As a director, it is easy to think that you need more information, after all, you have a fiduciary duty to do the best job for your company, but there’s a clear argument that having more information at board level actually hinders understanding and decision making rather than helps.
Directors and especially non-executives are on board for their strategic level decision making. Where companies make a mistake is in providing a large amount of information which is at a much lower level.
So why does this happen?
Partly it’s a mistaken belief in the legal situation facing directors.
Since the companies act 2006 there has been a duty of care placed on directors and they are required to be aware of the financial state of the company even if they aren’t qualified finance professionals and have no experience.
In a parallel with the position around data protection, companies often overcompensate and in the same way as people can be asked for security information when they are discussing things that don’t fall within the Data Protection act so business will insist on a huge amount of information being presented to the board when it actually isn’t needed.
Another reason a board may find itself struggling under the weight of paper is that people are inherently helpful. Often those who are asked for some simple information will then over provide or alternatively they may have been asked for something as a one-off and then continue to provide the same report every month.
Boards will also tend to suck responsibilities into themselves rather than devolving to subcommittees such as a Finance or Risk committee. This means that they are necessarily forced to discuss information that should be talked about at a lower level.
As a consequence, boards are often weighed down with hundreds of pages of information that directors are expected to read, understand and comment upon all in the space of an hour or two a month – clearly an impossible task.
So what is the solution?
The major misunderstanding regarding a board pack is that it should provide all the answers when in fact it should provide enough information to enable non-executives to ask searching questions.
This is perhaps the first step to refining the board information process. The company needs to understand that the focus needs to change from answering questions before they are asked to allowing people to ask strategic level questions in an informed way.
The aim for the company should be to get the financial information the board needs on to one sheet of A4 showing the central KPI’s of the business, allowing board members to ask questions and for key members of the board to talk to specific results.
Think of the one-page sheet as the tip of the iceberg. These may be very simple, key measures but under that, there should be layers of reporting that are managed by board subcommittees, Executive directors and managers.
There needs to be a refinement of the measures offered and the company should set a few rules around what gets presented.
Initially, the business has to provide the right information. This may sound obvious but the fact is that companies produce huge amounts of data but not all should go to the board. What needs to be reported are measures that directly relate to the strategic objectives of the company.
Remember that directors are operating at a strategic level and so their decision making needs to be strategic rather than tactical.
Alongside this, the information presented not only needs to be the right type but also at the right level.
The board may, for instance, choose to aim to be a low-cost provider of services and one of the measures of that will be a smaller amount spent on back office and admin services.
It may seem that the company should report a raft of figures around admin costs such as staff salaries or rent, rates, insurance and other establishment costs.
In fact, these are really tactical measures and at board level what they need to know is if overall the company is meeting its objective. Consequently, a simple percentage spent on back-office costs compared to target would suffice.
The questions around this KPI should be; are we meeting our target now? Will we continue to meet our target? What do we need to do in the future to hit our target?