Greet the Quarter by Asking these Five Questions at Your Next Board Meeting

Vaccine rollouts have been in full swing for months, meaning people are returning to working, being entertained and gathering for other events in person.

It also means that your organization will face significant questions surrounding not only familiar challenges, such as ESG disclosure and reporting, but new ones, such as how more than a year of decentralization and a potential return to in-person work will affect your company.

At Weaver, we’ve spent years adapting to changing landscapes and helping organizations find both immediate and long-term success, and we’re ready to march on in our series of key questions and central topics you can bring to your next board meeting.

1. How is your organization getting ready for possible ESG disclosure requirements?

On June 17, the House of Representatives passed the “ESG Disclosure and Simplification Act,” which would require that the SEC create standardized definitions of ESG metrics as part of a ESG disclosure requirement for SEC registrants. In its annual Unified Agenda of Regulatory and Deregulatory Actions, the SEC’s areas for regulatory actions for the coming year included disclosures relating to climate risk, human capital, including workforce diversity and corporate board diversity.

While many companies have been voluntarily adopting one or several of the available ESG frameworks, the consistency and quality of the information has been drawing criticism from interested investors and stakeholders. Leading companies are establishing an ESG reporting process that includes standardized processes for gathering key data, performing internal quality control processes to review completeness and accuracy of the information, and obtaining independent, third-party assurance over key metrics to drive further confidence in the metrics.

Now is the time to get prepared for potential regulatory disclosure requirements as the ESG push continues to gain momentum.

2. Is our decentralized company structure opening us up to compliance and inefficiency risks?

When organizations operate in a decentralized manner, with each location or business unit operating autonomously, it can be very difficult to take advantage of inter-location synergies and manage compliance and regulatory requirements.

A good exercise for any organization is to perform a cost/benefit analysis of consolidating systems used by each location to ensure that the same systems are in place wherever possible.

Today, processes and procedures rely heavily on technology. By unifying the system landscape, you can create a much easier path for standardizing processes across your organization.

It is always a good idea to periodically review processes and activities at each location to ensure that they are standardized wherever possible, and you can accomplish this by first setting the ground rules by establishing formal policies and procedures that are to be followed at each location or business unit.  This will allow management and the board to be able to better evaluate performance and compliance on a more streamlined basis.

3. Are your tax compliance and accounting controls designed effectively to capture changes to the Internal Revenue Code?

Income taxes have long been a trouble area for public filers, and a recurring culprit in generating material weaknesses and restatements. Legislation and changes to income tax rules and requirements are commonplace. Even seemingly small changes need in-depth analysis and a thorough understanding of the new requirements.

In 2020, the CARES Act led to complex changes in tax provisions affecting many organizations.  This year, we are anticipating potential significant tax changes at the federal level as the Biden administration introduces its tax reform proposals. Tax accounting for public companies can be more complex due to internal control requirements and the potential for a large misstatement when there are changes in how deferred tax assets and liabilities are valued.

With so many changes on the horizon, now is the time to assess your resources and internal processes for analyzing and adopting tax changes. Do your internal tax and accounting personnel have the expertise to analyze and implement tax code changes? Do they have the bandwidth? How do tax experts (internal or external) educate and assist those responsible for financial reporting in understanding and evaluating the impact of tax changes? If taxes are prepared by an outsourced tax preparer, are there adequate review controls over the tax preparer’s deliverables by an individual with knowledge of taxation?

These are questions and topics that leading companies are asking to address a tax environment only getting more complex.

4. Do Payment Card Industry (PCI) compliance standards apply to us?

You’ve heard about PCI compliance, either from a sales team, credit card processor or other source – but you’re still unsure exactly how it relates to your organization. Essentially, if an entity stores, processes or transmits cardholder data, it is subject to PCI DSS compliance.

The PCI Data Security Standard involves complex requirements and difficult-to-parse regulations, meaning it’s critical that you establish a foundational understanding of what it takes to become compliant if your company must be.

To drive compliance efforts that are productive and useful, you can follow this process:

• Define the cardholder data environment (which is the scope of a PCI assessment).
• Get to the heart of the requirement and make sure you understand it.
• Understand requirements surrounding evidence.
• Take a risk-based approach to implementation.
• Engage a QSA company to complete a readiness assessment you can rely on.

5. How can we be better prepared for investor activism?

Investors, if they ever were, are no longer faceless, unbiased observers. In a world driven by societal change, political activism, environmental concern and more, activist investors are looking to drive greater change than ever before.

In a nutshell, customers and investors now want to conduct business with organizations that match the values that are important to them – and promising returns are often not enough to turn the tide if an investor has decided they don’t align with your organization’s core goals and values (or can’t make a profound impact were they to become a stakeholder).

This also means that there are far more splintered groups to manage and cater to when dealing with activist stakeholders and that any mergers and acquisitions have to be viewed not only through a lens of what’s right for your organization, but what values you’d be adopting or aligning with in the event of such an M&A event.

Acknowledge that activists play an important role in your overall ecosystem, determine clear values for your organization, and communicate and stand by those values.

Weaver offers information and insights to prepare for your next board meeting. We can help you ask the right questions and determine appropriate plans of action based on topics and trends as they unfold. Subscribe to our monthly insights for articles and information to help you review your organization’s operations and prepare for change in an uncertain world.

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