Filling the 'financial expertise' gap.

AuthorDAUM, JULIE H.
PositionNew laws force changes to investment firm boards

With June 2001 compliance looming, here are several suggested solutions for recruiting financial talent to the board.

NEWLY AMENDED SEC regulations for audit committees will require boards to take careful stock of their members, from the point of view of evaluating both their independence and their financial expertise. The regulations are largely a result of recommendations by the Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees, which was formed by the New York Stock Exchange and the National Association of Securities Dealers at the behest of the SEC.

Depending on the composition of a board, the new regulations will impact companies in different ways. For those that can withstand the scrutiny and already have the right directors in place, the regulations may create nary a ripple. Those found wanting, on the other hand, will not have much time -- until June 2001, to be precise -- to remedy the situation.

In some cases, conflicts have already been identified -- directors who would not be deemed independent according to new regulations -- and some directors have begun to drop off boards.

The requirement of financial expertise may be a more difficult one for boards to get their arms around. While the regulations sketch a general outline of what is required, the specific interpretation is left up to individual boards.

Boards will find a variety of financial talent more than capable of beefing up weakness in financial expertise, and also able to withstand any outside challenge. But since recruiting a new director is not something a board has an opportunity to do every day, directors should possess as much expertise as possible that will be particularly relevant and valuable to their board. In other words, think in broad terms -- not according to the relatively narrow compliance requirements -- to find a director who will truly be an asset to the board.

Strategy should guide selection

Indeed, many types of financial expertise and experience will fulfill the general requirements of the new SEC regulations for audit committees. (The National Association of Corporate Directors, which convened its own Blue Ribbon Committee to study audit committee performance, has on its Web site at NACD.com the specific SEC regulations and requirements for director independence and financial expertise.)

How, then, does a board know, if a gap has been identified, whether it needs to recruit a CFO, a retired partner of a top...

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