Corporate boards of directors are dealing with new problems in financial reporting and accounting, along with governance, amid the novel coronavirus pandemic, according to a recent survey by BDO USA.
BDO’s 2020 Board Pulse Survey found that boards are making communication and transparency of financial reporting and disclosures more of a priority in the midst of the COVID-19 pandemic to convey some of the evolving market conditions and risks faced by their companies. The survey found that 73 percent of the 280 public company board members polled said they have increased their disclosures around new or emerging risks to their business, while 46 percent have significantly increased the time or effort devoted to accounting estimates and forecasts. Meanwhile 42 percent have increased their disclosures around liquidity, and 28 percent indicated they have considered disclosing asset impairments. In addition, 26 percent have added new disclosures for use of government assistance, while 19 percent have considered additional income tax effects in their disclosures. Nearly a quarter of the survey respondents, 22 percent, said restoring and retaining shareholder confidence is one of the more significant governance challenges for the latter half of 2020.
Shaun Spearmon helps clients successfully transform their organizations and accelerate the implementation of their most strategic objectives. For more than 15 years he has led strategic planning, process improvement and change management initiatives with clients across industries, including technology, aerospace, pharmaceuticals, retail and financial services. Most recently he developed and led the change management and communication strategy for Global Store Development at Starbucks. Shaun is a firm believer in the power of servant leadership and its ability to create excellence in individuals and produce extraordinary results for organizations. He earned his MBA from the University of Washington's Foster School of Business where he pursued dual concentrations in Strategy and Organizational Development and holds a BA in Business Administration from Morehouse College. Shaun is based out of Seattle, WA.
Deb Seidman has over 25 years' experience working to enhance the effectiveness of leaders and their organizations, enabling them to execute their business strategy. She has worked with clients across a range of industries including financial services, pharmaceuticals, technology, government, and non-profit. Throughout her career, both in corporate operating roles and as an external consultant and coach, she has partnered with clients to gain insight into business challenges and opportunities, foster collaboration within and between teams, and facilitate organizational transformation. She holds a Bachelor of Science degree in Industrial and Labor Relations from Cornell University and a Master of Arts degree in Politics from New York University. She is an IAF Certified Professional Facilitator. Deb lives in New York City where she can be found at her printmaking workshop creating lithographs and woodcut prints.
Guillermo Rodriguez has occupied diverse roles over the past 20 years, from in-house corporate positions to being a self-employed consultant, and is currently serving as a virtual CFO at Summit Virtual CFO by Anders. His journey began with a major corporate job, where he had the opportunity to explore various functional departments, gaining insights into different aspects of the business, including forecasting around a significant acquisition. He later became a virtual CFO within the cannabis industry, helping guide cannabis operators down the path of profitability.
“I think disclosures have a big impact,” said Amy Rojik, national assurance partner and director of BDO’s Center for Corporate Governance and Financial Reporting. “Early on at BDO, we hit the ground running in March working with our clients on disclosures, particularly with all of the capital being infused by the government, what that looked like and how that was being portrayed to the public, so they could better understand the access to capital for many companies, and disclosing those risks and uncertainties. You’re seeing a lot more disclosure by companies around emerging risks, not necessarily just liquidity, but also what happened with supply chain access, what’s happened with safety of employees, and how that’s all being handled. There’s notably increased time and effort related to accounting estimates, particularly forecasts, for many companies that are teetering on whether or not they’re a going concern. That’s something we’ve been spending a lot of time on as a profession in looking at that.”
Rojik sits on the Center for Audit Quality’s Advisory Council, along with colleagues from the Big Four and other firms, where they’re working with the CAQ on understanding issues such as accounting estimates and forecasts.
“That is a significant issue with the standard setters as well,” said Rojik. “We have 46 percent of directors indicating that is an issue. That obviously goes hand and hand with looking at impairment of assets, and the significance of having to record an impairment and what that means from a financial disclosure perspective, and how to disclose that so that your investors and other users of your financial statements understand what that means, particularly in this timeframe.”
Utilization of government assistance programs such as the Paycheck Protection Program and Main Street Lending Program for small and midsize businesses and the Payroll Support Program for airlines is also being disclosed in some cases. “About a quarter of our respondents indicated that is a focus for them,” said Rojik. “Interestingly, the taxes, which I always think get short shrift, this was a little bit lower. I’d say about a fifth, 19 percent, of people say that’s a focus, but certainly the tax impacts of all these things could and should truly be significant for companies, so that’s not an area to shortcut. That’s probably a significant area where boards maybe could focus more of their time on understanding the complexities of the tax implications of the environment we’re in right now.”
Building shareholder confidence at a time like the pandemic is of the utmost importance. “In order to do all this of this properly, you have to be considering the shareholder confidence in your ability to report these accurately, since many of these are based on estimation and forecasting that you may or may not as a company have been asked to do in such a significant and short timeframe,” said Rojik. “You’re still trying to unwind what’s happening as we continue on through the second half of 2020, and what that looks like for year-end reporting for traditional calendar year filers.”
Other areas of concern from a governance perspective include employee safety in the midst of the pandemic. “First and foremost what we saw as the truly biggest priority for nearly everybody, at least in the near term as we’re still in the midst of COVID-19, is truly the safety of stakeholders,” said Rojik. “That’s employees, customers and vendors. Overwhelmingly, 71 percent of directors say that is their key priority right now, and how to ensure that, how to take on the board’s role in that.” Eighty-seven percent of the board members polled said their organizations have implemented new or expanded workplace safety procedures.
Diversity and inclusion have also become greater priorities for corporate boards, particularly in the wake of the Black Lives Matters protests over the past year. “The second thing that rose to the top was building a more diverse board and leadership team,” said Rojik. That ranked as a key priority for 45 percent of the board members surveyed.
Board members are also concerned about how well employees are operating in a remote environment during the pandemic as many of them now work from home.
“Clearly you’re seeing an intent to transition to some longer-term remote work for at least some employees,” said Rojik. “More than half, 51 percent, say they have plans to do that, given how work has progressed in the remote environment currently.”
Many companies have been forced to cut back on employees, with 38 percent of the directors indicating their organizations have laid off or furloughed workers. “That is a big concern,” said Rojik. “Do we have the right level of staffing? What does that look like going forward for companies that are rebuilding, and what does that look like for companies that are having to do layoffs. That is still very much unknown for many companies and obviously is industry dependent.”
The survey found 61 percent of the directors reported high or moderate levels of disruption in staffing, productivity and the remote work transition, while 28 percent plan to reduce their real estate footprint. “In looking toward action steps in trying to figure out what the workforce of the future might look like, it’s having the right size workforce, but also where those employees are going to conduct their work,” said Rojik. “Some of the questions we posed were about the real estate footprint that companies have. I know that as a firm of significant size, we have offices all across the U.S. That is a big question now that we have immersed ourselves in virtual work environments. That’s been going well for professional service firms, but does it make sense to carry large real estate holdings if the virtual environment is working out well? That’s one consideration in trying to contain costs and seeing what makes sense.”
Another major issue is company culture. “How do you maintain culture in a firm and an organization where you now have a workforce that is maybe geographically disbursed and doesn’t have those kinds of water cooler connectivity points?” said Rojik. “How do you get creative in doing that and be very intentional in maintaining the culture of your company? That’s another aspect that could have financial implications going forward because it speaks to the productivity and satisfaction of your workforce. It also speaks to how you’re engaging with your customers, vendors and others. How does that work over the longer term? All of these are very significant questions that were raised in our survey.”
