While most firms have a board-level audit committee, some stand to gain from a separate finance committee.
Firms coming through a crisis are prudent to check for cracks in their governance structures. As part of this exercise, some treasurers are asking if they should have a finance committee, separate, or as a subset of the audit committee, to provide guidance on strategic financial and capital structure decisions. Recent back-and-forth between treasurers of The NeuGroup’s corporate peer groups suggests they might.
One consideration is how formal the discussions with the full board are—as typically a high level of formality will prevent an open discussion of ideas. Plus, if finance expertise is not widely represented on the full board, then engaging it in dialogue on hard-core finance topics can prove unproductive.
An alternative is to use the audit committee as a sounding board. The extent to which this is a good idea is largely a question of how much it focuses on accounting and control issues. Some firms have audit committees that lend themselves to more than that—and they may even call them “audit and finance” committees. Arguably, then, these firms have a finance committee at least by proxy.
Firms with more traditional audit committees, on the other hand, should consider establishing a separate finance committee—or, at least, a board sub-committee—to consider strategic finance questions in conjunction with the treasurer and CFO and make recommendations to the full board, where necessary. While this adds another layer of administration, it can be applied to treasury’s advantage.
Working with a smaller committee of subject matter experts, for example, who can vote on proposals to recommend to the full board, makes it much easier for treasury to get innovative things done. As one treasurer who has been engaged in some pioneering structures noted: “If we had to pitch to the full board as opposed to subject matter experts, the sales job would have been more difficult.”
Finally, as this treasurer described his finance committee: “It is ostensibly the treasurer’s committee, and as a consequence it highlights the value that the treasurer brings to the company—in a setting that is focused upon finance, as opposed to accounting.”