SHIPBUILDING company Austal has launched an innovative solution to one of the main corporate governance issues facing small and mid-cap listed companies.
SHIPBUILDING company Austal has launched an innovative solution to one of the main corporate governance issues facing small and mid-cap listed companies.
It has appointed former Ernst & Young partner, and former Austal external auditor, Derek Parkin as a member of its audit committee.
The appointment is highly unusual – and possibly an Australian first – because Mr Parkin is not a member of Austal’s board of directors.
Audit committees, and other ‘board’ committees, at listed companies are universally populated by directors.
Austal’s move provides an innovative solution for listed companies that want to comply with the Australian Stock Exchange’s new corporate governance guidelines.
It enables companies to beef up their audit committee with extra members and greater financial expertise, or even establish an audit committee, but without having to appoint extra directors.
However, Austal’s choice of a former external auditor is sure to raise eyebrows.
At first glance, the appointment of Mr Parkin appears to be sharply at odds with regulatory moves to distance auditors from their former client companies.
The Federal Government’s CLERP 9 reforms proposed that audit partners should wait two years following resignation before becoming a director of a former client or taking a position involving responsibility for fundamental management decisions.
The report of the HIH Royal Commission went further, suggesting the waiting period should be four years. Justice Neville Owen wrote that: “In my opinion, the proposed mandatory ‘waiting period’ of two years might not be sufficient to arrest a reasonable apprehension that former partners retain an influence over members of the audit team”.
Mr Parkin, who retired from Ernst & Young six months ago and is now a professor at Notre Dame University, is adamant his appointment does not run contrary to the proposed reforms.
“I consulted very widely before accepting this position,” Mr Parkin said.
“I’m at pains to make sure I don’t appear cute on this. I would not have pursued this is if I felt there was any concern.”
Specifically, Mr Parkin said he would not be a director, would not be making strategic decisions, nor would he be a ‘deemed director’ – a view supported by expert legal advice.
He described the role of the audit committee as being akin to “an advisory group to the board of directors”.
Austal director and audit committee chairman John Poynton said he saw no problem with the principle of former auditors joining audit committees.
“It has to be person specific. You can be far too prescriptive about these things,” Mr Poynton said. “You won’t get a man of much higher ethical standing than Derek.”
Mr Poynton foreshadowed further changes at Austal, with plans to appoint a new non-executive director in a couple of months.
It was expected the new non-executive director would replace finance director Michael Atkinson on the three-member audit committee.
