EXCERPTS OF RECENT MEDIA COVERAGE CORPORATE GOVERNANCE PRACTICE

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1 EXCERPTS OF RECENT MEDIA COVERAGE CORPORATE GOVERNANCE PRACTICE A SAMPLING OF MEDIA COVERAGE FROM THE 2017 BDO BOARD SURVEY AGENDA A Financial Times Service Boards Model Tax Options as Reform Drags On September 15, 2017 Last week, the board of technology company Synopsys announced its plan to repatriate approximately $775 million to $850 million of cash currently being held offshore during the fourth quarter of fiscal year This announcement came despite ongoing congressional work to develop a tax reform plan, which politicians say will make it cheaper for companies to bring cash back to the U.S. Many companies are holding out on repatriating foreign cash in the hopes that the tax reform plan will include a repatriation tax holiday; however, according to tax experts, some are also modeling how other changes to tax laws such as the potential elimination of certain tax credits could impact the gains offered by a tax holiday. Some 78% of public company board members expect that reforms on taxes will be enacted during President Trump s fouryear term, but only 22% expect it to take place this year, according to the 2017 BDO Board Survey. To some degree the stars are aligned for tax reform to take place, says Joseph Calianno, partner and international technical tax practice leader at BDO. While many details of the plan are still under debate, at least some common denominators that we ve seen are a reduced corporate tax rate, a move from a worldwide system to a territorial system and the one-time transitional tax on accumulated earnings offshore, Calianno says. The transitional tax is viewed as a necessary element of tax reform in order to move from a worldwide tax system to a territorial system, he says. While some companies are taking a waitand-see approach to repatriation, other boards are modeling some of these common denominators, and in particular the transition tax, to see if it makes sense to bring back cash ahead of the expected tax reforms. If they think they might get a better answer today by repatriating certain earnings, they might be doing that today. I think it varies company to company, says Calianno. This modeling process also involves companies looking at their different foreign tax credits and other tax attributes, and how they might fare under tax reform, Calianno says. Beyond taxes, companies also look at their M&A and capital expenditure plans when considering whether to repatriate foreign cash Some companies may consider bringing cash home because they are not looking at redeploying excess cash offshore, while others may consider not bringing it home because they require it for their foreign operations, says Calianno.. BDO CORPORATE GOVERNANCE PRACTICE BDO s Corporate Governance Practice is a valued business advisor to corporate boards. The firm works with a wide variety of clients, ranging from entrepreneurial businesses to multinational Fortune 500 corporations, on myriad of accounting, tax, risk management and forensic investigation issues.

2 2 DIRECTORS & BOARDS Directors Hopeful for Trump s Tax Reform. Climate change policies? Not so much. September 18, 2017 Corporate directors are optimistic President Donald Trump s promise to overhaul the nation s tax system will come to fruition. But most aren t happy with his decision to pull out of the Paris Climate Accord, reports a survey released this week. A majority of directors believe tax reform will happen before Trump s term has ended, with only 22% expecting reform before the year is out, according to The BDO Board Survey, conducted annually by the Corporate Governance Practice of BDO USA, examines the opinions of 130 corporate directors of public company boards. The survey, says Amy Rojik, BDO USA s National Partner for Communications and Governance, show corporate directors are eagerly awaiting the tax reform promised by President Trump, but they seem resigned to the fact that it may not happen in As far as Trump s climate change moves, directors aren t as bullish. In June, the president pulled the United States out of the Paris agreement, a landmark global coalition to curb emissions, but many corporations spoke out against the move. The BDO survey found that many directors at corporations weren t happy either, with 54% saying they were against Trump s decision. President Trump s decision to pull the U.S. out of the Paris Climate Accord put climate change and sustainability matters in the spotlight earlier this year. Regardless of where you stand on that decision, businesses are becoming increasingly focused on sustainability and how to incorporate it into their financial reporting, says Christopher Tower, BDO USA s National Managing Partner for Audit Quality and Professional Practice. The survey also looked at financial reporting changes, whistleblower/compliance programs, activist investors, and board composition. WALL STREET JOURNAL Survey Roundup September 29, 2017 About Face: A survey of 130 corporate directors of public company boards by professional services firm BDO USA found 54% said it s important to disclose to investors about sustainability issues, up from 24% last year. THESTREET Boards Think Tax Reform Is Coming Under Trump, Just Not This Year September 12, 2017 Treasury Secretary Steven Mnuchin said on Tuesday that an overhaul of the U.S. tax system will happen this year, and while a new report reveals that most public company directors are rooting for tax reform, nearly a quarter of board members surveyed say it won t happen in The 2017 BDO Board Survey found that 78% of public company directors anticipate that tax reform will be achieved during President Donald Trump s current four-year term. Still, 22% of directors don t believe it will happen in 2017, and another 22% don t think that tax reform will happen at all during Trump s term. BDO gathered the opinions of 130 directors at public companies. The need to pass the 2018 budget, deal with the deadline on raising the debt ceiling and overcoming the divisions that defeated healthcare legislation will make tax reform a tall order for 2017, Matthew Becker, leader of BDO USA s National Tax Office, said. If Democrats and Republicans can push aside special interests and focus on helping their constituents - not opposing each other s ideas - tax reform can be achieved. It just may take additional time. Of those directors who are anticipating tax reform, nearly all of them, 94%, predict that it will have a favorable impact on their business, with 20% believing that the impact will be highly favorable. Just under half of the directors surveyed said the most important goal for tax reform legislation is the reduction of the 35% corporate tax rate. President Trump has touted a 15% corporate tax rate, which Mnuchin said could be difficult to achieve. I don t know if we ll be able to achieve that given the budget issues, said Mnuchin. But we re going to get this down to a very competitive level. The second-most important goal is a simplified tax code, followed by the need for tax incentives to repatriate foreign earnings and lowering the capital gains tax rate. CFO Board Interest in Sustainability Reporting Doubles, Survey Finds The portion of public company board members who believe that sustainability disclosures are important to inform investors has more than doubled, according to a new survey.

3 3 Out of 130 board members surveyed in August by the accounting firm BDO USA, 54% say that disclosures regarding sustainability are important to understanding a company s business and helping investors make informed investment and voting decisions, according to the survey. Last year, just 24% of directors felt that way. Further, 54% of the respondents said they were against President Trump s decision to withdraw the United States from the Paris Climate Accord. The survey s authors link the growing interest of boards in sustainability reporting to recent demands for such information on the part of shareholders, citing the demands of Exxon Mobil investors. In May, nearly two-thirds of Exxon Mobil shareholders approved a proposal requiring the energy company to measure and disclose how rules curbing greenhouse gases and new energy technologies could affect the value of the company s oil assets. Other shareholder groups have expressed similar interest in increased disclosures on sustainability matters (e.g. climate change, corporate social responsibility, etc.), and corporate directors have become increasingly receptive to the issue of providing sustainability metrics in financial statements, according to the report. The BDO survey finding parallels investors surging demand for sustainability data. In its 2016 report on sustainable investing, US SIF, the association formerly known as the Social Investment Forum, reported that investors take environmental, social, and governance (ESG) factors into account across $8.72 trillion of professionally managed assets a 33% rise since REUTERS Almost Half of Corporate Directors Surveyed Say Expanded Auditor s Report Is Not Useful September 19, 2017 Almost half, or 48 percent, of public company board of directors said that they do not feel that the PCAOB s recently approved rule to expand the auditor s report improves its transparency or usefulness, according to a survey published by BDO USA, LLP on September 12, After more than seven years of work, the PCAOB in June issued Release No , The Auditor s Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion and Related Amendments to PCAOB Standards, requiring auditors to discuss critical audit matters (CAMs) that arose while scrutinizing their clients financial statements. The PCAOB defines critical matters as issues that have been communicated to the audit committee, are related to accounts or disclosures that are material to the financial statements, and involved especially challenging, subjective, or complex judgments from the auditor. The SEC needs to approve the audit regulatory board s standards before they become effective, and the commission is expected to take action by October 26. But the rule has been controversial. In comment letters, business groups and public companies said they opposed the new requirements. They said they believed auditors could sidestep their role and reveal information that management has not disclosed, create a chilling effect on the audit committee and auditor relationship and create more legal liability risks. BDO s survey showed only 36 percent of the corporate directors said the rule is an improvement, and 16 percent said they were not sure. Directors were evenly split on whether the discussion of critical audit matters in sensitive areas could make their job as a board member more difficult. While board members are not enamored with the additional disclosure and discussion of critical audit matters in the new auditor s report, this change has been coming for a few years and we anticipate they will make this adjustment and it could lead to better auditor client communications, said Phillip Austin, BDO USA s National Managing Partner for Auditing. We are working closely with our clients and engagement teams to educate and drive development of meaningful CAMs to be shared publicly should the SEC approve the PCAOB s changes to the auditor s report. BDO conducted its survey in August, asking 130 corporate directors regarding corporate governance and financial reporting issues. DOW JONES Market Talk Roundup: Latest on Trump, U.S. Politics Most public-company directors expect Congress and the President to approve a tax overhaul, but probably not this year, according to a new survey of directors by accounting firm BDO USA. Of the 130 directors surveyed, 78% think tax reform will be achieved during President Trump s four-year term, but only 22% think it will happen in When asked about the most important goal for tax legislation, 45% cited reduction of the current corporate tax rate, while 37% cited simplification of the tax code. Among the survey s other findings, 54% disagree with Trump s move to withdraw from the Paris climate-change accord. COMPLIANCE WEEK Board members wary of CAM disclosures in audit reports September 12, 2017 Roughly half of public company board members say the inclusion of critical audit matters in audit reports will not make reports more transparent or useful to investors, and a similar number expect the exercise to make their jobs more difficult. That s the sentiment, at least, of about 130 board members who participated in BDO USA s latest annual survey, which takes a pulse on public company boards regarding corporate governance and financial reporting trends. They re not looking forward to the requirement auditors will soon face to disclose in audit reports

4 4 any CAMs that made the audit especially difficult or challenging, assuming the requirement is approved by the Securities and Exchange Commission. The Public Company Accounting Oversight Board developed the controversial disclosure requirement as a way to give investors and other users of financial statements some insight into what troubled auditors most as they completed their audits of financial statements and internal control over financial reporting. In BDO s survey, only 36 percent of directors said they believed such a disclosure would represent an improvement in the standard audit report, which has become highly boilerplate over many years in issuing a pass-or-fail audit opinion. Another 16 percent of directors said they weren t sure whether the disclosure would improve audit reports. While companies wait to hear whether the SEC will approve the PCAOB CAM disclosure requirement, which is standard procedure for all PCAOB standards, 82 percent of board members said they are actively working with management on other epic accounting changes in financial statements around revenue recognition, leasing, and credit losses. In addition, 74 percent said they are also working with management on how best to communicate with shareholders, regulators, and other stakeholders on the changes that are in store as a result of the new accounting requirements. The survey also suggests corporate board members are losing hope when it comes to getting any kind of meaningful tax reform developed in More than three-fourths of board members said they believe tax reform will happen at some point during the current presidential term, but only 22 percent believe it will happen in ACCOUNTING TODAY Board Members Divided On Tax Reform, Accounting and Audit Matters More than three-quarters of board members at public companies polled by BDO USA expect tax r eform to be achieved before the end of President Trump s term in office, but only 22 percent anticipate it will happen before the end of this year. Of those 78 percent who predict tax reform, an overwhelming 94 percent majority anticipate it will have a favorable impact on their business, with 20 percent expecting the impact will be highly favorable. When asked to choose the most important goal for tax reform legislation, the largest proportions of board members picked reduction of the current corporate tax rate (45 percent) and simplification of the tax code (37 percent). Fewer board members favored the need for tax incentives to repatriate foreign earnings (12 percent) or lower the capital gains tax rate (5 percent). When BDO asked board directors about the Public Company Accounting Oversight Board s new standard changing the format of audit reports to include disclosure and discussion of critical audit matters, only 36 percent of those polled believe the changes will benefit investors, while 50 percent were concerned it would make their job more difficult. Nearly half (48 percent) of the corporate board members polled don t believe the discussion of critical audit matters is an improvement to the transparency and usefulness of the auditor s report for investors. Eighty-two percent of the directors surveyed said their board or audit committee is actively working with management to implement the revenue recognition, lease accounting and credit loss accounting standards going into effect over the next few years. Nearly as high a proportion of board members (74 percent) indicated they are talking with management about the need to communicate with shareholders, regulators and other stakeholders about the potential impact of the accounting changes to avoid unpleasant surprises when they show up on corporate financial statements. Board directors were also split when BDO asked them about President Trump s decision to withdraw the U.S. from the Paris Climate Accord, with a slight 54 percent majority saying they were against the decision. A similar 54 percent of the respondents believe disclosures of sustainability matters are important to inform investors. That represents a sharp reversal from the poll a year ago when only 24 percent had that position. Despite stories about companies failing to act when whistleblowers express concerns via internal compliance programs, an overwhelming 93 percent majority of board members polled said they receive regular reports from management, or an internal compliance executive, on whistleblower complaints and how they re being addressed. The 2017 BDO Board Survey shows corporate directors are eagerly awaiting the tax reform promised by President Trump, but they seem resigned to the fact that it may not happen in 2017, said Amy Rojik, a partner in BDO USA s Corporate Governance Practice. They also have a high degree of confidence in their internal compliance programs, despite some widely publicized examples of businesses failing to respond to whistleblowers. Directors are also focusing more fully on engaging with management in addressing major accounting changes that will be implemented over the next several years and are much more favorable towards disclosures of sustainability matters than they were a year ago. CAQ DAILY MEDIA BRIEFING PCAOB BDO USA s 2017 BDO Board Survey found that nearly half (48 percent) of the 130 public company directors do not feel adding discussions of critical audit matters (CAMs)

5 5 is an improvement to the transparency and usefulness of the auditor s report for investors. Just over one-third (36 percent) of the directors surveyed believe it is an improvement, and 16 percent are not sure. Directors are evenly split (50 percent) on whether the discussion of CAMs in sensitive areas could make their job as board members more difficult. A large majority (82 percent) of board members say they are actively working with management on other accounting changes in financial statements around revenue recognition, leasing, and credit losses. In addition, 74 percent say they are also working with management on how best to communicate with shareholders, regulators, and other stakeholders on the changes that are in store as a result of the new accounting requirements. THESTREET Big Companies Say They Favor Diversity, Most Refuse to Prove It A majority of large-cap companies say they are working to advance gender and racial diversity in the boardroom but less than half are willing to disclose how their efforts are proceeding, according to a new study. About 45% of companies disclose the composition of their boards by gender and almost 40% disclose the ethnicity of the directors, Equilar, which provides executive compensation benchmarking and tracking tools, found after analyzing the 2017 proxy statements of 500 of the largest U.S. companies. Still, that is less than the 60-plus percent of companies that say they consider gender and ethnicity when assessing director candidates, according to the Equilar study released on Wednesday. The U.S. Securities and Exchange Commission is looking into existing disclosures of diversity composition on corporate boards and could make such disclosures a mandatory requirement in the future, according to BDO USA. Recently installed SEC Chairman Jay Clayton has indicated that he will work with the SEC staff, including the Office of Minority and Women Inclusion and the SEC s Advisory Committee on Small and Emerging Companies to monitor this issue. Women make up slightly more than 22% of S&P 500 boards, according to BoardEx, a relationship mapping service of TheStreet Inc. That is a slight increase from 20.5% as of September Still, female representation in the boardroom declines when analyzing the S&P MidCap 400 and the S&P SmallCap 600 to 18% and 15%, respectively. The number of minority directors appointed to S&P 500 boards fell in 2016 and the representation of minorities in the boardrooms at the top 200 S&P 500 companies has not significantly changed over the past five to 10 years, according to executive search firm Spencer Stuart. That being said, directors generally believe that they are addressing the topic of diversity in the boardroom. About 66% of directors say their board is proactively addressing the issue of board diversity, although 34% of board members admit that more needs to be done, according to the new 2017 BDO Board Survey released Tuesday that examined the opinions of 130 public company directors. Activist proposals, particularly those suggesting changes in board composition to CONTACT: AMY ROJIK arojik@bdo.com CHRISTOPHER TOWER ctower@bdo.com PHILLIP AUSTIN paustin@bdo.com MATTHEW BECKER mkbecker@bdo.com ADAM BROWN abrown@bdo.com JAY DUKE jduke@bdo.com STEPHANIE GIAMMARCO sgiammarco@bdo.com PAUL HEISELMANN pheiselmann@bdo.com JEFF JARAMILLO jjaramillo@bdo.com GLENN POMERANTZ gpomerantz@bdo.com ABOUT BDO BDO is the brand name for BDO USA, LLP, a U.S. professional services firm providing assurance, tax, advisory and consulting services to a wide range of publicly traded and privately held companies. For more than 100 years, BDO has provided quality service through the active involvement of experienced and committed professionals. The firm serves clients through more than 60 offices and over 500 independent alliance firm locations nationwide. As an independent Member Firm of BDO International Limited, BDO serves multi-national clients through a global network of 67,700 people working out of 1,400 offices across 158 countries. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. For more information please visit: Material discussed is meant to provide general information and should not be acted on without professional advice tailored to your firm s individual needs BDO USA, LLP. All rights reserved.