Audit committee chairman first port of call for FDs

Even the routine of audit committee meetings can provide a simple contrast between a value-adding and an energy-sapping audit committee chairman (ACC). Working together with the finance director to manage the agenda proactively is far superior to simply reacting to whatever the FD serves up and then adding random items on the hoof during the meetings.

Good practice includes looking ahead over the next year or so, thinking about who, other than audit committee members, should attend particular meetings and how to spread agenda items so as not to overload the annual results meeting. The internal and external auditors also benefit from this degree of planning, knowing what is expected of them and when.

Setting down some rules of engagement around style, length and timing of distribution of papers for the audit committee meetings is also helpful. Certainly, it is a lot better than returning to this topic anew every time a meeting takes place, as I have seen happen on numerous occasions. Similar protocols around pre-audit committee meetings between ACCs, FDs and internal and external goes some way to avoiding last-minute crisis planning of such interactions.

Far more valuable to FDs is an ACC who is thinking about potential ‘black swans’ and engages in informal dialogue with FDs on such thoughts well away from the formal ACC meetings. Ideally, FDs and ACCs should have a running agenda of items that they are considering, and they should do so well in advance of their becoming urgent.

Such an agenda can include accounting, financing, risk management, internal control, systems issues or talent management, none of which are welcome immediately before a results announcement.

FDs (and their team) can reasonably expect to be on top of upcoming regulatory or accounting changes and what they mean for the company. The ACC should be adding value by raising prospective issues from their experience elsewhere and observations of changes in the business environment. These might be economic, social, technological, political and environmental – it is all about keeping ahead by focusing on what is going on elsewhere and how that might, or should, affect the company and its finances.

ACCs can also help the FDs by being a confidential sounding board when they are formulating their position on a range of issues, including people and organisation, risk management, audit and advisory appointments, and financing strategies.

ACCs should also be a first port of call for FDs with concerns over some part of the business or any of their own people. Indeed, as someone with whom FDs can share ideas and plans on talent management across the finance function, ACCs can be invaluable.

ACCs can also be of assistance when FDs want to raise the aspirations of the finance function and promote confidence in the function throughout the business, both with their contribution to meetings or conferences, and their style and tone whenever visiting company locations.

Another area in which the FD/ACC relationship can really make a difference is when a company finds itself facing a major external shock, or when FDs can foresee troubled times ahead without changes in business or financing strategy or practices. In these circumstances, FDs want to know they will be supported in the boardroom. Their role as gatekeeper will have to take priority over their role as business partner, and this may not be universally welcomed.

The tone set by ACCs in supporting FDs may well be critical in determining whether the board or outside stakeholders retain control over managing the crisis and its outcome. Getting support for what has to be done is usually not easy in these circumstances and it is impossible if working alone.

 Eric Tracey is a chartered accountant