To be effective, the AC chair should be a strong leader by:
- Setting the tone: dedicated, informed, probing, and independent—willing to challenge management, when appropriate.
- Keeping the committee focused on what is important
- Making sure the AC has the resources and support to do its job
- Pushing back when too much has been added to the AC’s plate (and periodically reviewing and refining the AC’s charter)
- Ensuring that all AC members are engaged
- Promoting communications—both formal and informal—among AC members
- Spending time between meetings working with management and auditors to ensure that all relevant issues are identified and addressed by the committee.
Assessing the tone at the top and throughout the organization
As boards increase their focus on the company’s culture and values, commitment to integrity, legal compliance, and brand reputation, AC chairs are encouraging their committees to take a harder look at the company’s “capital R risks”—tone at the top, culture, and incentives——all of which are critical to the integrity of the financial reporting process.
Areas of focus include:
- Observe how management gets things done and interacts with one another. Is information flow open and encouraged or overly controlled?
- Take a close look at incentive plans and the risk-taking behavior they may encourage.
- Help ensure that the company’s regulatory compliance and monitoring programs are upto-date, cover all vendors in the global supply chain, and clearly communicate the company’s expectations for high ethical standards.
- Take a fresh look at the effectiveness of the company’s whistleblower program. Does the audit committee see all whistleblower complaints? If not, what is the process to filter complaints that are ultimately reported to the audit committee?
- Ask for internal audit’s thoughts on ways to audit/assess the culture of the organization.