Audit committees still lack ‘financial experience’

More than 25% of the UK’s largest 100 quoted companies do not have audit committees that possess someone with ‘recent relevant financial experience’ as required by corporate governance guidance, according to a survey by KPMG.

Link: Boarding over the cracks

The KPMG survey of the first half of the FTSE100 to disclose their compliance to the new Combined Code found the UK’s largest companies have ‘been active in reshaping their boards to meet the enhanced corporate governance requirements laid down by the Higgs and Smith reviews’.

KPMG warned that more than a quarter of companies chose to rely on the collective experience of the audit committee members rather than an individual, contrary to the guidance.

Timothy Copnell, director of Corporate Governance at KPMG, said: ‘A fear at the time of the corporate governance reforms was that companies would struggle to find non-executives willing, or able, to be classified as having recent relevant financial experience – a problem that may be exacerbated by the introduction of IFRS. This appears to be bearing out.’

The survey showed audit committees averaged audit 5.5 meetings per year, half a meeting more than last year and one and a half more than the minimum recommended by Sir Robert Smith’s Guidance on Audit Committees.

The research also found that the average number of independent non-executive directors per board rose by an average of a quarter person in 12 months. And, women now constitute over 10% of FTSE100 board members, up by a percentage point in 12 months.

John Collier, a director at non-executive specialist headhunter Clive & Stokes International, believes the time commitment of audit committees is a far bigger issue for potential non executives than risk concerns. He said that some non-executives, especially at financial service companies, are devoting upwards of 40 days to their duties. He said of audit committee non-executives: ‘the pre-meeting work is more severe than many other sub committees, and the sheer burden on them is tremendous.’ Collier said the burden on non-executives is reflected in soaring remuneration. He said: ‘Non-executive annual remuneration of £50,000 is common among FTSE100 companies now: a threefold increase in five years.’

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