Independence is rule number one for neds

Among the ten ‘to-dos’ audit committee members should observe this year, according to the audit committee institute at KPMG, is No.7: ‘Be prepared for a crisis’

I doubt very much that lastminute.com founder Martha Lane-Fox thought she would need this advice about her own membership of the Marks & Spencer board. But she’s in the news precisely because she is a member of the M&S committee, while M&S chief executive Sir Stuart Rose holds a stake in her karaoke company Lucky Voice.

The accusation is that Fox can no longer consider herself ‘independent’. It’s an interesting debate and there is no suggestion of anything underhand going on at M&S.

But it does raise the issue of who much importance non-executive directors need to place on their independence and what their independence actually means. We are living in difficult times where sensitivities about corporate governance are at their most intense. Enron, WorldCom and now the credit crunch have all seen to that. It is instructive that KPMG says in ‘to do’ No9: ‘Promote a culture of compliance and a commitment to financial reporting integrity throughout the organisation’.

In the current environment directors, and especially those that oversee the auditors, will have to be seen to be squeaky clean. They cannot afford to be viewed as compromising core principles. Auditors are in the firing line as they never have been before, audit committee members have been targeted in greater numbers and investor activism is at its most energetic.

There is plenty of advice around, committee members should know where they stand. And they will have to be fiercely protective of their independence.

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