• Former Deloitte CEO Sorry Not Sorry for Anyone Who Can’t Handle Being on an Audit Committee

    By | February 3, 2015

    According to a piece from Michael Rapoport and Joann Lublin in the Wall Street Journal today, audit committees are the "junk drawer" of corporate boards.

    The workload of the powerful committees has expanded sharply beyond their core role of overseeing a company’s financial reporting. They are grappling with new regulations, whistleblower claims and issues like cybersecurity and foreign corruption. In addition, the Securities and Exchange Commission is expected to suggest new rules by the end of next month requiring them to disclose more about their activities.

    “It’s not the favorite committee,’’ says Fredric Reynolds, a retired CBS Corp. chief financial officer and audit committee chairman at Mondelez International Inc. To attract committee members, he sometimes promises relatively short stints: “You’ll be released for time served and good behavior,’’ he tells directors.

    Jeez, is HBO going to have to come out with an Oz sequel set in a board room?

    Reynolds says his position as audit committee chair at Mondelez takes up around 100 hours a year. To put that into perspective, I spend 4 hours every Saturday volunteering at cat adoption stands including travel = so 208 hours a year. You're talking about an activity that works out to a commitment of about 2 hours a week, far less time than GC trolls spend formulating their next terrible comment. Is it really that bad?

    Well, it gets worse:

    Some boards appear to view the audit committee as a place to hand off any internal oversight issues, even if they are outside the committee’s traditional purview.

    “Sometimes the audit committee is viewed as the kitchen junk drawer,’’ says Cindy Fornelli, executive director of the Center for Audit Quality, an accounting-industry group. Boards feel “if we don’t know what to do with it, we’ll give it to the audit committee.”

    No wonder no one wants to be on one, then.

    Wait, not no one. There's a certain former Deloitte CEO who loves the action:

    Some directors remain unfazed by the heavy workload because they enjoy being where the action is. “It’s where you have a very broad access to management time and information about the business,” says James Quigley, audit committee chairman for Wells Fargo & Co.

    Who do we think has the broadest access, the Quigs or long-time Wells Fargo auditors KPMG?

    • Big4Veteran

      God, it must suck to be a board member. It must suck even worse to be on an AC. Getting paid $100k per year to do maybe 100 hours of work (I dispute this statistic, by the way. Let’s say the board and AC each meet twice per quarter (four times per quarter). That’s 16 meetings per year. Let’s say each meeting averages 2 hours. That’s 32 hours per year in meetings. What the fuck are these AC members supposedly doing the other 68 hours? They probably spend 2 hours each quarter (generous estimate) reading the 10-Q/10-K, which still leaves 60 hours of unaccounted for time). But what actual work is involved in this “job” that pays $100k per year?

      I’ve been to a number of AC meetings with different companies. For the most part, the AC members just sit there silently while management runs through the agenda. They ask very few questions. Occasionally there will be an insightful comment, which catches everyone by surprise. They pat management on the back for their hard work. They pat each other on the back for their extraordinary service. They ask the audit partner why his fees are so high. They vote to approve whatever is on the agenda. And then they adjourn the meeting and head our for a nice lunch or dinner on the company’s dime.

      Being on a board of directors, and even on a lowly AC, is one of the greatest and most lucrative circle jerks that America’s fine economic system has to offer.

      • Jack

        You could not be more correct. The CEO of a public company lied to me during the audit and it took me threatening the audit committee with our resignation as the external auditor if they didn’t relieve him. “Independent” audit committee is a joke.

        • Big4Veteran

          As I said, its the greatest circle jerk on Earth. I guess being on an AC is the least desirable of the committees because you have to (appear to) be familiar with finance and/or accounting. Also, the other committees are even easier.

          The compensation committee spends about 75% of their time thinking up new and creative ways to give more equity, bonuses, etc. to the top executives (and sometimes themselves), even when the company is performing poorly. The thought being that things would be EVEN WORSE if they don’t incentivize the CEO not to take his talents elsewhere.

          I honestly couldn’t tell you what the governance committee does. If someone in the GC community knows, I’d love to learn.

          And that brings me to the board itself. It appears to me that they just rubber stamp everything that the CEO proposes. Coincidentally, the CEO is usually a member of the board of directors to “help bridge the divide between management and the board” (companies even say this in their SEC filings as a rationale for the CEO being on the board!).

        • Big4Veteran

          I worked for a company where the founder and majority shareholder was chairman of the board (not unusual). He therefore not only hand picked every single one of the other board members, but he could obviously replace any one of them for any reason he wanted when the next election rolled around.

          • iamthelolrus

            If it’s not illegal, fuck it why not I guess?

      • Rtruth12

        Spot on. Also, the audit partner is given 5 minutes to basically say “no issues, no disagreements, we’ll be done on ” I guess this where the AC asks why the fees are so high

        • Big4Veteran

          And, of course, the reason the audit partner says this is because he wants to portray an image of cooperation with management in guiding the company’s financial affairs. The AC wants to see management and the auditors getting along. The partner wants to keep management happy. Management wants a glowing report from the auditors.

          My favorite part is where the auditors have an “executive session” with the AC without the presence of management. This provides an opportunity for the auditors to tell the AC how great management is in a setting that appears more sincere. And the AC obviously believes the audit partner because he has no reason to lie, given that management isn’t present.

          It’s a big giant circle jerk.

          • Rtruth12

            Another related and funny aspect is that the auditors actually have management review and comment on their audit committee presentation, and they meet to discuss what they are going to say related to the audit. Both management and the auditors then stick to the script during the AC meeting

          • keepin_it_real

            How do I get in on this circle jerk without being an old rich white guy?

            • iamthelolrus

              Get older, and get richer.

              Assuming you’re currently a young poor white guy. If not you might be SOL.

            • keepin_it_real

              I’m not white so I’m SOL.

      • Bloviator

        This is why it’s truly glorious when an activist investor group wins a proxy battle and puts their candidates on the board to go mano-a-mano with management’s cronies. Granted, the activists usually just want whatever will goose earnings in the short term. But if you’re a shareholder who has suffered quarter after quarter of the board rubber-stamping options grants for management while earnings plummet, you’re relieved to see anything change.

    • FartDude

      Just for perspective, you should know how little Mr. Reynolds was paid for those 100 hours. You will undoubtedly feel much worse for him. The man is practically a slave:

      http://www.forbes.com/profile/fredric-reynolds/

      How can you afford to live on such a paltry sum? And he had to work 3 jobs!
      He’s one of the heroes, I guess. Giving so much of himself to help make the world a better place.

      • FartDude

        (just so you don’t have to click through to Forbes crappy website, Mr. Reyonds was paid as follows for his positions as Director at the following companies:
        AOL – $313k
        Mondelez – $255k
        Hess – $201k.)

    • FormerBig4

      I’m hoping one day I can retire to the corporate board life and would love to be on the audit committee of multiple public companies. Getting paid 6 figures (per gig) to be a steward of the public trust seems like a righteous way to spend retirement. Each quarter, I’ll spend a few hours skimming through a 10-Q and a press release and make sure to point out a few typos to make them think I’m paying attention. Then I’ll participate in a conference call or two from the golf cour….err from my home office. At year end, I’ll spend a few more hours skimming through the 10-K (those damn things are long!!!!) and the press release as well participating in calls from my beach hous….err home office. I might identify a few more typos so they get a good bang for their buck. Then I’ll rubber stamp everything management says as they know the business a lot better than me.
      Then a few times a year, I will make a huge sacrifice by travelling to the live meetings. Yes my trip will be all expenses paid, but traveling can suck. As compensation for my sacrifice, I will refuse to fly commercial so the Company will have to send their private plane (no private plane means no me on your board). Once there, I eat a lot, I drink a lot, and I somewhat stay awake in the meetings. I will probably chime in a few times so they get a good bang for their buck.
      It’s something I really want to do as I think I can make a difference. I want to give something back to the shareholders. Oh, and if something goes wrong, I sue the shit out of the auditors.
      Lather, rinse, repeat.

      • iamthelolrus

        Unfortunately it seems like you have to have “already made it” and “know people” and shit like that to live this life. Otherwise I’d already be there.

        Honestly I don’t have too much of a problem with this system as kind of a pension system for execs if they didn’t claim to be, as you said, “stewards of the public trust.”

    • The Horniest Partner

      I deal with volunteer audit committees a lot and agree with B4Vet. Most just sit there and don’t want to deal with issues – they just want to hear everything is clean. There are a few ego maniacs with money in my town that are on every prime time board and some on ACs. They view the NFP as their own since they are big time funders and the NFP CEO does everything short of oral on these rich guys to keep the donations flowing.

      • Video Games

        Used to work in NFP. Our audit committee was actually decent (some retired CPAs), but the development/fundraising committee was mostly interested in, at best, promoting their own business as a sponsor and, at worst, ignoring the CEO and trying to get the staff to spend time promoting their personal for-profit events for the promise of a donation.

        • iamthelolrus

          Yeah my NFP has a pretty good AC too. The treasurer is a partner at a small firm that does mostly NFP audits so he knows what he’s talking about and isn’t afraid to tell management when they are fucking up. I imagine this is a lot more rare than the above outlined situation though.