tMega to Tackle US Tax Reform Implications
The dominant theme on the agenda for the upcoming March Treasurers’ Group of Mega-Caps (tMega) meeting is planning around the implications of US tax reform.
As NeuGroup’s tMega members represent the largest corporates with the most substantial amount of offshore cash to repatriate, it is no surprise that determining and communicating what they intend to do with that newly-accessible capital is a huge focus for the first-half meeting cycle. The latest quarterly earnings releases of member companies have or will signal at least preliminary intent. The next step is for these firms to hammer out the details, which will be open to disruption by an M&A opportunity of size, and anyway be subject to scrutiny by investors, be they activist equity or other institutional shareholders, bondholders or their proxies at the rating agencies. And this scrutiny may go beyond these groups: BlackRock Chairman and CEO Larry Fink, heading the largest global money manager, has set the tone in his annual letter to CEOs, urging firms to use the proceeds for US tax reform to help create long-term value for all stakeholders, including shareholders, employees, customers, and the communities in which they operate.
What’s important: Corporates now must consider stewardship as a counterbalance to financial performance. Treasurers, therefore, face a thankless mandate to execute on a balance sheet and capital plan that will deliver for a variety of constituencies that probably want both (it’s all a matter of perspective on short-term vs. long-term value creation). This is also articulated by Mr. Fink:
“We also see many governments failing to prepare for the future, on issues ranging from retirement and infrastructure to automation and worker retraining. As a result, society increasingly is turning to the private sector and asking that companies respond to broader societal challenges. Indeed, the public expectations of your company have never been greater. Society is demanding that companies, both public and private, serve a social purpose. To prosper over time, every company must not only deliver financial performance, but also show how it makes a positive contribution to society.
In the United States, for example, companies should explain to investors how the significant changes to tax law fit into their long-term strategy. What will you do with increased after-tax cash flow, and how will you use it to create long-term value? This is a particularly critical moment for companies to explain their long-term plans to investors. Tax changes will embolden those activists with a short-term focus to demand answers on the use of increased cash flows, and companies who have not already developed and explained their plans will find it difficult to defend against these campaigns. The U.S. tax bill is only one such example – regardless of a company’s jurisdiction, it is your responsibility to explain to shareholders how major legislative or regulatory changes will impact not just next year’s balance sheet, but also your long-term strategy for growth."
We look forward to helping tMega treasurers share insight as they develop their execution plans in line with the potentially conflicting demands of the various constituencies their firms are being asked to serve.
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