RegulationCorporate GovernanceGood audit committee chairman are hard to find

Good audit committee chairman are hard to find

What keeps non-executive directors (NEDs) and audit committee members awake at night?

Not, as you might suppose, the burdens of complying with legislation such as
Sarbanes-Oxley: that’s business as usual these days. Regulatory compliance was
noticeably absent from the top ten list of worries that emerged from a recent
Ernst & Young NED roundtable discussion.

The concerns that featured strongly were health and safety, market risk,
financial risk including financial crime, and organised crime. And for those who
chair FTSE 350 companies, finding the right people to head up their audit
committees was identified as particularly difficult. Potential candidates, most
of whom don’t need the money, see the risks as disproportionate to the time
commitment and the rewards.

Companies are looking for individuals with wide financial and accounting
skills, plus a good understanding of legal issues, but headhunters do not appear
to be aware of this. They tend to fish for audit chairmen or chairwomen in the
pool of FTSE FDs who already have a full-time job, which generally precludes the
necessary commitment to a part-time role.

Almost all of E&Y’s roundtable participants serve on audit committees,
about half as chairmen. They highlighted the need for quality people, especially
in larger companies, but said that increasing reluctance to take on the role
means the flow of quality recruits is drying up.

Part of the answer may be more thought about the level of support needed by
the audit committee chairman from the internal and external auditors, and from
the company secretary’s office.

The expectation that audit committee chairmen have to know everything also
has to change. It may be that there should be regulatory recognition that it is
naïve to believe the audit chairman has more knowledge or expertise than the
CEO: the role is to chair the committee, not assume command of all risk.

New risk emerges constantly, the latest new risk areas being the
roundtable-cited crime, pensions, the environment, and high turnover of transac
tion-based staff.

If the audit committee chairman is to continue to attract high-calibre
applicants, a clearer definition of the role and responsibilities needs to be
developed, along with a practical job description. Without more clarity, the
perceived risks of taking the job will become a disincentive outweighing the
benefits, thereby leaving a dangerous vacuum at the heart of corporate
governance

Gerald Russell is London
senior partner of Ernst & Young and chairman of the firm’s NED programme

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