Accounting battle

Board papers are often prepared by non-board members who may not be familiar with the board’s requirements, which means a thorough control process can improve the quality of reports. Such a process also allows the senior executives to consider and coordinate information so that they are better prepared to answer questions that arise from the board discussions.

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.

As set out in s 180 of the Corporations Act 2001, 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 board is partly to blame if it is not receiving the board papers in a format that makes them comprehensible for directors, as the board is responsible for:

  • Setting expectations and providing directions to management on:
    • the content of reports;
    • the format of reports;
    • the timing and timeliness of board papers;
    • 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.

Points to consider

  • Standardisation aids clarity and speed of reading and allows board members to focus on the key points. Uniformity and consistency can be achieved by using a board paper template, as shown in the sample that follows. A template such as this provides the headings within which the writers of board papers should work. This type of template will, of course, need some modification for papers that are for noting or discussion rather for decision-making purposes. However, the paper can still include a draft resolution and recommendation, such as: ‘It is recommended that the information is noted’.
  • Consider providing specifications for length, content and order of papers. For example: ‘The executive summary shall be no longer than half a sheet of A4 with text of normal size and spacing’, or ‘No board paper shall exceed 10 pages and all papers should contain a glossary of any technical terms’.
  • Consider circulating a sign-off sheet so that board members can see that the paper has been reviewed by various staff members. This helps improve coordination in large organisations and alerts staff to the issues.
  • The CEO is responsible for any paper prepared by the executive team, regardless of whether he or she signs the signing sheet.
  • Will the paper be supported by a verbal presentation and will supporting information be supplied at the meeting?
  • Clarify the storage of papers after the meeting, including whether board members are allowed to retain the papers or if they need to be returned to the company secretary for secure disposal.
  • Consider the delivery method of the paper, which could include the hardcopy or an electronic delivery mechanism. Technology offers a greater range of presentation style but creates other issues such as the security of the servers used to transmit the data, which must be managed.
“ Technology offers a greater range of presentation style but creates other issues such as the security of the servers used to transmit the data, which must be managed.”

Annotated sample board paper1

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1Adapted from Kiel G, Nicholson G, Tunny J A, Beck S, Directors at Work, Thomson Reuters Australia Ltd, 2012.


Disclaimer

This document is part of a Director Tools series prepared by the Australian Institute of Company Directors. This series has been designed to provide general background information and as a starting point for undertaking a board-related activity. It is not designed to replace legal advice or a detailed review of the subject matter. The material in this document does not constitute legal, accounting or other professional advice. While reasonable care has been taken in its preparation, the Australian Institute of Company Directors does not make any express or implied representations or warranties as to the completeness, currency, reliability or accuracy of the material in this document. This document should not be used or relied upon as a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the Australian Institute of Company Directors excludes all liability for any loss or damage arising out of the use of the material in this document. Any links to third-party websites are provided for convenience only and do not represent endorsement, sponsorship or approval of those third parties, or any products and/or services offered by third parties, or any comment on the accuracy or currency of the information included in third party websites. The opinions of those quoted do not necessarily represent the view of the Australian Institute of Company Directors.