From the President's Desk
By Terri Polley, FAF President and Chief Executive Officer
Independence Day Special Issue
Happy Independence Day(s) from the FAF
On July 4th, people across the U.S. will celebrate the adoption of the
Declaration of Independence with fireworks, picnics, and parades.
The Financial Accounting Foundation (FAF) also observes another
"Independence Day," albeit a few days earlier and without barbecues,
bands, and pyrotechnics.
On June 30, 1972, the FAF Board of Trustees filed a certificate of
incorporation with the Delaware Secretary of State as a not-for-profit
organization. It followed the March 1972 issuance of the Wheat Report,
a study commissioned by the American Institute of Certified Public
Accountants (AICPA) that led to the creation of the FAF and the
Financial Accounting Standards Board (FASB).
The Wheat Report proposed that "a new foundation, to be called the
Financial Accounting Foundation, be established, separate from all
existing professional bodies." The report recommended the FAF "would be
governed by a Board of Trustees composed of nine members, whose
principal duty would be to appoint the members of the Financial
Accounting Standards Board and to raise the funds of its operation."
The history of the independence of the FAF—in particular, the process to appoint our Trustees—is an interesting one, evolving over time in a dynamic regulatory and economic environment.
The history of the
independence of the FAF—in particular, the process to appoint our
Trustees—is an interesting one, evolving over time in a dynamic
regulatory and economic environment.
The Wheat Report originally proposed rules for who could and should
serve on the FAF Board of Trustees. The report proposed that the
President of the AICPA be appointed as a FAF Trustee. Moreover,
the other eight Trustees should be appointed by the AICPA board of
directors, and should include:
- 4 CPAs in public practice
- 2 financial executives
- 1 financial analyst
- 1 accounting educator.
Finally, certain so-called sponsoring organizations were given rights to nominate candidates for the FAF Board of Trustees:
- The Financial Executives Institute (today, Financial Executives International)
- The National Association of Accountants (today, the Institute of Management Accountants)
- The Financial Analysts Federation (today, the CFA Institute), and
- The American Accounting Association.
The original appointment approach was a good start and gave the
fledgling body the knowledge and experience needed to get the
organization off the ground. Over time, though, perceptions grew that
control of Trustee nominations and appointments by the sponsoring
organizations were not consistent with the need for independence.
As the organization matured and gained the confidence of stakeholders,
the approach to nominate and appoint Trustees also evolved with a goal
of increasing the independence of the Board and the organization as a
whole. The size of the Board of Trustees also increased over time to
ensure that individuals with broader perspectives, more varied
backgrounds, and more diverse experience sat on the Board.
A few key moments stand out:
- In 1984,
with the establishment of the new Governmental Accounting Standards
Board (GASB), the FAF by-laws were amended to provide for the
appointment of Trustees with state and local governmental accounting and
finance experience to properly oversee the activity of the newly
established GASB.
- In 1996, U.S. Securities and Exchange Commission Chair Arthur Levitt recommended to the FAF Trustees
that "a majority of its Board of Trustees [should] consist of
individuals with strong public service backgrounds who are able to
represent the public interest, free of conflict." The Trustees devoted
substantial attention to this recommendation, and subsequently increased
the number of seats to include financial statement users and the
public, while reducing the number of preparers and auditors. However,
specific organizations (then referred to as "nominating organizations")
retained the ability to nominate a majority of the Trustees.
- In 2008,
the Board of Trustees further increased the independence of the
appointments process by significantly expanding the universe of
organizations invited to nominate FAF Trustees to access a broader
population of nominees. The Trustees sought more nominations of
individuals with business, investment, capital markets, accounting,
accounting and business education, financial, government, regulatory,
investor advocate, and other experiences. The process further expanded
to include an invitation for the public to submit nominations.
- Also starting in 2008, the Trustees decided that they, rather than
the nominating organizations, should have final authority for all
appointments, under a process facilitated by the Board's Appointments
Committee. This decision effectively eliminated direct appointments by
other organizations.
Presently the Board comprises 18 members from varied backgrounds—users,
preparers, and auditors of financial statements; state and local
government officials; academics; and former regulators. The Trustees
include individuals with experience at private and public companies,
small and large firms, and varied state and local government experience.
We've come a long way in
ensuring that the composition of our Board promotes our independence,
but it took a journey to get here.
Nominations come from many diverse sources—both organizations and
individuals—to reflect the stakeholders we serve and the independence of
the Board. It's important to note that all the original
sponsoring and nominating organizations—and the organizations that they
have evolved to—continue to actively participate in our nominations
process.
This Board composition serves the FAF well, with each member bringing a
unique perspective through different work experiences and areas of
expertise. We aspire to achieve Board diversity and continually seek to
refine our selections to best reflect and serve the broad range of FASB
and GASB stakeholders.
We've come a long way in ensuring that the composition of our Board
promotes our independence, but it took a journey to get here. To those
who helped us along the way—from sponsoring and nominating
organizations, to individual stakeholders and the public submitting
nominations—we thank you and wish you a "Happy 30th of June!"
I welcome your comments on this or any other topic. Please write to me at presidentsdesk@f-a-f.org.
FAF President and Chief Executive Officer