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Treading a fine line on non-executive directors

28 Jul 08

After a very enjoyable summer break, I arrived back last week to the usual crammed inbox and a mountainous pile of correspondence. Near the top of the pile was the Joint Disciplinary Scheme’s (JDS) report on its investigation into Lord Wakeham’s role in the collapse of Enron

For those of you who haven’t seen the press coverage or read the report (which, by the by, gives a very fine summary of the events leading to the collapse of the energy giant), Lord Wakeham was a non-executive director and audit committee member of Enron when it collapsed. The JDS report concluded that it would take no action against the peer.

Lord Wakeham was the only professional accountant on Enron’s audit committee, albeit when he accepted the appointment, he had long ceased working as an accountant. Significantly, the JDS has suggested that there is a need to clarify the role of non-execs who are professional accountants and asked for guidance from ICAS and our sister body, the ICAEW. We will of course consider how to take this suggestion forward.

‘Guidance’ on the role of non-executive directors requires a delicate balance. Non-executive directors should be present on a board because of particular skills and experience that they have acquired, often during very successful careers. Collectively the board is expected to comply with the Combined Code – but is further guidance required about the individual responsibilities and public duties of non-execs?

It’s worth mentioning that, in the case of audit committees in the UK, the Smith guidance has proved to be a highly effective contribution to corporate governance. The group that came up with that guidance, which is now part of the Combined Code, was chaired by former ICAS President, Lord Smith.

The JDS report said in relation to the financial structures that led to Enron’s demise, "It does not appear that Lord Wakeham had a sufficient understanding of these transactions". That is not an assessment that we should take lightly. It also means the role of non-executive directors is under more scrutiny than ever before.
 

Have your say





Your comments:


Ken McHattie

Wednesday August 6, 2008, 09:32

Anton, I think what this highlights is that some time soon the current incarnation of the unitary board is going to have to be reconsidered. While UK plc has not suffered an Enron-style fiasco for some time, the current crisis in the banking sector arguably suggests that the boards of some at least of those companies (Northern Rock does leap out somehow) did not properly risk assess their activities. I question whether the current structure allows that to happen given the complexities of modern business. To now suggest that we approach this from a "what was the accountant doing?" perspective seriously misses the point. It's time for a rethink.


Anton Colella

Thursday August 7, 2008, 15:30

Thanks for your comments Ken. We’re currently in discussion with the ICAEW to determine whether further guidance is necessary for professional accountants acting as non-executive directors. The Business Policy committee will consider the issues surrounding unitary boards at its next meeting in September.


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