finding a replacement for FASB Chairman

Choosing the Next FASB Chairman

E veryone in the accounting world knows of the Financial Accounting Standards Board. But very few people know how the board members are selected or what qualifies a person to be a board member. Dennis Beresfords term as the FASBs chairman will end June 30, and, given the term limits of the position, he is not eligible to be considered for reappointment. Therefore, this is a particularly useful time to share with the public the process for selecting the next chairman and the characteristics and qualifications that are essential for membership on the board in general and its chairman in particular.

The responsibility for selecting the members of the FASB is the mandate of the board of trustees of the Financial Accounting Foundation (FAF). The trustees also are responsible for securing the FASBs funding and for overseeing its activities, although by charter they are not involved in technical issues. The foundation is totally independent from any other organization and acts to ensure that the FASB remains free of outside influence. Selecting the members of the FASB is its most important role in the standard-setting process.

The 16 men and women who serve on the FAF come from the highest levels of business, public accounting, government, academia, financial analysis and the public at large. Among the trustees are chief executive officers of the largest public accounting firms, the former comptroller general of the United States, a former vice-chairman of the Federal Reserve, a former chairman of the Securities and Exchange Commission, senior executives of some of the major financial institutions of the United States, directors of major public companies and the CEO of the worlds largest private retirement system.

The process of finding the new chairman of the FASB is organized and directed by the FAFs eight-member selection committee, which I chair. The selection committee is responsible for identifying possible candidates, screening rsums, interviewing candidates and recommending a candidate for selection to the board of trustees of the foundation, which will vote on the candidate.

Qualities needed by a board member
The trustees have agreed on the qualities necessary for members of the board, including the chairman:

• Knowledge of financial accounting and reporting. All candidates for membership on the FASB should have a reasonable level of knowledge and technical competence in financial accounting and reporting, regardless of their background. Such knowledge is essential to a board members credibility both inside and outside the organization and to the FASBs effectiveness and efficiency.
• High level of intellect applied with integrity and discipline. The ability to absorb and objectively analyze complex information and make lucid decisions is crucial. Rigorous effort, discipline, intellectual integrity and consistency of approach are hallmarks of the qualified board member.
• Judicial temperament. Of great importance is the ability to consider impartially the evidence on all sides of issues, to call for additional evidence if that seems necessary and then to reach a decision within a reasonable period of time.
• Ability to work in a collegial atmosphere. The FASB is a collegial body, characterized by group decision making that requires give and take in order to arrive at timely, workable solutions to problems. The objective of providing guidance for preparers, auditors and users of financial reports must take precedence over the personal philosophies of individual members. Members must be able and willing to articulate clearly their views on the issues and be prepared to make reasonable compromises that will lead to improvement of financial accounting standards.
• Communication skills. Board members should be able to communicate effectively in board meetings, dialogues with fellow board members and the technical staff, speeches and other contacts with persons outside the FASB. Their internal memoranda, speeches, articles, correspondence with constituents and other written communication all require tact and clarity.
• Awareness of the financial reporting environment. While the FASB deals with technical accounting issues, its decisions must be made in the context of trends and events in the business community and economy as a whole. A member of the FASB should have a broad understanding of the environment in which the board operates.
• Commitment to the FASBs mission. A candidate for membership on the board should be committed to the FASBs mission as a private-sector, self-regulatory organization and to the hard work required to fulfill it.

The FASB chairman
Clearly, the individual selected to chair the board must possess all the qualities required of other board members as well as distinctive leadership attributes. The chairman must exhibit the ability to set a sensible course toward a reasonable objective and to direct an organization in following the course. The capacity to steer around obstacles, compensate for setbacks that may occur and change course in order to reach the destination demands intellectual rigor and flexibility of mind.

The FAF selection committee also looks for a candidates ability to inspire colleagues and other team members to maximum effort and the related ability to mediate among conflicting claims on resources. The chairman also represents the organization as the principal public spokesperson. In addition to this important external role, internally the chairman must possess the ability to conduct orderly, productive meetings and ensure that reports and recommendations of the staff are properly presented and the views of all board members adequately heard. Since the “one member, one vote” rule prevails at the board, the capacity to achieve consensus among different viewpoints in order to reach agreement on decisions is clearly essential.

In keeping with the unique character of the FASB, certain leadership and intellectual qualities are required of the chairman. These encompass the patience and desire to steer a diverse group of strong-minded individuals toward consensus, as well as the instinct and will to build positive relationships with constituents. Leadership in identifying new issues in the changing business and financial environment must be combined with an international perspective on financial reporting in todays global marketplace. Not least important, the chairman must possess acute political sensitivity and an instinct for anticipating problems of a political nature not only with regard to the Securities and Exchange Commission, other government agencies and the Congress but also with regard to conflicting needs and wishes within the private sector.

The selection process
The FAF trustees are pursuing a rigorous process to select the FASB chairman. First, they agreed on the qualities that the chairman should possess. Representatives of the SEC, members of the FASB Advisory Council and other appropriate constituent groups reviewed these qualities with the hope of eliciting candidates for the selection committee to consider. We also have engaged an executive recruiting firm, Spencer Stuart, to help in identifying candidates. Dennis Beresford has been asked to serve as an ex-officio member of the committee and will participate in committee and one-on-one interviews with candidates.

Trustees who are not members of the selection committee itself also are welcome to participate in every aspect of the selection process. All current FASB members have been invited to meet individually with the selection committee to express their views and discuss their possible interest in being considered for the chairmanship. Committee members will then review candidate recommendations and interview those deemed appropriate for further consideration. Once we agree on a recommended candidate, the committee will complete reference checks and confirm that the candidate will accept the position if it is offered. We expect to make a recommendation to the board of trustees by its April 1997 meeting.

Although we have made some initial progress in the search for a new FASB chairman, the real work is just beginning. Some suggestions about candidates who should be considered have been received from constituents, and more would be welcome.

The FASB’s future
In solving problems, the FASB needs to be able to look back to where it has been and forward to where it is going. The chairman should be a strong proponent of long-range, evolutionary change vs. the “quick fix.” One of the strengths that has sustained the FASB is the careful and thorough due process that has evolved for dealing with difficult and contentious technical issues. An equally important strength has been the capable and dedicated individuals we have been able to attract to serve as board members and in other capacities. The trustees recognize that all members of the business community have a significant stake in this decision and are dedicated to extending those strengths into the future through a careful and thorough selection process.