Our process

Working with the audit committee chairman and the company officer responsible for that committee we work through a series of questions:

1. What is the right charter for this organisation? Does the current charter reflect better practice and what the organisation needs?
2. What is the current calendar for the committee over a 1, 2 and 3 year cycle.  Does it cover the right bases at the right times?
3. How effective is the committee at meeting those requirements?  Where are the quick wins?  What can be refreshed and what can be pared away?

Based on this we will agree and document a plan of action and assist with implementation and access to better practices where required.

Why TDA?

Todd Davies has worked with and been mentored by some of Australia’s leading non-executive directors through his involvement with various audit committees.  He has a strong sense of what’s required and what’s practical.

Todd works as a non executive director and/or independent committee member in a range of different organisations:

• Honorary Treasurer, board member and Chairman of the Finance & Audit Committee of the Australian Conservation Foundation
• Independent member of the Audit & Risk Committee of the South East Sydney & Illawarra Area Health Service (being reconstituted)
• Independent member of the Audit & Risk Committee of the State Emergency Service of NSW
• Independent member of the Audit & Risk Committee of the Cancer Institute of NSW
• Independent member of the Corporate Governance Committee of Wollongong City Council
• Chairman of GreenCollar Group a boutique green recruiting business and environmental markets consultancy

He has previously been a Member of the ASX Corporate Governance Council, a board member of the Institute of Internal Auditors in Australia, Bunbury Institute of Advanced Education (WA) and Chairman of the Western Australian Music Industry Association as well as being a founding member of the Resilient Futures network and led their work on emerging risk.

Join the discussion

We have also set up a LinkedIn discussion group for Audit Committee members.  Note, that membership of this group is restricted to active members of audit and risk committees and for people we don’t know if it is not apparent from your LinkedIn profile that you are on an audit and/or risk committee then admission will be declined.  This is in recognition that non-executive directors and audit committee members want to be able to discuss with peers without being asked for advice from subordinates or sold to by consultants.  As the moderator of this group we also do not promote our services there.

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The length and extent of debate was extensive ranging from the structure of the financial system, through to regulatory structuring, regulatory arbitrage, global regulatory frameworks, rules vs principles vs supervision and enforcement, Australia’s twin peaks and quadruple peaks model, ESG and a range of other useful debate, as well as the old chestnuts of shareholder input into executive remuneration.

I was encouraged by comments early in the meeting by Jules Muis, former Vice President and Controller of the World Bank saying that there are really only two key issues which need attention – strategic risk and systemic risk, and if we can get accountability for assessing and managing these at different scales, then we will be set for success in the future.

Lindsay Tanner, Federal Minister for Finance explained that conditions had changed and global markets can only be regulated through global coordination, while Anne Simpson, from CalPERS representing one of the largest pension funds in the world told us simply, that “we needed more joined up thinking”, eluding to the need for a wholistic, multi-faceted approach to systems thinking.

Al Gore reminded us that “we often confuse the unprecedented with the unlikely”, and Professor Mervyn King SC reminded us that “companies do not operate in a vacuum.”

Despite this sage counsel that we need an approach which allows us to think properly about strategic and systemic risk, and predict the “unprecedented but increasingly likely”, unfortunately these threads were not actively picked up, perhaps because this is an area which is not yet well understood.

In the area of risk management, boards are concerned about false comfort in risk systems – whereby companies hire a small army of risk experts who go away and implement risk frameworks such as COSO ERM, A/NZS 4360 or ISO 31000, and assure them that everything is okay, that their risk systems are sound, and the board and management can sign off.

The problem of course is that while routine bottom-up approaches to compliance, operational and reporting risk are good at managing the bread and butter of businesses, it’s rarely these areas which cause the material problems. Despite strategic risk and systemic risk now starting to be recognised globally by policy setters as the daddy of them all, people don’t have the capabilities in place to understand what these are, let alone manage them. Intuitively, boards know this.

The result is that a significant proportion of companies which experienced significant value destruction and earnings surprises in the last 18 months came out with the standard rhetoric “no one could have seen this coming”, leading to an inference that either the risk systems are not as we’ve been told (deceptive conduct) or the boards were incompetent (negligence).

I’ve been giving briefings and training on these areas internationally, including in public fora around Australia and the United States in order to help companies govern responsibly. In my mind, strategic and systemic risk are the elephants in the room which are still being overlooked and not understood.

I asserted in a public session at the meeting in front of some of Australia’s leading directors and experts that it might take someone to launch a class action in a move to get traction on this issue. After the session, one of the leading shareholder class action lawyers from New York suggested to me that being his expert witness could be very lucrative in the short term as long as I had no intention of ever being employed again, and perhaps I should stick to helping companies rather than suing them.

In Australia, internal auditors are being asked to give advice to boards on whether their company’s risk management framework is effective, and whether the risk profiles prepared by management give a true and complete picture. The advice I’m giving my clients is that if the organisation doesn’t have good capabilities around strategic and systemic risk, then the answer has got to be no, and therefore their public statements on this issue have to be qualified.

In an effort to raise awareness of strategic risk internationally, I’ve been speaking in public fora around Australia and the United States as well as through the Resilient Futures Network (RFN). The good news is that I’ve been getting traction with industry associations, community groups, pension funds, boards and large companies… and we’re beginning to prove that strategic risk doesn’t have to be difficult as long as you’ve got a good model and a diversity of perspectives (thanks to the RFN for their involvement with that).

If you’re an internal auditor trying to get your head around this, the Institute of Internal Auditors in Australia is running half-day training workshops on this topic nationally, which means you can get your head around this and bank some CPE credits at the same time. If they aren’t running near you, or if you want to run a session in-house, get a group together and The IIA will be happy to organise these.

If you’re a non-executive director and want to find out about the strategic risks which aren’t on your radar and should be, I’d be happy to give you a briefing. Please feel free to watch this primer and get in touch.

Todd

Todd Davies & Associates
Specialists in strategy, governance and step change

Web: www.todddavies.com.au
Email: todd@todddavies.com.au
Tel: +61 (0) 422 000 913

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TDA has track record in brining these functions together for greatest impact.  We can help to ensure:

• Duplication between assurance functions is minimused
• Assurance programs are focused on what really matters
• Risk management has a top-down view of strategic risks
• Emerging risk capability informs the strategy and risk functions
• Strategic risk insight informs the strategy process
• Strategy drives capability development

To find out more, contact us.

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