A FTSE250 Company Secretary writes...
Code Provision C3.1 of the UK Corporate Governance Code requires the audit committee as a whole to have competence relevant to the sector in which the company operates
Guidance on Audit Committees published by FRC in April 2016, which also reflect the changes to the Code states in Para 15 that when considering the composition of the audit committee, the nomination committee and the board should have regard to ensuring a range of skills, experience, knowledge and professional qualifications are in place to meet the requirements of the Code. The need for a degree of financial literacy among Committee members will vary according to the nature of the company but experience of corporate financial matters will be required as a matter of course with more financial expertise being required where the company’s activities involve specialised financial activities
How do listed companies propose to measure this requirement to ensure there is compliance?
The Corporate Governance and Nominations Committee oversaw an exercise to evaluate the skills and experience on the board and its committees. Based on that assessment, whilst only the Audit Committee chair is a qualified chartered accountant, it was concluded the members of the Audit Committee as a whole had relevant financial and regulatory experience for the sector in which the Group is operating.
Our Audit Committee is made up of all NEDs, and is chaired by a Chartered Accountant, who also happens to be CEO of a European telecoms business which does a lot of M&A. Our other NEDs have retail, manufacturing, and marketing experience, in addition to having had senior positions in very large companies and so are familiar with management accounts. This company has not done any M&A for 20 years, has no debt, and has not raised equity finance since 1984. The view of the Noms Comm is that corporate finance experience is not fundamental.
Measurement of compliance comes in the form of cross reference to existing skills, our skills gap analysis, both of which are reviewed when a NED vacancy appears.
We have not had any challenge from our auditor on this point.
The Board has determined competence relevant to the sector by virtue of the Directors’ previous experience gained in other organisations and we link back to the biographical details in the annual report. There is also a chartered accountant who is the Chair of the Audit Committee to which we judge to have “recent and relevant financial experience”.