Prepare for Your Q1 2024 Board Meeting by Considering These Questions

As a board member, the questions you raise at quarterly board meetings can lead management to evaluate options and consider varying perspectives when making challenging decisions.  Weaver, knowledgeable in advisory services, offers these topics and questions to raise at upcoming board and committee meetings to generate productive discussion and identify prospective opportunities as well as challenges.

Is the company prepared to comply with new SEC requirements for climate disclosures?

The SEC will now require public companies to report certain climate-related information in their registration statements and annual reports. This includes information about a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. Many companies will also have to disclose their Greenhouse Gas Scope 1 (direct) and Scope 2 (indirect) emissions as part of the new rules. Certain qualitative disclosures related to severe weather events and other natural conditions will also be required in a registrant’s audited financial statements.

• How often are management and the board informed about climate-related issues affecting the business?
• How is climate-risk currently being considered, evaluated, and managed through the Enterprise Risk Management program?
• To what extent does the board and management consider climate-related issues when reviewing and guiding strategy, major initiatives, risk management policies, annual budgets and business plans?
• How prepared is the company to provide commentary on our climate-related targets and goals, and are these targets and goals still achievable and fit for purpose?
• What process and control improvements are needed to ensure complete and accurate compilation, review and reporting of quantitative disclosures, that can also support assurance procedures performed by an independent third-party?
• What climate-related issues, if any, does management consider when setting performance objectives; monitoring implementation and performance; and overseeing major capital expenditures, acquisitions and divestitures?

Has the organization considered new and existing federal tax credits?

Strategic deployment of available tax credits can contribute to an organization’s long-term financial health and sustainability. For example, the Inflation Reduction Act of 2022 created production and investment tax credits for existing and emerging zero-emissions energy sources, including solar and wind, energy storage, clean hydrogen, nuclear, and carbon capture technologies. The Research Tax Credit (RTC) provides a dollar-for-dollar reduction of federal income tax liability based on a percentage of qualified research expenses exceeding a base amount.

Leveraging these credits can enhance cash flow, foster innovation, and improve competitiveness.

• Is the organization engaging in proactive discussions with tax advisors and financial experts to identify any tax credits for which the organization may qualify?
• If the organization currently claims these tax credits, is the board receiving regular updates on legislative changes and IRS guidelines to ensure maximized benefits while minimizing risks of audits or penalties?

Is the company harnessing the potential benefits of AI?

The rapid expansion of AI, or artificial intelligence, has already begun to fundamentally change the way business gets done. This transformation comes with risks, but also enormous opportunities. Some benefits include the potential for gaining insight and actionable steps from big data, the ability to improve customer service, data analysis to support real-time business decisions, and reducing the need for employees to perform mundane tasks.

• What choices are we making related to AI that will give our company a business edge? How is AI going to help our organization?
• What AI tools are we already using? How can we customize general AI tools to meet the specific needs of our organization? Have there been successes or failures that we can learn from?
• Have we identified other areas within the organization with which AI can generate greater efficiencies?
• How can we motivate our employees to use AI to make them better at what they do?
• How do we incorporate responsible AI use, including privacy, ethics, and responsible design, into our governance models? Has the organization adopted and disseminated a policy for responsible use of AI?
• Who in the organization is responsible for oversight and governance regarding the use of AI?

How is the organization preparing for updated segment disclosure requirements?

Accounting Standards Update (ASU) 2023-07 improves disclosure requirements for reportable segments by enhancing disclosures, primarily focused on significant segment expenses by requiring disclosure for expenses that are significant to the segment, regularly provided to (or easily computed from information provided to) the chief operating decision marker (CODM) and included in the reported measure of segment profit or loss.  The ASU also extends disclosure requirements to companies with only one segment and updates disclosures requirements regarding other segment items, multiple measures of segment profit or loss which are used by the CODM, and the CODM’s title and position, among others. The updates are effective for public entities with fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024.

Here are questions to consider when preparing for changes related to the adoption of ASU 2023-07:

• What information is being provided to the CODM today? Where is it coming from? Will changes need to be made to our ERP or other systems as a result?
• Have we considered both quantitative and qualitative factors when determining whether an expense rises to the level of a significant segment expense requiring disclosure?
• Have we considered what “other” segment items we will be required to report? Is there more than one measurement of segment profit or loss used by the CODM that we want to disclose?
• Will changes to meet the new segment level disclosures affect other required financial disclosures or information provided (e.g., business overview, management’s discussion and analysis)?

Weaver offers information and insights to 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. Contact us for information about these areas of Board governance.

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