A company director receives a 400-page board pack with appendices. He serves on three other boards with similar-sized packs and must read over 1,600 pages every month.
Each board pack is getting longer and more detailed. Extra information is added in response to new regulations and as the boards ask for more data to assess non-financial risks and “outlier” issues in customer experience and organisation culture.
At the same time, the director wants to invest more time reading each board pack, given rising legal, financial and reputational risks of directorships. Like many of his peers, he wants to dig deeper in the organisation and ask probing, value-adding questions.
But ploughing through 1,600 pages, in addition to committee papers, industry reports and other board information chews up precious governance time. The director spends less time in the field and suspects some of the information is unnecessary.
This anecdote, provided by a director on the condition of anonymity, highlights the growing challenge in board packs. At least this director does not serve on a big-four bank, where board packs are thought to exceed 1,000 pages (with appendices) for some meetings.
“Board packs generally have become unwieldy and overwhelming,” says governance expert, Dr Ulysses Chioatto, an Adjunct Associate Professor in Law at Western Sydney University. “It’s a reflection of the business world we live in today. As industries have more rules and regulations, extra company reporting is required and longer board packs are a consequence.”
About one in two directors surveyed in the UK said the length of their board pack had increased, according to 2017 research by UK governance consultancy Board Intelligence in collaboration with Cambridge Judge Business School.
More than half of the respondents said their pack was 200-plus pages and in extreme examples nudged 1,000 pages. Remarkably, directors spent an average of four hours reading each board paper, raising questions about whether so much complex information can be digested that quickly.
There appears to be no equivalent Australian research on the average length of board packs or trends in their size. But as regulatory and market scrutiny increases, it is likely that Australia is following the international experience with more complex board packs.
Board packs a longstanding governance challenge
Frustrations about board packs are not new. Over the years, complaints have ranged from them being too long and information dense, poorly structured and written, to not being provided early enough before the board meeting for directors to assess the issues.
Some board packs swamp directors with facts but lack a clear narrative that is linked to strategy and risk appetite. Others include oceans of financial data yet give directors poor insight on culture, customers and non-financial risks. The worst packs include unnecessary information that purposely keeps directors busy as management diverts the board from key issues.
Timeliness is another issue. Bigger boards packs take longer to produce. As markets move faster, directors might be relying on information in the board pack that is weeks or months old, or, if it relates to an internal investigation, more than a year old.
For all the challenges, board packs remain a key information source for directors. A good pack updates and informs directors, is the main prompt for questions and underpins the board meeting. Simply, an effective board pack is a prerequisite for an effective board.
The pack serves other purposes. The much-discussed Centro Case (ASIC v Healey & Ors  FCA 717) determined that the complexity and volume of information that boards receive cannot be used as an excuse for failing to properly read and understand financial statements.
Justice Middleton in the Centro case found a board can control the information it receives, prevent information overload and take more time to read and understand it. A Centro board pack in May 2007, which had two pages at the heart of the case, reportedly ran to 1,180 pages.
Dr Chioatto believes several high-profile Australian governance problems in the past decade have related to poor board papers, which led to directors overlooking critical information. “The common theme was directors not being across detail they needed to know, which was buried in the pack.”
He says the Financial Services Royal Commission showed recurring problems with board packs. “Some issues highlighted by directors not knowing what was going on, when questioned by the Royal Commission, related to the significant time lag in matters getting reported to the board (through board papers) from external and internal audits that can take 12 to 18 months to complete in larger corporations.”
For example, an investigation into inappropriate financial advice at bank branches could take a year before being reported in a board pack. “Directors need to know that information now, but they are relying on static rather than dynamic board packs, which is exposing them to additional risk,” he says. “Boards must find ways to speed up the information in board packs.”
Dr Chioatto says the solution is boards being clearer with management on information that directors need in packs; examining the timing and structure of board meetings and how that would affect board packs; using available technology systems and platforms for real-time reporting of board packs; and using artificial intelligence to process large volumes of data (in addition to human director oversight) as the legal professional has done for the past decade.
Governance consultant Dr Vince Murdoch says board-pack innovation is needed but adds that there has been progress this decade. “Boards I work with are focused on getting the right board pack structure and information, and refining it as needed. They are receiving the board pack earlier and the information, generally, is better prepared and presented. You don’t see the reams of numbers and death by PowerPoint slide that once occurred in board packs.”
Murdoch’s main concern is the potential for board packs to lengthen in an increasingly complex regulatory environment. “The risk is directors receiving more data and less insight, and having to spend extra time wading through information, to tease out important matters.”
Another challenge is less cohesion in board packs. “As board packs expand, other people become involved in the writing and reviewing process and you risk ending up with a disjointed paper. You have information written by people with different perspectives and a lack of clarity that makes the material harder for directors to digest,” he says.
There is no easy solution to the board-pack challenge, says Murdoch. “The reality is that directors have to be across more information and get into the detail. They have to be prepared to read and comprehend what is often long and complex information.”
“Led by the chair, the board needs to work with management to design the most effective board pack structure and content to inform their decisions, ensure they meet their duties and responsibilities, and make the information digestible.”
Murdoch has concerns about innovations such as those favoured by US streaming giant Netflix, where directors receive a lengthy board-pack with supporting links, and can view aspects of the board pack as it is prepared in real time. “I like the idea of real-time board packs, but believe that inviting directors to read and comment on sections of board papers as they are written starts to blur the line with management,” he says. “Do we want directors asking management for parts of board papers to be rewritten, or some directors seeing the information before others? I doubt that drip-feeding board packs to directors is the way to go.”
The main solution, says Murdoch, is for boards to be clear on the information they need in board packs to do their jobs. “Led by the chair, the board needs to work with management to design the most effective board pack structure and content to inform their decisions, ensure they meet their duties and responsibilities, and make the information digestible.”
Murdoch has worked with management teams and directors on board packs, to help them clarify what information is needed and how to use it to heighten debate and decision-making quality. “A big part of the problem is management thinking about the board pack mostly through their lens and not thinking about what the board needs to know. Or directors not asking questions in a way that gets the best out of management. Executives and directors have different perspectives, which shows in disjointed board packs.”
Reconfiguring board meeting schedules would go a long way to improving board packs, says Murdoch. “An ASX 50 company almost certainty needs the full monthly board meeting, given the complexity of their operations. But a smaller organisation could have longer, quarterly board meetings around specific topics such as strategy, risk, and talent interspersed with shorter monthly compliance meetings that directors can attend in person or via video-conference. The board pack would align to the different meeting formats.”
Extra focus on a narrative in the board pack would help. US e-commerce giant, Amazon, for example, adopts a six-page memo approach that executives absorb before meetings and bans PowerPoint.
Murdoch encourages CEOs to write their report to the board in a story-like format that pulls together threads across the organisation. “Understandably, board packs tend to have a lot of divisional reports, even though some issues cut across several areas. You don’t want directors having to piece together patterns across divisional reports, which management could make clear.”
“Using unqualified adjectives, such as ‘strong’ growth, can cause problems if management and the board has a different view on what strong growth is and whether the level of growth is appropriate for the organisation’s risk appetite. Board-pack authors should write in the active voice, keep sentences short and avoid flowery, complex language.”
Murdoch does not like board papers written in seemingly endless dot points. “Anything companies can do to break up heavy slabs or text in a board paper is good, but you don’t want everything written in dot points because that can be too brief or rushed. In my experience, authors are more thoughtful when they have to produce a tightly written narrative that explains what they are thinking, supported by clear charts or tables, rather than churn out quick dot points.”
Boards should request that information in board papers limits excessive use of adjectives, says Murdoch. “Using unqualified adjectives, such as ‘strong’ growth, can cause problems if management and the board has a different view on what strong growth is and whether the level of growth is appropriate for the organisation’s risk appetite. Board-pack authors should write in the active voice, keep sentences short and avoid flowery, complex language.”
A review of the doomed 2003 flight of the space shuttle Columbia famously criticised PowerPoint presentations, where the word “significantly” was used five times on a single slide presented at NASA. Apart from over-use of vague language, the review found “significant” was misleading as it implied statistical significance (when there was none), and as an adjective or adverb was not supported by the data.
Although it seems pedantic, language that lacks precision in board papers and other critical documents can contribute to bad decision-making. As can information that is unnecessarily long, because it is poorly structured and written – or produced in the same format year after year because it has always been done that way.