MODULE 6
EFFECTIVE BOARD
MONITORING
ADB Private Sector Development Initiative
Corporate and Financial Governance Training
Solomon Islands
Dr Ann Wardrop
La Trobe University
Acknowledgement
These materials were produced by the Asian Development Bank’s Pacific Private Sector Development Initiative (PSDI).
PSDI is a regional technical assistance facility co-financed by the Asian Development Bank, Australian Aid and the New
Zealand Aid Programme.
Module 6 Outline
3
Effective board monitoring
Board
meeting frequency
What kind of information reports should the board
receive?
How should the information be presented?
Performance review
Guidelines
for developing performance measures
Assessing the CEO
Assessing the board and individual directors
Effective board monitoring
4
The previous module discussed why plans are
needed and how they are reported externally as
part of the company being accountable to its
stakeholders.
This module will examine the question how does the
board internally monitor the company’s
performance?
Effective board monitoring
5
Recall that ‘monitoring’ is one of the board’s critical
roles.
Oversight extends to all aspects of the company’s
objectives: operational, strategic, and financial.
Board also assesses the CEO
Board should also assess itself and individual
directors
Effective board monitoring
6
To perform this function it must have:
An
effective reporting system
Relevant
timely
What kind of information/reports should the board
receive?
Effective board monitoring
7
Board information should include:
Key
results indicators of business compared to:
Plans,
strategic, annual, and others
Timing of reports will differ:
Strategic
Business
review annually
plan quarterly or monthly
Effective board monitoring
8
Object of reports to board should show overall
performance to ensure board focussed on strategic
issues and not detail of management
Following monthly report items should include:
Actual
result against budget
Year to date
Results for previous year
Forecast for next quarter and year-end
Board report
9
General
Overview
of operations
Financial
Profit
and loss, balance sheet, cash flow, capital
expenditure
Working capital trends and analysis
Loans
Foreign exchange exposure
Sales
Costs
Archer & Thornton, "Seeing the wood for the trees" Co Dir Magazine
(2012)
Board report
10
Non-financial reports
Human
resources
Relevant
committee reports for particular meetings
Progress
against strategic plans
Board reports
11
Too much information or not enough time to review
information
This is an area of risk for the board
Board needs to consider what information they
need in line with directors’ duties
Director packs can be large
No defence to say that you have been provided
with too much information
Board reports
12
If there is a lot of information then you need to
ensure there is sufficient time to read it
The board controls the information it receives so
work with management to ensure it provides
information in a format that is useful for the board.
One mechanism used: dashboard reporting
Reporting dashboard
13
*Image by Klipfolio: http://www.klipfolio.com
Dashboard reporting
14
Useful, also has its limitations
If
too much information over a large variety of factors,
can be just as confusing to read
If dashboard highlights any problems the detail of
the problem should be provided in a separate
report
Performance review and its
relationship to planning
15
Plans
Performance review
Strategic 5 year plan
Sets the long term objectives
Annual review of strategic plan
Reviews progress and relevance of strategic plan
reported to the board
Annual business plan
Quarterly review of business plan
Sets out annual objectives and initiatives that are
determined in relation to strategic 5 year plan
Reviews progress and reported to the Board
Divisional plan
Monthly performance review of the division
Sets out detail of how annual plan is to be
implemented
Reported to the CEO/management and forms the
basis of report to the board
Performance development plans of staff
Annual performance reviews
Guidelines for developing
performance measures
16
Board’s role is to oversee management set up a
workable planning program that is linked to
performance review
Performance measures or key performance
indicators (KPIs):
valid
verifiable
global
communicable
achievable
Kiel, et al, Directors at Work (2012)
Guidelines for developing
performance measures
17
Number of performance measures of the business
should not be excessive;
Assessment of the business should not only relate to
financial performance
“Balanced scorecard” approach
Financial
Customer
Internal
processes
Learning and growth
Guidelines for developing
performance measures
18
If badly designed lead to “gaming” by executives
and staff
Lead to short termism
Gaming reduced by better design and a valuesdriven culture in the company
Are
managers acting within organisational values
Conduct
Look
staff attitude survey
at rates of absenteeism, sick leave and retention rates
Assessing the CEO
19
Agree performance indicators and their objectives
Are
they related to remuneration?
Should
Mix
be related to strategic plan
of quantitative indicators and qualitative indicators
Qualitative
Heavy
indicators not easily be measured
emphasis on annual financial indicators – short
termism
Assessing the CEO
20
Chair or committee carry out the assessment
Informal discussions or written questionnaire
Companies with resources engage outside
consultants to facilitate corporate governance
Assessing the Board and Individual
Directors
21
Can be a sensitive issue
In addition to usual methods (co performance) formal
performance appraisal should be used
Review of board and individual directors should be
annual, gaps identified previously form basis of
following year review
Review entire board and its mix of skills, diversity
Are there regular meetings?
Reports sent on time so members can read?
Minutes kept?
Review of individual directors
22
Questions to be asked:
‘Do
the directors understand the company business and
strategy?
Do they stay abreast of current issues and trends in the
industry?
Do they attend all board and committee meetings?
Are they well prepared and do they actively
contribute?
Do they challenge management when necessary?
Do they effectively enquire into major performance
deficiencies?’
AICD, Appraisal of Board and Individual Directors: Director Q&A (2013)
Effective board monitoring
23
Exercise
0
