I’m sure many of you have read the Walker Report, or parts of it, and I’m
sure you’ve seen the FRC’s consultation document. These tomes cover a number of
areas in corporate governance. A reasonable amount of all this won’t trouble
you, for all or most of your career. But there are parts of it that will, and
they focus on the role of the audit committee and its relationship with risk.
There are two issues in particular. First, the role of the audit committee
chair adds up to about 20 days a year. If one assumes that two-thirds of these
are working days and the rest weekend, it is safe to assume that an executive
CFO can take on these roles. That’s a great thing, because taking on an NED role
as an executive is a brilliant way of gaining experience. In a world where CFOs
can make the move to chairmen, early experience as an NED is advantageous.
However, there are moves to increase the amount of time spent on this role
and, for those in financial services, this will move to 36 days. That’s too much
for someone working in a full-time role and that effectively rules out those
roles for executives. In addition, there is the debate about a risk committee
separate from the audit committee. While this has not been concluded, some
businesses are exploring the concept and are debating who would chair it.
Whichever way it goes, it’s likely to add up to more work for the audit chair
and that rules those roles out for a number of executive CFOs.
The second issue is arguably worse. A large number of chairmen are well aware
that the role of an FD has become too onerous, and that the role of the audit
chair is also too demanding. As a result, when asked, they say their preference
is for former FDs to chair their audit committee. They know this way they will
have an experienced and available resource who can drop most things to get to a
meeting, as opposed to someone who might be the other side of the world on
So what’s the solution? As an exec, look at smaller businesses to join as an
NED as they will require less time. As a chairman, think about appointing FDs to
the board, but not asking them to chair the audit committee. Don’t follow the
‘comply at all cost’ bandwagon and keep the time commitment at a level with
which everyone is happy.
Mark Freebairn is a partner at Odgers Berndtson.
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