CEO's perception of the role of tax management.

• Author: Arlinghaus, Barry P.

CEO's Perception of the Role of Tax Management

INTRODUCTION

Taxes have always been a significant cost of doing business. With federal, state, local, and provincial governments looking for increased and new sources of revenue, the effect of taxes upon corporate profitability will become even more significant. Managing the tax function in today's complex and changing environment requires more than filing returns and dealing with tax audits. It requires tax management to be an integral part of the company's business team.

In order to learn more about tax management's role in today's corporate environment, a survey was conducted that focused on senior management's perception of the tax function, the tax department's involvement in decision making, information flow, and organization structure.

Two questionnaires were used to conduct the study. One questionnaire was developed for completion by the company's chief executive officer (CEO). The other questionnaire was developed for completion by the person who has primary direct responsibility for the overall tax function.

This article reports the findings for the CEO questionnaire and responses to selected questions on the senior tax person questionnaire for those companies for which the CEO had responded. Follow up articles reporting the findings for the senior tax person questionnaire will appear in future issues of The Tax Executive.

The author wishes to express his appreciation to those who have helped make this study possible. First, Tax Executives Institute for making its membership list available, partial funding, and the insights provided by members of the Institute's Corporate Tax Management Committee and other TEI members. Secondly, Miami University--in particular, the Department of Accountancy and the School of Business--provided a significant amount of financial support. Numerous students, in particular Steve Cunningham and Mike Warmouth, assisted in the compilation of the data. Lisa Ehrichs provided invaluable assistance with computer input and the writing of programs that resulted in output for analysis.

METHODOLOGY

Information for this study was obtained by means of two questionnaires mailed to the senior tax person at 2,463 TEI member companies. The cover letter requested that the senior tax person forward the CEO questionnaire to the CEO for his or her independent completion and separate return.

In order to gain the insight necessary to develop meaningful questionnaires, interviews were conducted of tax executives at 15 midwestern companies during the Summer of 1987. Drafts of the questionnaires were sent to tax executives at the 15 companies where interviews had been conductd and to members of TEI's Corporate Tax Management Committee. Comments were received from 22 tax executives. The CEO questionnaire and selected questions from the senior tax person questionnaire are reprinted in Apendix I to this article.

Questionnaires were numbered in order to facilitate the mailing of second requests and to enable the author to correlate CEO responses with those of the senior tax person from the same company. Confidentiality of responses was strictly observed as promised.

The questionnaires were mailed in October 1987. Second requests were mailed in late November and early December. Approximately 30 percent of the responses received from each group were second requests.

Responses were received from 588 companies. Surprisingly, there were 30 companies for which the CEO responded but not the senior tax person. There were 298 companies for which both the CEO and the senior tax person responded.

Overall, there were 558 returned and completed senior tax person questionnaires for a response rate of 22.7 percent. There were 328 returned and completed CEO questionnaires for a response rate of 13.3 percent. Not all of the respondents answered each question but most responded to nearly all of the questions.

Most of the responding CEOs were from smaller companies. Approximately 86 percent of the CEOs were from companies with assets under $5 billion. Almost 91 percent of the CEOs were from companies with sales under $5 billion. The senior tax person response rate by size of company was almost identical to that of the CEOs.

CEO CONTACT WITH SENIOR

TAX PERSON

CEOs were asked how often they had direct contact with the senior tax person. A little fewer than half of the CEOs had either daily or weekly contact with the senior tax person. The responses are summarized in Table 1. As indicated in Tables A and B in Appendix III it appears that frequency of contact does not vary significantly by size of a company's assets or sales.

Frequency of contact does vary by background of the CEO. CEOs with a finance/accounting background, or a varied background including some finance/accounting, have more frequent contact with the senior tax person. Those with engineering/research, operations, or sales/marketing backgrounds have significantly less frequent direct contact. Table C in Appendix II summarizes the responses by CEO background.

The higher the chief tax executive is in...