McCafferty's Cat II

It seems that Peter Hain must have read my advice of last week, he has now resigned.

Characteristics of an Effective Audit Committee

I read with interest the “goings on” at Shell last week. The Chairman, Sir Philip Watts, was forced to resign on Wednesday. This was the culmination of a chain of events that started when Shell announced, on 9th January, that it had reduced its proven oil and gas reserves by 20%.

Various groups and events led to the departure of Watts. However, it is reported that the final push came from the internal audit committee; which advised the board that management changes were needed.

During my career (see my resume), I have set up a number of audit committees around the world, and have been involved with others. I was therefore pleased to see an audit committee proactively asserting itself, and being listened to.

I would like to take this opportunity to remind those less proactive audit committees, and less supportive boards, as to what in my opinion (based on my experience) constitutes the top ten characteristics of an effective audit committee:

1. The audit committee must be independent, members should not have previously held executive positions in the company for which they sit on the audit committee; eg the chairman of the audit committee should not have previously been the finance director. The company should not use the audit committee as a paid retirement home for previous directors.

2. The audit committee should be suitably qualified and experienced, at least one member should hold a relevant financial qualification; so that they can at least understand the intricacies of the company’s accounts.

3. The audit committee should present a report in the year end accounts, as to the quality and effectiveness of the internal controls and risk management process.

4. The audit committee should be prepared to take a stand against the board on matters of significance, and resign if the board does not take the appropriate corrective action.

5. The members of the audit committee should be up to the job, they should not hold an excessive number of other positions. Those that, through age, fall asleep during the meetings should be retired. Do not think that this is an exaggeration, I personally have witnessed this occurrence.

6. The audit committee should have free and unfettered access to the internal auditors and external auditors of the company, as well as the board and management of that company.

7. The role and scope of the audit committee should be laid down in a charter, which should be signed by the board and distributed within the company.

8. The internal audit department should report directly to the audit committee. Dual reporting lines, to eg the Finance Director, do not work.

9. The audit committee should be responsible for assessing the quality and effectiveness of the internal audit department and external auditors. The committee should be able to make changes, as and when required, to the scope and providers of the audit (both internal and external) coverage.

10. The audit committee should be responsible for the budget of the internal and external audit coverage. I have witnessed a situation where neither the board nor the audit committee held the budget; needless to say this did not work.

This list is not intended to be exhaustive. However, it can be used as a starting point to establish an effective and respected audit committee that adds value to the business.

Don’t Be So Cocky

The Hutton report, the gestation period of which was almost akin to that of an elephant, finally entered the public domain on Wednesday. Readers of The Sun were treated to a sneak preview a little earlier.

Hutton, as we all know, kept very strictly to the parameters of his enquiry; and did not comment on the reasons as to why the British government decided that Saddam Hussein was a greater threat to world peace than say, North Korea, Iran or Osama.

He exonerated the government from any wrongdoing over the death of Dr Kelly; instead he laid significant blame on the BBC’s handling of the reporting of the alleged “sexed up dossier”.

As at the time of writing, three central characters in this sorry tale have resigned; Gavyn Davies (Chairman of the BBC), Greg Dyke (Director General of the BBC) and Andrew Gilligan (the reporter who wrote the dossier story).

I do not propose to comment on the quality of the Hutton report, its conclusions or on the actions of the BBC.

However, I will make a few observations:

Within 48 hours of the release of the report; we see that three people have resigned, of their own accord, and with as much honour as one could expect under these circumstances.

Alastair Campbell, Tony Blair’s’ ex spin doctor, rushed to the airwaves (almost punching the air with joy) to decry the BBC; and to express an almost gloating satisfaction over the report.

Tony Blair managed to restrain his comments, but his grin said it all.

The Labour Party in the House of Commons on Thursday did not contain their utter glee at the outcome; and barracked Michael Howard (leader of the Conservative Party), hissing and booing as he tried to speak.

We see here two contrasting outcomes; resignation with honour at the BBC, cockiness and arrogance from the Labour Party.

I would remind the Labour Party of the following:

How many politicians have resigned with such good grace, and with such speed when their judgement/performance has been criticised? Normally they have to be dragged, kicking and screaming from office.

Arrogance and cockiness tend to come before a fall.

Beware Tony, don’t be so cocky.

It’s a Dirty Business

Geoff Hoon, the ever popular and well respected UK Defence Secretary, finds himself in a rather unusual position.

He is being called upon to resign by Samantha Roberts, widow of Sergeant Roberts (who was the first British casualty of the Iraq war), for failing to ensure that there were sufficient supplies of body armour and other pieces of kit for the troops.

However, despite this, Hoon still “enjoys” the support of the Prime Minister. Indeed, he has a guarantee that he will not be called upon to resign.

This guarantee, in political terms, lasts a very long time; one week to be precise. In one week’s time (on the 28th of January), the Hutton report into the suicide of Dr David Kelly will be released.

It is widely expected that the report will be less than “flattering” to the government. In view of this, Tony Blair knows that there will have to be a fall guy; who will have to resign and take the blame.

Heaven forfend that it would be Tony himself!

Therefore, Hoon has been lined up to take the blame and resign. Obviously he can’t resign if he has already resigned over the Sergeant Robert’s affair. Hence the one week guarantee.

This sorry little episode proves the point that politics is a dirty business; but that is more of a reflection on those who seek power and high office, rather than on the concept of public service.

The Wages of Spin

As I write this, the body found in the woods has not yet been formally identified. However, it is taken as a certainty that it is Dr Kelly.

Dr Kelly was a respected professional scientist in the Ministry of Defence (MoD), who found himself thrust into the public eye as a result of the ongoing fight between the BBC and No 10; over the “dodgy dossier” on WMD, allegedly “sexed up” by No 10.

Dr Kelly had to endure a number of humiliations:

 Being named by No 10 as the source of the BBC’s story on the “dodgy dossier”; he denied this.

 Being publicly cross examined in a brusque, and patronising way by the Commons Select Committee; made up of second rate politicians, who clearly relished their opportunity to kick around someone who was not at ease with politicians or the media.

 Being put under siege by the media, who encamped outside his house.

This tragedy could have been prevented if any one of the following events had happened:

 Alastair Campbell (spin master to Tony Blair) had called off his personal vendetta against the BBC. He is now reported to believe that something has gone very wrong with the way politics and the media conduct themselves; well spotted Alastair.

 The BBC had made a statement confirming, or denying, that Dr Kelly was their source. Since the tragedy they have now offered their condolences, possibly tinged with guilt?

 The Chairman of the select Committee, Donald Anderson, had exercised some control over its members; and made them treat Dr Kelly with the respect that he deserved. Since the tragedy members of the committee have appeared on TV denying, in the weasel manner of the guilty, that they were too harsh with Dr Kelly.

 The MoD had publicly backed Dr Kelly.

 No 10 had not named Dr Kelly as the mole. Tony Blair of course now expresses public sympathy, and requests that restraint be shown. Where was that last week Tony?

None of the above happened. Demonstrating that those organisations have no feelings or respect for the rights, feelings or dignity of the individual citizen. Their only concern is their self perpetuation at whatever cost.

Tony Blair made much in his speech to Congress, about the Iraq war, over the fact that history will judge.

Very true Tony, but it won’t judge in your favour. I believe that this tragedy will be a watershed; the current Administration is finished, and will be history by Q4 2003.

In the meantime should anyone of the following people have a shred of decency, they should take my advice and resign:

 Tony Blair, for presiding over and encouraging the spin culture that corrodes government in the UK; this corrosion has now claimed a life.

 Donald Anderson, for presiding over the “witch finder” star chamber that humiliated Dr Kelly.

 Alastair Campbell, for pursuing a private vendetta against the BBC and for naming Dr Kelly.

 Geoff Hoon, Secretary of State for Defence, for abandoning a respected member of staff.

 Greg Dyke, head of the BBC, who chose not to confirm or deny that Dr Kelly was the mole.

I doubt very much that any of the above will resign voluntarily; accepting responsibility for events is not the “done thing” anymore in the UK.

A Busted Flush

Yesterday Clare Short, the UK International Development Secretary, resigned her post in the Cabinet. She cited her reason as being the fact that, in her opinion, the British Prime Minister had misled Parliament over the action taken in Iraq; which she believes to be a breach of international law.

Taken at face value, the resignation may seem to be a highly principled and noble action. However, I would draw your attention to the following salient facts:

 Prior to the Iraq invasion Ms Short threatened to resign, on the principle that she was opposed to any military action which did not have the backing of the UN. However, when push came to shove she chose to stay.

 Since resigning she has used several interviews to attack the non collective nature of the Cabinet, Tony Blair’s presidential style and the alleged rule by “diktat” that has, in her opinion, been omnipresent since Labour’s election victory in 1997. These may well be genuine failings of the Labour administration. However, since in her view they date back to 1997; why has she taken six years to identify them?

 She missed a crucial vote in the Commons last week, stating that there had been a mix up in her diary; adding that she would have voted for the government. She then found herself to be too busy to attend the weekly Cabinet meeting. These events, naturally, heightened press speculation about her imminent departure from government office. My view is that if you intend to resign, don’t play games in the days beforehand; just do it.

 Ms Short is calling on Tony Blair to step down before the next general election, and pave the way for Gordon Brown (the Chancellor) to take over. In my opinion, this betrays the real reason for her resignation; it is not a matter of principle, but personal antipathy towards the Prime Minister.

My advice to others, be they politicians or civilians, who may be contemplating taking the “lonely journey” of resignation is as follows:

 Don’t publicly threaten to resign then change your mind. It diminishes your credibility and dignity.

 When resigning on a matter of principle, stick to your principles; resist the urge to make personal attacks on former colleagues.

 Don’t play hide and seek in the days, or weeks, before resigning; it merely encourages speculation, and diminishes the “shock and awe” impact that your resignation has.

 Don’t go telling tales “out of school” to the media, about events that happened several years in the past. This merely diminishes your personal brand value to that of a B list celebrity; whose only source of publicity are appearances on fatuous reality TV programmes.

In short, if you really do have principles then stick to them; otherwise your resignation will have all the impact of a “busted flush”.