Three Proxy Season Takeaways

By Ginger White

With this year’s proxy season well underway, stakeholders have zeroed in on what they’re looking for from company boards.

More than ever, it’s clear they must have an eye on what’s happening within their organization as well as business trends from the external world. With disruptors at every corner, they must understand the best ways to adapt and thrive amidst a tumultuous global economy and the spring of the digital age. Internally, calls for greater diversity within organizations grow louder — and boards must address this issue while looking for guidance from stakeholders.

Greater diversity in company boards

Companies in the top quartile for gender and racial/ethnic diversity are more likely to have financial returns above respective industry medians, according to a McKinsey & Company report. Organizations like Wells Fargo began to implement the research in its proxy statement, noting that “diversity and inclusion is one of our five primary values and is essential to our success. Consistent with our core values, we promote diversity and inclusion in every aspect of our business.”

When I started serving on the Global Institute of Management Accountants (IMA) board in 2008, we made a very conscious effort to work toward ensuring our board members were not only the most qualified, but also matched our member demographics. Since then, our membership’s gender and overall diversity have improved and IMA’s increasingly diverse board, leadership and staff have created an incredible ROI for the organization.

Representation and inclusion resonate with investors, so it’s key to examine your stakeholders from various perspectives to ensure a board that reflects the various stakeholder insights. While women make up more than half of the U.S. population, for example, only 22.5% of women-held Fortune 500 board seats in 2018, according to Deloitte. This disconnect shows that companies still need to improve their understanding of those they serve to be better equipped for mitigating company risks and turning them into significant opportunities.

Effective risk management

With growing geo-political tensions, e.g. Russia and Brexit, board executives must ensure companies are not affected by changing policies. While C-suite executives are often responsible for the day-to-day management of risk, companies will look towards their board for setting the “right tone at the top.” As Visa noted in its 2019 proxy statement, “Our board is responsible for promoting an appropriate culture of risk management and addressing specific risks, such as strategic and competitive risks, financial risks, regulatory risks and operational risks.” Businesses will need to focus on risk mitigation efforts as they determine all the possible outcomes that may result from international diplomatic relations. This will be a trying time for newer companies planning to expand their global reach since international growth necessitates more complexity in the business model. For example, permanent establishment tax rules vary across countries and the enforcement of those regulations can differ as well. Without the necessary extensive research and benchmarking needed to pinpoint the hidden costs associated with global expansion, organizations will face continued challenges.

Additionally, it’s important that companies’ supply chains are flexible and agile when it comes to the new regulatory changes that may come into effect. Determining the total cost of ownership, both in the short- and long-term are key; decisions made today can have a profound negative or positive impact four to five years from now. Boards must also consider factors like longer supply chains, higher logistical costs, working capital increases, and increases in quality costs. Establishing solid measurement processes is critical for future business success. Businesses with more regionally focused strategies tend to drive out a lot of supply chain total cost and help mitigate some of the geo-political impacts.

Integration of new technology in finance departments

Companies must also invest in artificial intelligence (AI) and automation to maximize the value of their finance team. Stories about companies’ significant cost savings due to new technologies are weekly headlines. Organizations can’t afford to not keep pace. Exxon Mobil, for example, partnered with IBM to use AI to create more sophisticated models for predictive maintenance and maximum efficiency. Other companies in the energy sector are following suit, as they understand that service interruptions cost the industry millions of dollars a year. Additionally, many organizations like Wal-Mart are requiring their finance committee members to be experts in the field of technology.

For future sustainability, all companies must invest time and resources in robotic process automation, business intelligence, and data analytics. Finance teams will thus only grow in their value, as their oversight and governance to ensure correct data is being extracted is key to making solid business decisions. While there is no doubt that the digital age is an exciting time, data accuracy is critical for it to be successful. Companies need the logic in place to retrieve the data and ensure it’s working as expected, and that monitoring processes that automate solutions stay controlled and continue to function properly over time.

Throughout the past year, stakeholders have made their voices heard, demanding company boards adapt accordingly to address both business and social trends. It’s evident that a diverse group of board members are better fit to serve a diverse group of stakeholders and act in their best interests. Further, to navigate the looming socio-political changes, these executives must also fully understand the nuance and distinction between global economies to be prepared for anything that comes their way. Even while managing both of those trends, a proverbial “third eye” must be kept on the evolution of new technology to successfully transition one’s organization into the digital age.

Ginger White, CMA, CSCA, is Chair of IMA’s Global Board of Directors for the 2018-2019 fiscal year and Chief Operating Officer of the American Accounting Association.


Published date: May 28, 2019