“I have made this letter longer than usual because I’ve not had time to make it shorter.” Variously attributed to Mark Twain and George Bernard Shaw, but with the rightful source a translation from French philosopher Blaise Pascal, this quote comes to mind while wading through page after page of board papers that don’t seem to be getting to the point.
The AICD’s Director Tools: Board papers — Meeting effectiveness bluntly notes that if the board is not receiving the board papers in a format that makes them comprehensible for directors, it is partly to blame.
The board is responsible for:
- Setting expectations and providing directions to management on the content, format, timing and timeliness of board papers and the amount of information provided
- Ensuring it has sufficient information with which to make decisions
- Ensuring management has in place the processes and controls to ensure the integrity of the information provided, and
- Setting KPIs for management to report against.
As set out in section 180 of the Corporations Act 2001 (Cth), directors have a statutory duty of care to have read the board papers to be able to contribute effectively to board meetings. The Centro case highlights the need for boards to carefully manage the board paper process and focus on the manner in which information is provided to the board.
Boards need to ensure that they receive meaningful information and not merely data.
In the Centro case (ASIC v Healey (2011) FCA 717 at 226), Justice Middleton noted: “A board can control the information it receives. If there was an information overload, it could have been prevented. If there was a huge amount of information, then more time may need to be taken to read and understand it.”
The AICD says the information contained in board papers should be consistent, coherent and complete. Board papers are part of the official records of the company and a complete set should be maintained for future reference.
Getting it right
Alexandrea Cannon FAICD, chair of the South Australian Tertiary Admissions Centre (SATAC) SA Leaders Institute, as well as Company Directors Course facilitator, first did the course a decade ago while in executive management. She reveals what board practice works best in her experience.
“After the change in the legal status of SATAC, we’ve put in a lot of time developing a board charter, setting up board papers and the minutes. It’s almost like starting from scratch even though as an organisation we are 25 years old.
“To my mind, a good set of board papers is as short as it can possibly be, but conveys the information it has to provide with clarity and appropriate information on the pros, cons, risks and benefits.” Cannon also seeks real clarity from the CEO on what they’re asking of the board.
A format she has found helpful is a one-page sheet itemising what sort of action is required of the board — approval, discussion, endorsement or noting; what’s the recommendation; an executive summary of the issue; a list of any attachments; a draft resolution and the decision (noted, approved, not approved, further action required).
Prioritisation of the agenda is essential. During meetings, the board works through decisions first, then discussion, information and issues for noting. “So if someone has to leave early, we’ve dealt with the most important items.
“We also keep a list of actions showing the date of the meeting they were generated from, a list of recently completed items so that we can keep track, and a running list of decisions.” When it comes to reading board papers, Cannon makes liberal use of the highlighter with a traffic light system. “I colour code — positive is green, pink is for negatives and yellow is for issues for noting.”
”Boards often express frustration with papers that don’t give them the information they need.” – Rebecca Davies AO FAICD
Rebecca Davies AO FAICD, a director of Catholic Healthcare and AICD facilitator, maps out the path to better board papers.
Problems with board papers are one of the main sources of friction between boards and management teams. Management often feel they are guessing at what boards want — or, often, what particular board members want — and boards often express frustration with papers that don’t give them the information they need.
Based on my experience as a board member, and a facilitator and advisor, I would say that we all need to chill a bit and acknowledge that perfection is both close to impossible to achieve and is also subjective. What one person thinks is ideal might not be the same as what someone else thinks. So as a first step to better relationships and better papers, agreeing that this will be an iterative process would be a good move.
Boards and management are in a partnership in this — we all want to do the best for our organisations and support each of us to play our respective roles effectively.
What I like to see in board papers includes a clear statement of what the board is being asked to do for each item, right at the beginning of the paper. Is this for information, for noting, for decision — and if so, what decision is management recommending — for advice? Don’t make this too complicated. If a complex resolution is required, summarise it up front in a sentence or two and put the full-form resolution at the end. I’ve seen resolutions that go on for many paragraphs, and if that is first in the paper, I still won’t know what the subject matter is.
For decision papers, have an agreed template on issues that must be addressed. Each organisation will be different, but I would want to see the following:
- How does the proposal fit with the board agreed strategy? If it’s opportunistic, call that out and discuss how the proposal advances the business and doesn’t cut off other opportunities.
- Is the proposal consistent with the values and culture we have and aspire to?
- What is the financial impact of the decision — what assumptions have been made about cost and revenue impact?
- What are the plans for implementation and are we confident we can deliver on those plans?
- What risks have been identified with the proposal and what plans are in place to manage or mitigate those risks?
- Has management considered alternatives to the proposal and why is this one the best for the business?
For each paper, I like to see who has written it and who has signed off. This helps in getting a better understanding of the bench strength in the organisation, but also who is taking accountability for the quality of the paper and the recommendations made.
Depending on the nature of the decision, I might also expect to see a discussion of who has been consulted in formulating the recommendation — are key stakeholders supportive or is that something that will be done later, in which case, is that part of the risk profile?
Ideally, papers should be maybe two or three pages long. It’s much harder to write concisely than waffle on, but for board members, a short but comprehensive paper gives greater confidence that clear thinking has been applied.
If the paper is supported by detailed background material, I appreciate management summarising the key points and then having the report available on request.
What can be really annoying is a paper accompanied by large numbers of attachments with no guidance on the significance or impact of each of them. That just means
I have to read each of them and try to work it out for myself. Technology is making this more of a problem, with electronic sets of papers making it easier just to put everything in. Obviously, accounts have to be included in full, but that doesn’t mean a paper with the key issues highlighted can be dispensed with.
After reports are finalised, senior management should have another read, thinking about the paper from the point of view of the board. Is the communication clear and comprehensive? Can the use of diagrams, dot points, embedded videos or other techniques assist to help make things clear?
For regular reports, find time to have a discussion about what is really needed and how often. Management can find themselves spending excessive time producing reports for each meeting when maybe not a great deal has happened in between — perhaps because time hasn’t been spent on actually doing things. An open discussion with the board might prove to be very helpful.
For more information about board papers, click here (aicd.com.au/directortools)
Next month: Getting clear on financials
If there are any aspects of board practice you’d like to see us cover, email Company Director here.