Ex-CFO numbers on audit committees doubles in 10 years
New E&Y survey suggests 71% of UK audit chairs are former CFOs
By CFOWorld.co.uk staff | CFO UK | Published 10:00, 11 December 12
The number of audit committee chairs in the UK, who have previously held CFO roles, has more than doubled in the last decade, according to a new Ernst & Young survey.
The survey – CFO and Beyond – found that 71 percent of audit committee chairs in the UK have previously held the top finance job at a company, up from 35 percent 10 years ago, as a result of the demands of a far more complex risk and regulatory environment.
The E&Y report finds that the position as chair of the audit committee is more challenging, because of the time pressures and professional risks associated with the role. CFOs also agreed with their suitability as audit committee chairs, with 80 percent of UK CFOs suggesting this as the most realistic non-executive destination, followed by the risk committee (77 percent of respondents agreeing), remuneration committee (72 percent), non-executive chairman (67 percent) and finally membership of the nomination committee (56 percent).
For purposes of research, E&Y polled 800 CFOs globally and studied the career paths of group CFOs at 347 of the world's largest companies. However the report notes that many CFOs will decide that the risk to their own personal reputation is too great to take an external role, particularly as an audit committee chair – with subsequent financial difficulties or accounting irregularities potentially damaging the CFO’s reputation and career prospects.
Hywel Ball, UK & Ireland assurance managing partner at E&Y, said, "Accounting standards are moving at an incredibly rapid rate, investor activism is on the rise and companies face an extremely complex risk and regulatory environment. All of these trends increase pressure on audit committee members and make it more difficult for those with a non-finance background to perform the role."
Response to the findings from the CFO community was mixed. Michael Sen, CFO for the Healthcare division at Siemens, said, "As a divisional CFO in a large company, you may not have to deal with the issues that take place at head office, such as funding, no matter whether debt or equity, because that is the responsibility of the group CFO."
"By taking on a board directorship at a smaller company or sitting on the audit committee, you gain exposure to those decisions and that can be useful experience for a future role in a group CFO position," he added.
Steve Hare, head of the portfolio support group at Apax Partners, said, "If you have an audit committee chair that does not have the right knowledge and background, then there is a danger that they will not do enough to provide the right checks and balances, and a risk that the CFO will simply run rings around them."
"On the other hand, if you have an audit committee chair with current knowledge, then they clearly have insights into where the key judgments are likely to be made and where adjustments are required. A good audit committee chair is someone who the CFO can consult and seek advice on complex issues," Hare added.
However, David Grigson, chairman of Trinity Mirror and former CFO of Reuters and Emap said, "I would be wary of taking a board position purely because somebody was thinking, ‘I’ve got a vacancy on my audit committee, I need a finance director.’ Basically, they’re saying that they’re going to undervalue my broader contribution and if that’s the case then it’s probably not aboard I want to be on."
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