The Institute of Internal Auditors is giving corporate America only a modestly better grade on governance in 2020 compared to 2019, and any improvement is probably due to the coronavirus pandemic.
The IIA and the University of Tennessee released their second-annual American Corporate Governance Index on Wednesday, scoring companies at an average of B- (82) on a scale of 1-100. That’s only a slight improvement from a C+ (79) a year ago. But the score still falls short of what the IIA and UT’s Neal Corporate Governance Center consider ideal practices for ensuring corporate sustainability, a healthy culture, transparent and accurate disclosures, and effective policies and structures.
“Maybe the pandemic has helped corporate governance a little bit over the last year because it’s resulted in boards and management and internal audit having a lot more conversations around the risks the organization is facing,” IIA president and CEO Richard Chambers told Accounting Today. “We saw this too in our risk report when we saw better alignment in how management, the board and internal audit see risk in a company. What we’re seeing here is that overall there is what would I call a modest improvement. I don’t think going from a C+ to a B- is a dramatic improvement. There are still areas where we think some more work needs to be done. I think boards are still a bit too trusting. They don’t bring enough skepticism to their roles.”
Results of the ACGI indicate gains across the Index’s eight Guiding Principles of Corporate Governance. Compared with last year’s results, company size (revenue) and industry took on larger roles in explaining variations in ACGI scores. The results suggest that, during times of heightened risk like the current pandemic, companies in regulated industries such as financial services, transportation and utilities exhibit stronger governance.
Gregory D. Squires is a research professor and professor emeritus in the sociology department at George Washington University. He is also a member of the Philadelphia Home Appraisal Bias Task Force.
Brian Swanson is a partner at Flashpoint Marketing, a marketing consulting firm that focuses on providing traditional and digital lead generation services exclusively to the accounting profession. In 2008 he joined Flashpoint to lead the development of the firm's digital services practice. Prior to joining Flashpoint, Swanson worked for a Big Four firm assisting with audit practice marketing and development. He has also worked as the director of marketing & business development for a regional accounting firm in the Southeast United States. In 2009 he earned his Master in Business Administration in Finance from Benedictine University. He also holds a Bachelor of Arts in Secondary Education from Northeastern Illinois University. He was the first accounting marketing professional to earn certification from the Search Engine Marketing Professionals Organization in internet marketing and advanced search engine optimization. He is currently a member of the Association of Accounting Marketing and SEMPO.
Jennifer Briggs, CAE, is president and CEO of the Indiana CPA Society. She joined the society staff in 2002 and served as the special projects manager, marketing manager, marketing director, director of member services, vice president of member services, senior vice president and chief operating officer. Before joining the society, Briggs spent three years at KWK Management Group as executive director of five state-wide associations overseeing all activities of the organizations, including education programs, marketing, membership recruitment, and various government relations activities. Prior to that, she worked for the Indiana Apartment Association and for five years at the National Association of Mutual Insurance Companies. Briggs earned a degree in marketing from Marian College and an MBA from Butler University, and is a member of the American Society of Association Executives and the Indiana Society of Association Executives. In 2009, she was awarded the Association Professional of the Year award from ISAE. She has served on the American Society of Association Executives CAE Exam Committee, the AICPA’s Future of Learning Committee and various community boards of directors.
The most significant improvement on the index was a decline in the number of companies who scored a failing governance grade. In 2019, 10 percent of companies scored an F, compared with only 2 percent last year. As in the first year of the ACGI, the majority of companies scored in the B and C range of governance performance, with less than one-fifth earning an A-range performance.
“This is our second edition of our Corporate Governance Index,” said Chambers. “A little bit of history here: I had been for a number of years impressed by our Corporate Governance Index in South Africa. I kept talking about how we really needed to do the same kind of initiative for corporate governance here in the U.S. That’s how we ended up giving rise to the American Corporate Governance Index. Last year was our inaugural edition. It’s going to be something that I think will provide a real measure over time of the relative strength or weakness of corporate governance.”
The IIA’s South Africa branch has been producing annual Corporate Governance Index reports since 2013, often in partnership with educational institutions such as the University of South Africa and the University of Pretoria. “I travel regularly to South Africa to be part of their conferences and programs, and I was very impressed with the fact that a Corporate Governance Index there was so widely referred to and anticipated,” said Chambers. “That started us on the path to launch the American Corporate Governance Index.”
Chambers will be departing his job as head of the IIA at the end of March. The IIA announced this week that Anthony Pugliese, president and CEO of the California Society of CPAs, will be taking over from Chambers (see story). The two of them will be working together to ease the transition over the next two and a half months.
“I didn’t really know Anthony Pugliese well before he was selected by our board to become the new president and CEO, but he and I have had several opportunities to interact,” said Chambers. “We’ve had some early conversations. We’re planning some good quality transition time between now and March 31 when I step down officially and formally as the president and CEO. Anthony, I think, brings a tremendous amount of association management experience to this job. He’ll be the 10th president and CEO of the IIA, and I can tell you, being a student of the IIA’s history, that he will bring more association management experience to the role than any of his predecessors, so I’m very excited that he’s going to have the opportunity to come in and manage the organization in the future. I certainly am going to wish him well and do everything I can to help prepare him for the role.”
Chambers’ own plans for his career after the IIA are indefinite right now. “If you look back at my career path, since I finished my career in government almost 20 years ago, I have aligned myself with organizations that are advancing the internal audit profession, and who are making investments in the internal audit profession,” he said. “I spent time at the IIA and spent time with PwC’s internal audit practice, so as I look at what I might do in the future, I think I’m going to be attracted to a company or organization that is advancing and investing in the internal audit profession. I don’t know yet exactly what that’s going to look like. It’s still over two months before I step down, so I don’t want to get too far ahead of myself in making definitive plans.”
