Accounting and consulting firm BDO USA put together a list of the issues most likely to be important to investors during annual-meeting season. Memo to company executives: Consider this a ten-step primer for the question-and-answer portion of your annual shareholder meeting.
Global economic concerns: The outlook in the US seems to be a little steadier than it was this time last year. Companies’ biggest concerns are a sluggish Europe and a slowing China. The global outlook shows that CFOs in Europe are slightly more optimistic than they were in the fourth quarter of 2012, while a US survey shows company and country optimism are increasing. BDO’s report says that shareholders will be asking about contingency plans in case of a major collapse.
Foreign Corrupt Practices Act risk: Governments and companies have begun to focus more on preventing bribery and corruption. Although the US Foreign Corrupt Practices Act (FCPA) is more than 30 years old, enforcement efforts have been increased recently. The UK Bribery Act 2010 is also designed to combat corruption. Company boards should be aware of research showing that organisations often fare poorly in managing corruption risks in emerging markets.
Cyber-attacks: This year has already been described as “the year of the hack.” The proliferation of attacks suggests that many companies are not fully equipped to handle cyberthreats. Sometimes, research shows, companies thought they had the correct online security measures in place only to be burned by an undetected attack. Cybersecurity figures to be on the minds of investors; it’s definitely a rising concern among companies.
Social media: Social media is a fast-emerging threat, moving at the speed of a tweet. Some hackers use social media to learn about employees and companies and use “phishing” emails to launch attacks. Social media can also be a threat even as companies try to use various networks to be more transparent and interactive with customers. Shareholders are expected to focus on the specifics of the company’s policies for opportunities and risks associated with social media.
Sequestration: Defence- and government-related businesses in the US will feel the effects more than others from the $85 billion in spending cuts that began March 1st. With no news yet on a compromise from Congress, contingency plans will be heavy on the minds of investors.
M&A due diligence and contingency planning: Companies that stockpiled cash in previous years now seem more eager to spend. One critical part of a potential merger or acquisition is planning for the accounting integration. Investors are likely to seek assurances about proper vetting of target companies or about contingencies for dealing with an acquiring company’s purchase offer.
Going private?: Dell is the most notable company to announce an attempt to go private this year. The BDO report says companies dealing with depressed share prices should be ready to answer questions about the consideration of going private.
Executive compensation: Companies have become more transparent about the compensation of executives. In 2011, the “say on pay” provision of the Dodd-Frank Act gave shareholders of US publicly listed companies the right to register a nonbinding approval or disapproval of the compensation of executives. Surveys say that shareholders should be even more involved in deciding executive pay and the benchmarks for compensation.
Health care: US companies are in the midst of adapting to the Affordable Care Act, which has several major provisions set to take effect in 2014. The act withstood a US Supreme Court challenge last summer, and now some larger companies face penalties if they don’t provide minimum essential health insurance coverage to full-time workers. The decisions companies face about health care could affect the recruiting and retention of employees, as well as corporate reputation.
Rethinking outsourcing: Plenty of companies have relocated jobs to countries with lower wages. But the amount of offshore work appears to be leveling off. BDO says one reason some companies are considering returning jobs to the home country is that wages have gone up in many emerging markets, turning the lower class into the middle class.
—Neil Amato (email@example.com) is a CGMA Magazine senior editor.