Which plan? (You may ask) The plan refers to the strategic objectives that the company has set. For example, target of sales, areas to be audit, new products or services, etc. This, to keep the company as the shareholders want it to be.
But experience has shown that:
a) Independent members tend to be chosen by its reputation. This is good as a first step, but what has been seen is that an important person may not have the time to attend meetings. Therefore they send their “second on board” and the objective of having someone who advises and protects the company is lost. Be careful when choosing. Do you want a member known by its importance on society? Or a truly person that will give value added to the company?
b) In the majority of the companies the President of the Committees is the CEO. If you want the Committee to be independent and with transparency, should the CEO be the President? Keep in mind the potential conflict of interest that can be generated because the CEO responsibility is the accountability of the company. It will be best to name an external member as President.
c) The best number of members to compose a Committee it is between three to five. There is a reason for an odd number: in case of disagreeing a member can solve the issue by a vote. It is important that at least one of the members is independent. Again, to keep transparency, objectivity.
d) The members are asked to attend meetings, to decide through votes the best for the company without even knowing the processes or key issues! Of course it is really important to have someone on the Committees with specific technical qualifications such as audit, compliance, fraud, finance, investments, legal, etc. but these qualifications should be equilibrated with the knowing of the company and being updated in hot topics. If not, how will they apply their technical qualifications to the company and to its environment? Invest time on them to know the company in detail. Their responsibility is to protect it, right? How can someone protect without knowing or misunderstanding or being outdated? Companies are different even if they belong to the same industry.
e) There is no rotation between members. For the sake of the company, members should be changed at least every 5 years. Bringing “new eyes” is a key to maintain independence, transparency which leads to protection, vigilance. A company's requirement to have Committees is not only to comply with the law or seen as a checklist. It should be taken seriously, because those people have an opinion, a vote that should be in favor of the company’s best interests. Make sure independent members take seriously their responsibility and that they know it. Don’t jeopardize your company’s future!
f) Members are not evaluated or the company can’t see the Committee’ effectiveness. If this is your case… react now! And this applies for any member or staff of the company: if you can’t see its value, or how things are improved after they have been hired then: either they are not doing their job well, or you have not chosen the best person to do it. Every area which integrates a company; every person who is working for a company, should add something. Keep in mind this goes in a positive way: a win-win situation for both the employee and the company. Otherwise, why would you keep those people? And worst: you are paying them!
g) Retribution should not be more than certain amount of money, shares or bonuses, etc. the compensation may vary according to the regulation of each country. It is important to know the threshold so the independence maintains.
h) The majority of the companies have Committee meetings on a quarterly basis, can you believe it? And in the mid-time? According on how things change so quickly in this world: economy, technology, competitors, and clients…does it makes sense to wait until certain time? Again, think about your priority: the company.
i) They do not use the business risk management (BRM)! Go back to subsection a. Who are the most renamed people? Yes, people important in the media. People who in its majority know important issues but have not applied them. I’ve seen so many experts in AML, fraud, compliance, internal audit that knows what a risk is but can't put into practice the BRM. You need more than theory. You need practice, experience. If not, how will they know if a control is effective or not?
j) Members should be accessible, reachable. One of the key elements of the Committees success. Its role does not make them “sacred”. They should be open and reachable for every employee to talk to them. Therefore some kind of channel should be implemented: such as an email, phone number, etc. and above all, that when someone reports there is an action taken on time.
Independent members are there to look out for the company’s best interest, to ensure the planned results are obtained, to verify how resources are allocated, to supervise everything is ok. It is not a superficial role. It is about strategy and company’s growth.
So, who are you going to invite to integrate your Committees in order to decide for your company’s future?