and requires a pre-planned approach based quality of continuous monitoring; you only have one chance to make a first impression to stakeholders• Current target areas for activists: corporate governance and perceived entrenchment of the board; operating performance; innovation to remain relevant; ability to tie ESG factors to bottom line over the long term; and management of supply chain challenges

Key Takeaways:• Sustainability is the “maturing” of ESG factors crossing over from government regulation to voluntary corporate reporting to becoming commonplace within organizations.• Sustainability has moved across the threshold into mainstream global commerce as investors understand that issues of sustainability have financial implications and dictate risks/opportunities that companies have from a business point of view.• Companies need to truly understand their shareholder base and be intentional in pursuing dialogue and engagement with investors – including not only institutional but also “activists” who often truly are speaking the language of business and are paying close attention to business issues impacting the company. • It is much easier to be a start-up and focus immediately on sustainable strategy than reinvent core competencies based on trendlines, but that innovation is what is required of today's boards (“how you deliver what you are good at in a different way”).• Convergence of sustainability reporting standards will necessitate “integrated” reporting within financial statements and put pressure on the management to demand performance AND ensure the integrity of controls over the information provided to the market • The tools to measure/manage sustainability issues have historically been poor – however, as enterprise resources platforms evolve to address accounting complexity and reporting standards converge to provide a common compliance language, this will drive broader accountability and better information for stakeholders.• Next set of issues in focus: Human Capital vs. People Operations - However you choose to phrase, DEI, health/safety and labor conditions – companies need to focus on the employee engagement environments they are creating as these have a direct impact on business success. • As corporate responsibility shifts from reputational risk to a business imperative there is significant scrutiny by investors and the regulatory community that is forcing communication within the company regarding needed changes in controls/ policies/ procedures to accommodate sustainability and financial disclosures fully into integrated reporting that need to be a timely area of focus for the board.• Boards have responsibility for prioritization around what the company needs to “lean in on” – not a check the box, get an award, enhance my ratings play… this requires continual education that translates into deep thoughts on what is impacting my business to best drive strategy and value.Access: • Changing Business from the Inside Out: A Treehugger's Guide to Working in Corporations• Persefoni – Climate Management Accounting Platform• BDO's ESG Center of Excellence

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Jason Brooks, a Managing Director and BDO's Compensation Consulting Practice Leader, to highlight key planning considerations for compensation committee directors as we rapidly approach the end of 2021 and enter 2022.Key Takeaways:Compensation committees are encouraged to take a current inventory of company needs in relation to their unique risk and opportunity factors as well as in relation to their competitors. There are further challenges to take charge of the company's narrative in its public disclosure considerations. Historic focus on executives is no longer enough. Market expectations for disclosures concerning human capital management and related ESG factors has expanded to consider employee needs more broadly. Compensation committees should be thinking about such and incorporating into the overall company's retention and attraction strategies of their workforce. Expanding responsibilities of the compensation committee should be clearly documented and reflected within its committee charter.Directors need to be mindful of ISS Updated Compensation Policies that indicate the “surprise” element of the COVID pandemic is no longer applicable. Accordingly, ISS will view, “as in pre-pandemic years, any mid-year changes to metrics, performance targets and/or measurement periods, or programs that heavily emphasize discretionary or subjective criteria will generally be viewed negatively. This will be of particular focus for companies that exhibit a quantitative pay-for-performance misalignment.”Executive and board compensation strategies may need updating for 2022 given continued economic impacts and should be accompanied by robust transparency and disclosure:As compensation committees consider introducing “discretionary” components into their compensation plans to counter uncertainty, they need to be mindful that these may not be seen favorably by shareholders and proxy advisors and will require enhanced disclosures supporting the use of such tactics. Changing performance ranges – e.g., lowering minimums/raising maximums to flatten leverage curves – may prevent small changes in performance from having significant changes in payouts, but again, would require enhanced disclosure.Rethink goal setting expectations of shareholders as their basis for comparing to increased revenues/earnings may not be appropriate for the company's circumstances – e.g. holding steady or evening slight declines may be necessary.Access: The BDO 600 2021 Compensation StudiesBDO 2021 Board Compensation Trends Archived Webinar

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Vanessa Teitelbaum, Senior Director of Professional Practice at the Center for Audit Quality (CAQ), to discuss the critical role audit committees play in the integrity of capital markets and how transparent disclosures about their oversight practices can provide significant value in the protection of investors.Key TakeawaysRobust proxy disclosures represent an opportunity for the audit committee to make clear to investors how the audit committee conducts its oversight responsibilities to promote audit qualityMost significant noted proxy disclosure increases in 2021 relate to the audit committee's oversight of cybersecurityExpanded audit committee disclosure may present a mitigating safeguard to investor concerns of a lack of objectivity by the audit committeeAudit committees may find value in benchmarking from the Barometer, along with other CAQ resources, to provide practical data to help inform judgment on their own oversight and resulting disclosuresAudit committees are reminded to pay close attention to the SEC Regulatory Flexibility Agenda and proposed rule-making/comment letter processResourcesAccess the CAQ's 2021 Audit Committee Transparency Barometer here.

Join BDO Tax Partner and Tax Risk Services National Leader Michael Williams as he sits down with James Egert, BDO in the U.K. partner and leader of its Tax Assurance and Risk Management practice, to discuss managing tax risk and why this topic is increasingly appearing on board agendas. James' perspective from the more legislatively regulated U.K. helps inform what makes managing tax risk important for U.S-based companies. Key Takeaways:Board members and stakeholders are focused on tax risk in all forms: operational, compliance and strategic.If the wider operations of the business are not aligned with those of the tax function, there is greater possibility of riskBoard members should be aware of the top tax risks in business, including e-commerce, cross-border issues, residency issues, and information and data sharing.To help avoid reputational hazards, any large business should have a clearly articulated tax strategy approved by the board.

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Patrick Gadson, Partner –Shareholder Activism and Mergers and Acquisitions at Vinson & Elkins, to discuss defense strategies for boards and management teams to consider when challenged by activist shareholders. Key Takeaways:Boards of companies (all sizes) that are underperforming need to truly understand BOTH economic weaknesses in addition to other elements for improvement (e.g., ESG) that activists can use to promote their agendaTo engage effectively with activists truly requires boards active in knowing and developing relationships with their shareholder baseWhen put into an activist situation, directors need to understand the thick skin of and ability to go the distance in lengthy contests that activists possess that can often lead to “activism fatigue” in the boardroom that may affect good decision-making of directorsAvoid the emotion and strategically scenario plan with an objective party who can truly survey relevant facts and circumstances through an unbiased lens

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Cathy Moy, BDO Chief People Officer, to discuss company culture as a business imperative and the reasoning why culture must be center stage for boards as companies reposition their businesses and focus on growth in 2021 and beyond. From Cathy's unique vantage point, she has seen firsthand how a company's investment in its people positively impacts its bottom line – and long-term sustainability. Key Takeaways:Today, corporate culture is no longer a nice-to-have – it is a key driver of business and competitive advantage that must be top-of-mind for boards and the C-suite. Culture has to be foundational, drive from the top, for an organization to achieve the type of success that comes with employees who are fully bought into the company purpose and vision.Companies that approach key drivers of culture – from reimagining how work is accomplished to advancing DEI to investing in talent development and retention – have been, and will continue to be, the most resilient in the face of challenging times. Don't discount the importance of culture when considering M&A – if you don't have culture synergy and common vision for the future, the likelihood of successful integration decreases significantly. As part of the board's role in mitigating risk and providing strategic oversight of management, it must consider the implications that corporate culture has on organizational agility and ability to sustainably scale. Recommended Resource:NACD Blue Ribbon Commission on Culture as a Corporate Asset

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Melissa Means, Managing Director at Pearl Meyer, to talk about how today's board directors are navigating critical compensation questions for leaders as companies emerge from COVID and face increasing attention and scrutiny related to both financial and nonfinancial strategic decision-making and performance impacts to their business. Key Takeaways:Notable trends relative to ESG impacting the compensation committee include (1) expanding compensation charters to focus on HCM, DEI and other “S” issues and (2) considering whether and how to incorporate related metric(s) in either short or longer term incentive compensation plansExpansion of compensation committee charters are focused on tactical board HCM responsibilities - e.g., succession planning; “bench strength” talent development; review of DEI metrics within the organization; etc. Key incentive plan design questions relative to ESG boil down to strategic execution considerations:- What are you trying to measure?- Should it be over a long or short term? (i.e., how long will it take to show improvement for that area of focus)- How much of an incentive should it be? (i.e., modifier vs. weighted component)Companies are in all different phases of this exercise and may have very limited comparative information from peer groups to rely onFor companies just starting the conversation, begin with an agenda item that defines what HCM means for your organization and helps the board understand what management may already be doing (or not doing) in this regard

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Sarah Feingold, Co-Founder of The Fourth Floor to discuss corporate governance considerations in the start-up world and what has driven her passion for helping connect diverse individuals to the boardroom.Key Takeaways:Never too early for good governance: Can be the “rocket fuel” for a company's trajectoryA diverse board is a powerful board and skillset needs continue to evolve in the boardroom to help companies build, broaden their network and scale the businessBoards are NOT one-size fits all: As a prospective board member, “aim your arrow” – align your own subject matter expertise and experience with a network and a focus on specific companies that will benefit from your knowledge and add to your personal growthValue: Start-up opportunities can be incredible learning opportunities, may lead to equity, expanded networking, and a path to additional board/career roles

Join BDO's Center for Corporate Governance Amy Rojik as she sits down with Demetrios Frangiskatos, Assurance Northeast Regional Managing Partner, to discuss the frenzy of SPAC and resulting De-SPAC transactions and in particular, considerations that board members should be thinking about if thinking of or selected to be affiliated with the acquirors or acquirees. Key Takeaways: Good governance at the board level enacted at the outset of the SPAC transaction process is becoming an important differentiator Speed of an operating company becoming a public filer accelerates the need for public company experience in both the management team and the board Integration of the target company requires directors to have a strong understanding of technology, financial and operating systems, internal controls, regulatory filing requirements, accounting and financing complexities, and overall fiduciary governance responsibilities Critical to have a solid understanding of current deal terms, regardless of what side of the transaction you may be

Join Amy Rojik, director of BDO’s Center for Governance as she shares some timely considerations for directors to consider with respect to board composition refreshment strategies.