Is serving on an audit committee a job to love or fear?
Lucy Marcus is recognized as a governance expert and has served as chair of audit committees for many years. In a piece for Reuters, she called serving on an audit committee “the toughest job you’ll ever love”. I recommend reading her post and listening to the video that shows her answering questions about the HP and Autonomy affair.
I have worked with audit committees for over 20 years, with many directors for whom I have admiration and great respect, and a few who contributed less than they should.
It is a tough job, and I have some pieces of advice for those willing to take it on:
- Ensure you make the time the job requires. Unfortunately, some fail to read their briefing packages until (at best) the day of the meeting or (at worst) during the meeting. If you cannot afford the time, it is time to leave.
- Don’t treat it as something you do only when there are board meetings. Stay on top of issues and talk to members of management as often as it takes.
- Don’t be afraid of asking questions and demanding answers. If management says “we will get back to you”, make sure they do.
- Make sure you, as members, own the committee agenda. It’s is your committee and you should not permit management to dictate either the time, duration, or content of meetings.
- Make sure management understands what you need and expect in terms of information: what, when, how, and in what manner it will be delivered – and also ensure you have sufficient detail to understand the issues and ask the right questions.
- Make the time to get to know the key players, including not only top management such as the CEO, and CFO, but other critical sources of information such as the Corporate Controller, Treasurer, Head of Taxes, Chief Risk Officer, and the Chief Audit Executive. Spend time with them and their staff as necessary – and listen, listen, listen.
- While it is important to build a relationship with the external audit partners and make sure you have confidence in their abilities, recognize that their level of insight into daily operations and risk-taking is limited. I had a CFO who told the board that “If you want to know what is really going on, ask the internal auditor”.
- Ensure you understand the business, its strategies, financial information, risks, key personnel, etc. How can you govern effectively if you don’t?
- Get to know the other directors and talk, without management present, about the issues and challenges.
- While it is easy to bond with management, the job of the board and especially of the members of the audit committee is to provide oversight. Clothe yourself with an appropriate level of professional skepticism and ask questions until you are satisfied with the answers.
I welcome your views, especially additional advice for audit committee members.