Tax and Business Strategy: From A Board and C-Suite View

An increasingly important part of the chief tax executive’s role and one that we’ve been tracking closely as of late, is to help boards understand the strategic implications of tax. It’s help that’s sorely needed, per some recent surveys. Boards today are under pressure from multiple directions, including investors and the public, and have a lot to stay briefed on with respect to their business operations and financials, which now includes U.S. tax reform. Boards are looking to their in-house tax professionals to help navigate this ever-changing tax landscape, both here at home and abroad. At the recent TCPI Annual Tax Conference, the C-Suite panel indicated that the “level of play is elevated for tax directors today,” as their entire company board, not just the audit committee, wants to understand what U.S. tax reform means to their company.

In something of an understatement, a PwC survey of corporate directors points out that “sitting on a public company board is not a simple undertaking.” Boards are looking for more support to help them perform their core function, the oversight of corporate strategy. Just 51 percent of survey respondents say management is “very effective” at involving the board in strategic decision-making. In addition:

• 64 percent say their board should spend more time on strategic planning;
• 31 percent say the information they get from management on views below the C-Suite is lacking; and
• 0nly 60 percent say they strongly challenge management’s assumptions when discussing company strategy – a task which, as PwC rightly points out, should be expected of all directors.

For another broad view of what’s on directors’ minds, see the 2017 Board Survey from BDO USA’s Corporate Governance practice. This report covers a range of timely topics, including financial reporting changes, sustainability matters, as well as whistleblower and compliance programs. Furthermore:

• The Public Company Accounting Oversight Board (PCAOB) recently approved a requirement for the auditor’s report to discuss “critical audit matters.” Directors were evenly split as to whether this could make their job as a board member more difficult.
• Regarding tax reform, 94 percent said they anticipate it will have a favorable impact on their business. Now that the legislation has passed, boards will rely on tax leaders to effectively plan in order to add strategic value.

Along these same lines again, the C-suite panel at the TCPI Annual Tax Conference notes that today’s chief tax executive must be a strategist and a catalyst in their organization. The compliance side is a given, we need scenario planning and we need it to be part of the day job of our chief tax executive.

Further, the C-suite panel noted the myriad of roles their chief tax officer is tasked with and must do well:

1. The operator of the function - handling the people, process and technology;
2. Steward for the company to manage tax risk; and
3. Strategist for the company’s tax posture/positions.

Part of the CTO’s challenge here, outside of resource issues, is to be aware of the complexity and breadth of the board’s purview, understand their challenges and how tax fits in, but also avoid adding to the board’s challenges by presenting overly detailed technical explorations of tax issues, and above all give them options to consider. In that regard, it’s hard to beat this straightforward advice from my colleague Nancy Manzano, a director in Vertex’s Chief Tax Office, in one of her posts: “Effective CTOs can help directors (and CFOs) feel less intimidated by tax issues. They can do this by keeping discussions about tax issues clear, concise and relatable. Don’t confuse them with extraneous information. What they need from you is an understanding of what the tax issues and risks are and what you are doing to address them. They should walk away knowing that you’ve got their backs.”

This is sound advice to follow, not just with the C-Suite, but the entire board, which will help to elevate the tax executive’s role as a strategic business partner and advisor.