General comments
We believe that this consultation is timely and reflects a commitment to good governance. Fourteen years without a review of the board and working arrangements is in our view quite exceptional. Therefore, we support the proposal to have periodic reviews enshrined in FRAB’s future terms of reference.
In our view independence, transparency and openness are prerequisites for an effective board and we support any proposal that will allow FRAB to fulfil it terms of reference.
FRAB has operated well over the years and has made a significant contribution to raising the standards of financial reporting across government. We agree with your preliminary views 1, 3, 6, 7, 8, 10, 11, 12 and 13 and believe these changes will help modernise working processes. However, we have outlined below our thoughts and suggestions on the remaining preliminary views.
Specific issues
Preliminary view 2: The FRAB performs the independent role expected of it. A change in membership – for example the addition of another independent accountant member (see chapter 4) – would enhance its actual and perceived independence.
- In our view FRAB has performed the independent role expected of it since its inception. However, rather than its membership being about demonstrating independence we believe that it should focus on bringing the right balance of skills to FRAB. In our view an effective board should have members with appropriate skills and experience which will benefit FRAB’s objectives. Therefore, the process of recruiting a new member or members should be about ensuring that the most effective people are around the table.
- Related to this issue is the role of the Parliamentary representative who currently attends as an observer. We believe that more needs to be done to engage the Parliamentary observer. More often than not it is a person from the scrutiny unit that attends in his/her place. Perhaps a full membership role for an MP who understands accounting issues will better engage Parliament and strengthen independence and transparency. In relation to membership from the devolved parliaments we would suggest you take advice from the Parliamentary Scrutiny Unit.
Preliminary View 4: To improve the balance of the board, it is desirable to add at least one further ‘independent’ member. If it were considered undesirable to increase the size of the board, this would result in the reduction of remaining members by one.
- The experience and skills composition of FRAB is important. In our view the ideal ratio of independent members to internal members is not universally agreed for an organisation or sector. However, having a healthy mix of independent members on FRAB would be considered generally considered positive because of the external point of view, objectivity, and range of expertise they can potentially inject to proceedings.
- We are firmly of the view that the size and structure of FRAB should be appropriate to its objectives as set out in its terms of reference. For example, a lot of research work has been undertaken and guidance issued on the size and structure of governing boards, but it is generally agreed that more than 25 members will make boards unwieldy. FRAB should resist going beyond this number, but it gives some flexibility in recruiting more than one new member.
Preliminary View 5: An appropriate tenure for the FRAB chairman is three years, renewable once. For ‘independent’ members the appropriate tenure is three years, renewable up to twice. Similarly, for appointed members, a three-year tenure is appropriate, with the presumption this would be renewable no more than twice, except in particular circumstances.
- We agree with the proposed tenure of the chairman. However, we do not agree with the proposal for tenure for appointed members. While long serving members can provide institutional knowledge there should be some scope to refresh the membership. Our experience of governing boards is that long-term tenure can allow complacency to set it. We think that it might be appropriate to ask members on an annual basis what is needed to change to keep FRAB reinvigorated. This will include assessing their commitment and performance over the period of tenure. At most we would advocate no more than tenure being renewable once.
Preliminary View 9: The FRAB should continue to meet in closed session, given the transparency of its operations via the publication of its papers and minutes of its meetings.
We disagree with the above. There are many examples of boards conducting open meetings across all sectors. We see no reason why this shouldn’t be the case with FRAB. In the spirit of openness and transparency and good governance we would support open meetings furnished with papers and minutes.
