Let’s raise the bar on boards and governance
Retired EY partner Denny Beresford currently serves on the board of directors of Fannie Mae, Kimberly-Clark Corporation and Legg Mason, Inc. He also serves as Audit Committee Chairman for each of those boards. He is past Chairman of the Financial Accounting Standards Board (1987–1997) and was named by Directorship magazine as one of the “100 Most Important People in Corporate Governance” in both 2007 and 2008. Beresford is currently Executive Professor of Accounting at the University of Georgia.
Corporate boards and their members have their hands full these days. Most are simply trying to survive the current economic downturn. Others are reacting to public outcry over executive compensation and other perceived extravagances. And, more than six years after Sarbanes-Oxley, several companies find themselves mired in large-scale corporate fraud, which seems to be back in spades. While dealing with all of these challenges requires a broad range of skill sets on boards, in this environment an effective audit committee is more important than ever.
“For me, serving on boards has not only been a wonderful way to continue to learn and grow, but it is an opportunity to give something back to a profession I love.”
Sarbanes-Oxley and U.S. Securities and Exchange Commission regulations require public-company audit committees to include at least one “audit committee financial expert” or to say why they don’t have one. Yet, despite the recent focus on corporate compliance, I have not seen the big change some might have envisioned. In fact, I do not feel there are nearly as many truly qualified people on corporate audit committees, particularly among larger companies, as should be the case.
More about Denny Beresford
- Was with EY for 26 years, including serving as National Director of Accounting Standards
- Elected to the board of directors of the National Association of Corporate Directors (2009)
- Appointed to the SEC Advisory Committee on Improvements to Financial Reporting (2007)
- Selected as one of the inaugural inductees of Financial Executives International’s Hall of Fame (2006)
- Elected to the Accounting Hall of Fame and recipient of the AICPA Gold Medal for distinguished service (2004)
In my view, the rules on what constitutes an audit committee financial expert are overly broad: virtually anyone who has ever served as a corporate senior officer, particularly as CEO or COO, or who’s had some financial oversight function, qualifies. For example, the former Chairman of the Federal Deposit Insurance Corporation was quoted as saying, “My background easily makes me a financial expert as determined by the boards on which I serve, even though today’s accounting pronouncements are beyond my comprehension.” I would like to see the rules tightened and more specific. Audit committee financial experts need to provide more than oversight. They need to be able to “speak GAAP” to help make sure that their companies do the right thing.
Don’t get me wrong. The audit committee members I serve with and know are wonderfully talented professionals who are dedicated to their boards and organizations. And every committee needs a balance of “generalists” and “specialists.” In today’s complex financial environment, however, I think our corporations, their shareholders and the public at large would be better served by higher standards of audit committee financial expertise. I recently read that new SEC chair Mary Shapiro might be open to reviewing these qualifications. That’s a step in the right direction.
So, who would make a good audit committee financial expert? Honestly, I can’t think of anyone more qualified than a retired Big Four audit partner. For me, serving on boards has not only been a wonderful way to continue to learn and grow, but it is an opportunity to give something back to a profession I love. If you are in a position to consider board membership, particularly as an audit committee financial expert, I highly encourage you to do so. It’s tremendously rewarding. And we need to raise the bar.