As corporate scandals continue to emerge, company boards are increasingly in the spotlight about their knowledge, understanding and decision-making processes when dealing with problems in the business. Pressure is building on directors to get the right information at the right time.
Nowhere was this more obvious than at Volkswagen, when the supervisory board came under heavy scrutiny after the company was caught cheating over diesel emissions in 2015. An avalanche of questions hit the company, following exposure of the fraud. What information did management have about the malpractice and how much, if any, did it share with the supervisory board?
The VW scandal, and other examples of corporate misconduct, have highlighted the importance of directors having access to relevant, timely and transparent information in order to ask informed questions, make good decisions and avoid governance failure. Arguably a board is only as good as the information it receives and reads, highlighting the fact that effective communication is essential to a high-performing board.
Knowing what is going on in a company in order to identify risks might seem obvious to many boards, but making sure it happens is not an easy task.
The Financial Reporting Council’s proposed revision in 2017 to Guidance on Board Effectiveness states that non-executive directors should insist on receiving high-quality information in advance of a board meeting. The information should be “accurate, clear, comprehensive and up-to-date and contain a summary of the contents of any paper…”
If the information is inadequate or unclear, non-executives should clarify it with executive directors. The guidance, which sets out good practice, is intended to help companies to comply with the UK Corporate Governance Code.
In an era of digital communication it is surely easier for information to be compiled, shared, accessed and stored. So, what can companies do to make sure they have effective board communication?
Identify and tackle difficulties
At a recent meeting on board effectiveness at Board Lab—a joint initiative between the Chairman’s Network and Brainloop, a board portal provider—members raised several sticking points.
One of these is the long-running problem of information overload, particularly when it comes in bulky paper board packs that can make it difficult to find the most important issues. What is needed is “a high-quality set of papers with the right information at the right length,” said one member.
It may not be a new problem but it remains one that still hinders many boards. “Too much information can be unwieldy,” agrees Mark Edge, MD of Brainloop. Using a digital product such as the Brainloop Board Portal enables staff to prepare digital board-meeting folders efficiently, to highlight key issues, add last-minute updates and distribute them to the board, he says.
The use of a digital system can help to sort through masses of information, which often swamps directors. “The bulk of the content such as long reports is placed in a reading room or document/policy library, while extracts are in the board pack,” Edge explains.
Conversely, some directors—especially non-executives who do not have as much hands-on, detailed knowledge of the company and its capability as executive directors do—prefer to read more detailed papers and background information. A digital portal link can offer easy access to this.
Senior management also has to play its part to provide and organise vital information in order to make the most effective use of a digital portal. The portal can be used to provide report templates and drive best practice for clear and concise papers.
Another challenge flagged up at the Board Lab event was the need to be well prepared for board meetings, a comment often made by chairmen exasperated by the failure of some board members to do their homework. “Boards offer organisations a great deal, but one of the most important things they offer is formality,” said Barry Gamble, who chaired the Board Lab meeting. “Information has to be collected, deadlines set, and conclusions reached.”
Allow enough time
The importance of good timing in the arrival of board papers is also an important factor in effective communication. “Often it was felt that the arrival of board papers could fill a director with dread. Done properly, it needn’t,” added Gamble. Ideally, he believes papers need to be distributed one or two weeks before the board meeting so that directors have “ample time to absorb and critique”.
It was felt that good timing also allows directors to raise questions ahead of a board meeting with the chief executive or relevant committee, if any issues or information are unclear—a point that chimes with the FRC recommendations on board effectiveness.
Create a clear digital audit trail
At a time when company information and communication flows are coming under increasing scrutiny, and corporate accountability shoots up the agenda, boards need to make sure there is a transparent, well-managed system in place, especially if things go wrong.
In January, Carillion, the listed construction and outsourcing company and a major supplier to the public sector, collapsed after amassing heavy debts, and continuing to pay dividends and executive bonuses. Its decision-making and actions are now under sharp scrutiny and a fast-track investigation into the conduct of directors has begun.
The board’s removal of clauses in 2016, which would have allowed a clawback of executive payouts in the event of company failure, has triggered public and investor anger and ramped up scrutiny since the collapse.
Effective, transparent information flows are essential at all times—not just when things go wrong—to ensure a well-run, successful business. One of the things that the Brainloop Board Portal can do is to provide a clear audit trail where all the information is securely documented, says Edge.
This would include “who saw what information on which email or document and a timeline of responses,” he explains. “The information is on record and can’t be redacted.”
Ensure effective information flows and continuity
A digital portal is also useful for collecting information from different committees such as the risk and audit or remuneration committees, and the finance department, to build up the bigger picture of company activity and different perspectives for the board. As Brainloop’s Edge explains: “A good portal tracks information from one committee to another and brings it all together.” In other words, it helps the collaborative process of information-building.
Digital portals can also make continuity between board meetings easier. Some chairmen like to start a meeting with the minutes of the previous one to refresh minds. An at-a-glance look at previous minutes through a quick link can be an effective way to do this. A portal also gives easy access to key documents such as the risk register, corporate plan and budgets.
The quality and effectiveness of a company’s board communication may be patchy, inadequate or not seen as a priority. At its best, effective communication is a key driver to an organised, well-informed, high-performing board, enabling good decision-making. However, planning, time and investment are required to do this.
In the current business environment, board awareness of this critical issue is rising, and the consequences of poorly managed, ineffective communication is increasingly becoming clear. Without well-documented, clear and accurate information flows, it is almost impossible for boards to be in control.
This article has been prepared in collaboration with Brainloop, a supporter of Board Agenda.