Audit committee leaders face increasing workload.

• Author: Ward, Ralph D.
• Position: READ FOR CPE CREDIT

Corporate board audit committees usually face more regulation, imposed practices--and liability dangers--than the rest of the board members combined.

The committee and its members meet stiff, independence rules; have a charter to regularly review; face strict limits on consulting or other outside income from the firm; and must include at least one "financial expert." It must also meet regularly with outside auditors, minus management. These are only the basic headings in a huge and growing list of audit committee "shalls" and "shall nots" that its chair must ensure.

"SOX [The Sarbanes-Oxley Act of 2002] has clearly put some real definition into the role of the committee," observes James T. Brady, chair of the audit committee at Constellation Energy Group.

"If you look at the typical [audit] committee charter from before SOX, they typically were about a page and a half in length. Now, they usually run seven or eight pages."

The time demands on the audit committee chair have likewise risen. In a 2007 survey, executive-search firm Spencer Stuart found the average large-company board's audit committee met 9.5 times a year--more frequently than the full board. The survey also found the number of audit committee meetings ranged up to 41 at one firm; and that a third of audit committees met 11 or more times yearly.

The average time commitment for a committee chair ranges from 10 to 25 hours per month, most of which is spent on the telephone "with management, independent auditors, the head of internal audit and with committee members," says Westfield Cos. audit committee chair James Boland. (This telephone time is in addition to the frequent in-person sessions.)

"One of the great misconceptions is that you just add up the time in meetings," notes Brady. "What's really big is the time required in between; the background work. What SOX did subliminally was to change the description of board audit committee service from an honorarium to a real job."

Power of the Agenda

How does an audit committee chair cope with what's threatening to become a dangerous, punishing full-time job?

Barbara Hackman Franklin has some comments on this subject. Franklin is audit committee chair for The Dow Chemical Co. and Aetna Inc. She also serves on three other audit committees.

Any job becomes more manageable by planning as far ahead as possible, says Franklin. "Set your meeting schedule at least a year ahead, and plug in the items you need to do." On the committees she chairs, Franklin sets an annual planning session with the outside and internal auditors, chief financial officer, controller and general counsel to shape the next year's audit calendar and committee schedule. Besides smoothing work flow and boosting committee efficiency, setting the schedule limits surprises, she notes.

Good use--rather than abuse--of time spent on presentations is even more important for the audit committee, and Franklin keeps' a tight rein on what she deems "PowerPoint madness." She requires "no presentations that regurgitate what we've already read."

On Franklin's boards, she says it helps if the committee gets a handful of key visuals to follow along with presentations, rather...