The Ideal Audit Committee Member
An article in AccountancyAge caught my eye this morning. It refers to a survey by the Chartered Institute of Internal Auditors (CIIA, formerly known as IIA–UK) and talks about desired characteristics of non-executive (also known as independent) directors. You can see the survey on the CIIA site.
The survey is pretty heartening on a number of fronts. For example, members of the audit committee are assessed as understanding the role of internal audit and paying attention to the management of risk. However, there is still “substantial scope for improving the understanding of risk” at 71% of companies.
While understanding of strategic risk is very good at 75% and good at 3%, the same cannot be said for operational risk: 30% very good and 62% good.
82% said that independent directors “think and act sufficiently independently of executive management.” This is markedly different from the PwC study of directors and boards, where only 61% “rated themselves very effective in standing up and challenging management.”
The AccountancyAge article talks about some of the qualities desired in non-executive directors. They talk about:
- Relevant experience. I agree this is important, but the coverage in the article is skimpy and limited at best. I look for these characteristics:
- Personality traits. The primary discussion topic in the article is the ability of the director to challenge management. I agree that is important. Also important are:
- Talent pool. I believe the article is talking about the need for diversity — not only more female directors, but directors from a variety of backgrounds who can collectively meet the needs of the organization. Frankly, when I see comments about a small talent pool I shudder, because I don’t think people are looking hard enough at other sources of directors, such as former CAEs and risk officers.
- Adaptive risk management. This is not really an attribute; it’s more a desire for the board and the audit committee to spend more time providing governance and oversight of risk management (but see the CIIA study above).
What do you look for in non-executive members, and in the composition of the audit committee as a whole?
Posted on Oct 18, 2011 by Norman Marks
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