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On the money

The importance of non-execs has never been more recognised

It’s a non-exec frenzy this week. Whether it’s the top audit firms being
“encouraged” by the regulator to take them on as part of a new governance code,
or non-execs being more bolshy, their importance has never been so greatly
recognised.

Looking at the governance rules for firms and non-execs’ attitude towards
their role in boardrooms, we’re approaching the end of a process that began when
Enron and Worldcom collapsed.

The combined code that followed outlined the role of non-execs, and these
principles have been revised for modern day business. Yet the principles didn’t
put enough fire in the bellies of banking non-execs – exacerbating the credit
crunch and the recession. Meanwhile, recruitment consultants have been working
hard to convince experienced people, particularly finance professionals, that
stakeholder focus on their role in a business was worth the effort.

In exchange, non-execs have decided that attending a few meetings and seeing
the old boys will get them nowhere, while it seems chiefs and FDs are more than
happy to beef up boards to give them greater assurance. And now, the assurers
have extra assurance, whether foisted on them or just through codifying what
they already do. The most fun will come from these newly-empowered non-execs and
how they work on the board of one of the top eight auditors.

Will they question the firm on their audit/non-audit strategy? Will they push
them on the risks associated with other member firms in their network?

Time will tell. Some have said that firms’ networks of business will make it
impossible to find experienced execs that aren’t conflicted. And their ‘comply
or explain’ statements are awaited with relish. Still, the firms like to
practice what they preach, so they’ll appreciate the benefits of beefed-up
governance, won’t they?

Kevin Reed is deputy editor of Accountancy Age

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