Audit committees: Already heavily loaded

Proposals are afoot to increase the responsibilities of audit committees

By Michelle Perry | Published 15:58, 02 September 11

AuditThe news this week that the Financial Reporting Council plans to investigate how companies report strategic risks is good news for all stakeholders.

However suggestions that audit committees will have to disclose whether they came across any inaccurate or inconsistent information in a company’s annual report and not solely its financial statements as is currently the case is worrying.

Non-executive directors that I have spoken to in recent months and especially chairmen of audit committees broadly welcome proposals (from the FRC and EC) that allow them to disclose more without infringing on commercial sensitivities. But they’ve all voiced concerns about adding to their responsibilities.

They have some support in the Institute of Internal Auditors. Jackie Cain, IIA policy director, said that more work will need to be done to ensure that audit committees are equipped to take on the additional responsibility for risk reporting being recommended by the FRC.

Cain says:  “Our most recent research suggests that some audit committees’ handle on the risks facing their company is not as firm as it should be.  Clearly, if they are to take on additional responsibilities for risk reporting, they will need additional support as well as clear guidelines.”

The FRC anticipated these concerns. The regulator highlighted current fears about a shift in responsibilities for audit committees in its report: Boards and Risk –  A summary of discussions with companies, investors and advisers.

“The main argument put forward by those participants who favoured separate committees to address key risks was that audit committees were already heavily loaded and did not have the time to address risk properly, and that a different set of skills may be needed,” the report said.

In its report the governance watchdog attempts to pre-empt concerns with suggestions of how to overcome potential stumbling blocks such as separating audit and risk committees, holding joint meetings or inviting other board members to participate in audit committee meetings. But it’s not so much the logistics that should be the main concern.

What if non execs overlook a particular risk that is later exposed? Not only could it damage the share price but it could also mean the company falls foul of governance rules? Won’t shareholders and other stakeholders want to hold the non execs as well as the board responsible for such a glaring oversight?

If audit committees are to take on increased responsibility won’t the time they dedicate to the job increase significantly and therefore shouldn’t their pay rise to reflect the increased responsibilities?

And if these proposals become part of governance will non execs remain non-executive at all? Will we have to come up with a totally new term for those that are the anchor to the executive board?


Anti-business! Britain? Surely not

To have Britain dubbed anti-business under a Conservative government is surprising some

By Michelle Perry | Published 16:37, 01 February 12

Anti-bizWho’d have thought a Conservative-led government would stir up such anti-business sentiment?

Last week business secretary Vince Cable – or as he might be known in corporate circle anti-business secretary – published a package of far-reaching proposals to shake up the rules governing executive remuneration with proposals for a binding shareholder vote.

Just days later as public pressure was mounting, ministers clearly spent the weekend pressuring current CEO of the part-nationalised Royal Bank of Scotland – Stephen Hester – to forgo his near £1 million bonus fearing the growing chorus of public indignation.

And yesterday came the news that (Sir) Fred Goodwin, former CEO of RBS, was to be stripped of his knighthood. I don’t disagree with the outcome, but I am concerned about the random nature of singling out a lone businessman – albeit it a high-profile one who mismanaged a British bank – so that politicians can cleanse themselves of any role they may have played in the financial collapse, painful recession and stagnating economy.

Rather than go into the seemingly arbitrary nature with which ministers have influenced the honours committee to strip Goodwin of his title, I’d rather focus on the mounting concerns among business leaders that the UK is becoming anti-business; swinging from a perceived bias towards corporates to one that is fervently against them – at least on the surface. Neither stance, of course, correct.

A leading chief financial officer recently told me of his concerns over a sense of a growing anti-business sentiment that was damaging Britain because investors were being put off injecting money in the UK.

“If you are an overseas company looking to invest in the UK and you just read the headlines in the British press it’s hard to say that Britain isn’t anti-business,” Andrew MacFarlane, CFO of Irish flag carrier Aer Lingus told me recently.

With competition heating up from all corners of the global – Brazil and wider Latin America, Russia, India and China – Britain cannot afford to be viewed – whether it is correct or not – as anti-business.

When CFOs are voicing their worries and it is the finance chiefs who most regularly talk directly to investors – it’s time for politicians to temper their language. Prime minister David Cameron needs to stop reacting to events and begin to show he has a robust strategy to haul Britain out of this limp economic recovery without easy shots at already disgraced businessmen like Goodwin.

Women, boards and confidence

Any company that doesn’t have a woman on their board is surely failing the wider business

By Michelle Perry | Published 12:59, 27 February 12

WomenMuch has been said about the benefits of greater diversity in British boardrooms, but I’ve heard few concrete examples as to how diversity helps companies on an operational level.

David Tyler, chairman of Sainsbury’s, however put an end to my inquiry when he provided a clear example of those much touted but little explained benefits.

“Women tend to have a sense about business from a very experienced background which is different as a consumer from those of men. And that’s extremely important to have around your board especially if you’re a consumer-facing business,” Tyler, a former CFO of the UK’s leading companies, told me.

Traditionally women have held the household purse strings despite men being the main breadwinners and it is women who have developed top-notch budgeting skills to ensure the wage not only covered all of their needs but lasted for the duration until the next pay packet arrived.

Given the current climate of austerity – and despite a newfound surge of interest in shopping among men – women are undoubtedly applying those traditional budgeting skills and adjusting their shopping habits to tackle inflation, wage cuts or worse job cuts.

So it’s surprising that many boards – especially in retail companies – still haven’t realised that the majority of shoppers, and therefore their customers, are women. Any business, but particularly those in retail, which still doesn’t have a woman on their board is surely doing a disservice not only to the wider business but to its consumers.

Sainsbury’s is one of the retailers that learnt this lesson a while ago. Two of Sainsbury’s six non-executive directors are women who have been board members long before Lord Davies launched his challenge in February 2011 to FTSE companies to beef up the number of women sitting in boardrooms or face the threat of quotas. Anna Ford, former BBC newsreader, joined Sainsbury’s board in May 2006 and Mary Harris, a McKinsey partner, has sat on the board since August 2007.

Few in business want quotas and opposition is particularly fervent from businesswomen. Standard Life CFO Jackie Hunt, one of only six female finance chiefs at a FTSE100, told me last week that she was dead against quotas.

What she’d rather see is more women highlighting their achievements instead of focusing on their failings. It’s a point that a growing body of research by behaviourists and psychologists finds – that women suffer more than men from a lack of confidence. Being aware of this is the first step, says Hunt, the next steps are up to women to fix themselves.

“I’m very conscious of focusing on what I can do and not what I can’t do,” she tells me.

“Whatever drives that behaviour … is in some ways is irrelevant, you can’t fix it overnight and I’m not even sure it needs to be fix. Overconfidence is as bad a trait. But when we verbalise it and put ourselves down I think that is damaging.

“So I would say if you feel a lack of confidence as an individual don’t take it into the interview with you. Don’t focus on the things you can’t do, verbalise the positives,” Hunt says.

From a woman who has ‘made it’, it’s sound advice. The push for more women on boards can only achieve so much, the rest is up to women themselves to believe, and then prove they are capable.