image: Ann-Christine Mjölnevik completed her thesis at University of Gothenburg. view more
Credit: Photo: Maria Norrström
Research at the University of Gothenburgs point out that more competent company boards are needed.
The IT bubble burst and cases like the Skandia and Enron scandals called for measures to promote trust in the Swedish business sector. When the Swedish Code of Corporate Governance came into force in 2005, it encouraged all companies required to apply the Code to establish a Board Audit Committee. Four years later, on 1 July 2009, the recommendation became a legislated requirement. But are audit committees effective at promoting trust in companies listed on a regulated stock market? And how do companies deal with the increased need for qualified competence? A new doctoral thesis by Ann-Christine Mjölnevik, researcher at the School of Business, Economics and Law, University of Gothenburg, sets out to find answers to these questions.
Companies listed on a regulated stock market are obliged to apply the Swedish Code of Corporate Governance, which requires companies to establish a board audit committee. The task of the committees is to prepare the boards' work with the control of the companies' financial reporting. Their members must be external to the companies and at least one in each committee must be proficient in accounting or auditing. The overall purpose of the Code, also known as the Company Code, is to improve the governance of Swedish companies and thereby promote trust in the entire business sector. Another purpose is to increase awareness of and confidence in the Swedish corporate governance among foreign investors and, in doing so, increase access to venture capital.
Mjölnevik's thesis, titled 'Audit Committee – A study of trust, justice and responsibility', explores how the audit committees carry out their work, how committee members and company boards feel about the Company Code, and how the Code has affected the recruitment of competence to company boards. The study emphasises not only that the committees must possess the right qualifications, but also that they must have the opportunity to communicate with the public supervisory body. Yet, Mjölnevik concludes that this is not always the case.
'New rules are constantly introduced in the field of corporate governance, often in response to certain problems or crises. This increases the need for competence in company boards, but the need is not always met', says Mjölnevik.
Mjölnevik says that there is also a need for a support system that includes the public supervisory board. She uses U.S.A. as an example, where companies can turn to the U.S. Securities and Exchange Commission for support and guidance.
'I have found that the tasks that audit committee members are expected to master require qualified competence and an active dialogue with public supervisory bodies regarding all the rules and guidelines that the companies must adhere to. Today, companies often simply have to rely on their auditors, but that's not enough. These parts, together with internal norms that support responsible conducts, are crucial to the ability of audit committees to promote trust in listed companies.'