EU rules will make directors steer clear of audit committees, warns IoD

EU proposals to make audit committees a mandatory requirement for all companies, could well prove counter-productive, the Institute of Directors (IoD) warned today.

The plans, set out in the proposed EU Statutory Audit Directive, could make directors reluctant to serve on audit committees and would undermine the UK's tried and tested 'comply or explain' approach to corporate governance.

Commenting in advance of a discussion on Tuesday 21 June by the European Parliament's Legal Affairs Committee, the IoD's Director General, Miles Templeman, said:
 
"Directors are well aware of the need for companies to have effective audit committees, but the EU should not make them mandatory. This proposal will significantly undermine the collective responsibility of the members of unitary boards, seriously reduce the pool of potential audit committee members, and ultimately make directors reluctant to serve on audit committees."

Mr Templeman signalled his strong support for a letter to the European Parliament Legal Affairs Committee's Rapporteur, Bert Doorn MEP, from the European Confederation of Directors' Association (ECODA). The IoD is a member of ECODA, together with directors' organisations from France, Belgium and Luxembourg.

Mr Templeman added:

"One of the main drivers for these proposals appears to be the desire to bring the EU into line with US law, particularly Sarbanes-Oxley.  But even the US does not go as far as these provisions and operates on a comply or explain approach to the qualification of audit committee members. There is no need to condemn the vast majority of EU companies to inappropriate regulation and we call on the European Parliament to reconsider this damaging proposal."