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.
Brian Hart is founder and president of Flackable, an award-winning public relations agency representing financial and professional services brands nationwide. The agency, which he bootstrapped in 2014 at the age of 27, guides growth-driven brands to new levels of credibility, authority and influence through its innovative, integrated approach to public relations. His professional recognition includes Bulldog Reporter‘s 2021 Silver PR Star Under 40, PRNEWS’ 2020 Agency Elite Top 100, Irish America Magazine’s 2019, 2018 & 2017 Business 100, PRNEWS’ 2017 Rising PR Stars 30 & Under, Lehigh Valley Business’s 2016 Forty Under 40 and Adweek’s 2015 PR Industry 30 Under 30.
In 2020, Brian developed an industry-first client portal and automated campaign status reporting system, a platform delivering unprecedented campaign clarity, transparency and accountability. He leads and mentors a growing team of top public relations talent who routinely land Flackable’s clients in top news outlets including The Wall Street Journal, CNBC, Fox Business, Bloomberg, Forbes, Barron’s, US News & World Report, The Associated Press, Reuters and various industry trade press.
Brian is a Temple University graduate with a B.A. in Strategic Communication and a Political Science minor. He began his career as a licensed life and health insurance professional at a broad-based financial services firm in King of Prussia, PA. Prior to founding Flackable, Brian represented a number of leading financial services firms at a public relations agency in New York City and New Jersey.
Arun serves as Deloitte’s Global Leader of Insurance Technologies, with a focus on building, enhancing, and delivering Deloitte’s technology capabilities to the insurance marketplace. In addition to his global responsibilities, Arun is a leader within Deloitte’s U.S. Digital practice and utilizes his 25 years of experience to lead and to deliver technology and strategy consulting services. He has hands-on experience across banking, securities, and insurance, as well as other industries, enabling him to provide clients with insights from IT organizations across the maturity spectrum.
Roger Shedlin is the president and CEO of WINFertility.
“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.”
