Meeting the Board’s Informational Needs
By John T. Dinner
There is a direct and necessary correlation between board effectiveness
and the quality of management information. Every board has a host of
moving, interdependent parts that will only sputter along, eventually
grinding to a halt if those parts aren’t lubricated with sufficient quantities
of quality, timely and relevant data on key business issues.
Last spring, I participated in a panel discussion sponsored by the
University of Waterloo on the nuts and bolts for building better boards.
Each panelist was asked offer their view on what single factor would
have the most significant impact on good governance. If only life, and
boards, were that simple.
NUMBER ONE BOARD BEHAVIOUR
Even if there is no one thing, on its own, that can help ensure board
effectiveness, it’s still a profitable exercise to consider the question. I
focused on the critical work a board does undertaking due diligence in its
oversight work. Stripped down to the essentials, due diligence is all
about asking questions – the number one board behaviour. The ability
to ask the right questions is entirely dependent on directors being
equipped with the right information.
All too often, however, the number one board criticism is the information
they receive doesn’t meet their needs. It doesn’t reflect the scope of
their accountabilities. It isn’t provided in a timely manner. It isn’t
presented in a way that directors can easily identify and understand the
most critical issues.
Board information needs can never be met if it is treated as an afterthought by management. A last minute approach means it’s almost
impossible to dissect raw management data with the thought and care
required to meet the board’s needs. Both directors and management
need to understand and agree upon what the board’s information needs
are and how these will be met.
PLAN FOR BOARD INFORMATION FLOW
A good starting point is to ensure that information provided to the board
must align with its accountabilities for succession planning, financial
oversight, risk and opportunities management, stakeholder
communications, performance management, and direction setting. On
this latter point, when undertaking a new strategic initiative, the project
planning phase should explicitly identify and plan for board interaction
and information flow, particularly if formal board approval is required.
From an operational perspective, management is typically faced with
three levels of board-related communication that includes contact by the
Board Chair with the CEO, the communication required to ensure
effective board and committee meetings, and the less structured, but
equally important communication between meetings.
Contact between the board chair and chief executive officer tends to be
regular, though informal. The board chair can act as an invaluable
resource to the CEO in providing counsel and guidance. From the chair’s
perspective, ongoing contact between board meetings can help ensure
the board receives the right information in a timely manner and that
those issues that matter most drive meeting agendas.
The communication required to ensure board and committee meetings
are effective is the most demanding and time consuming. It’s also the
most critically important, as boards only exist in a legal and function
sense when they meet.
THEATRE OF GOVERNANCE
While meeting effectiveness deserves its own column, it is important to
note that board meetings are the centre or theatre of governance. The
way they are planned and conducted—in addition to the dynamics that
emerge between the call to order and adjournment —significantly
influences the quality of governance.
Effective meetings and effective boards are often one and the same.
Effective meetings don’t just happen. They require diligent effort over
time to make sure that what matters most is what drives board
meetings.
The communication supporting board and committee meetings include
distinct processes: pre-read materials that help directors prepare in
advance for their meetings and the communication that takes place
during meetings has an immeasurable impact on board decision-making
and, ultimately, organizational success. The follow-up communication
required to ensure items arising from the meetings figures prominently
on how well those decisions are executed.
NUMBER ONE CHALLENGE
The number one challenge is determining the level of detail to be
included in board communications so that proper due diligence can
occur. While there’s no formula that can be used, an ongoing and active
commitment to open, clear communication is key. Directors need to
fully understand the strategic fit with the organization of a particular
initiative, the opportunities for risk and reward, the tactical options being
considered to achieve the strategic objectives, the pros and cons for
each, and a tight, data-driven argument behind whatever
recommendation that management wants the board to approve.
Effective communication during meetings is the chief responsibility of the
board chair. Critical to achieving this is careful facilitation to ensure the
will of meeting is reflected in all decisions, keeping the discussion
focused on the real issues, ensuring balanced input from all directors,
and moving the discussion towards resolution.
Given the strategic focus of much of the board’s mandate, the “balanced
scorecard” work done in the early 1990's by Drs. Robert Kaplan and
David Norton can be particularly helpful both to management and
directors.
BALANCED SCORECARD
The genesis of the balanced scorecard approach to strategic
management was a recognition of some of the weaknesses and
vagueness of traditional management approaches. In contrast, a
balanced scorecard approach is explicit and prescriptive when it comes
to what companies should measure in order to 'balance' traditional, but
often antiquated financial measures. The balanced approach goes
beyond this one-dimensional approach to include measures better suited
to the information age that relate to the investment the organization is
maaking in its customers, suppliers, employees, processes, technology,
and innovation.
Chief among the benefits of the balanced scorecard is the way it allows
an organization and its board to clarify its vision and strategy and
identify the appropriate tactics that put vision and strategy to action.
EQUIPPING DIRECTORS
And that’s what’s at the heart of effective board communication:
ensuring that directors are equipped with the information they need to
provide full, relevant and timely direction and stewardship for the benefit
of shareholders and others with a stake in the organization’s success.