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The topic of corporate governance received renewed attention recently after the publication of an open letter signed by 13 prominent business leaders, including Warren Buffett of Berkshire Hathaway and Jamie Dimon of JPMorgan Chase. The first principle the group advocated in the letter is the need for a truly independent board of directors. To achieve that aim, the letter suggests having the board meet regularly without the CEO and that the members of the board should have “active and direct engagement with executives below the CEO level.” From my perspective, translating this idea into reality would be helped by a change in the dynamics of most board meetings. I would eliminate the standard presentation of results and begin the meeting with questions and observations from the board members directed to company executives related to its financial and operating results and any other matters on the agenda. This could take place with or without the CEO.
In the best of cases, a company provides board members with information about the topics to be discussed at the meeting, along with supporting data, charts and narratives. Board members are expected to have familiarized themselves with this information ahead of the meeting. But in almost all cases, in order to be sure that everyone is on the same page, there is a presentation of this information by those in charge of preparing the data and analyses. Eliminating the standard presentations would change the tone and dynamics of the board meeting, leading to more active engagement.
There may be a number of companies that dispense with the routine recital of results at board meetings, but I first heard about it from Godfrey Sullivan, chairman of Splunk, a software vendor that provides operational intelligence through analysis of machine data. He described his company’s approach to board meetings at the Adaptive Insights CFO Symposium last spring, which was part of the company’s Adaptive Live user group conference. The management discussion and analysis as well as the accompanying data are sent to Splunk’s board members far enough in advance of the meeting to ensure that they have time to study it. Members are expected to have reviewed the information and formulated their questions and thoughts ahead of time. Those in charge of preparing the analysis are present at the board meeting to answer questions, not to present the data and analysis.
The reason for structuring the process this way, Sullivan said, is that eliminating the traditional briefing saved time at the meeting that could be better spent discussing issues and opportunities as well as ways to address them. I suggest that this sort of active engagement encourages greater participation and orients review and planning more toward action. Eliminating the standard presentation portion of a board meeting is hardly a panacea. However, implementing a format that requires board members to be prepared for the meeting does set a better tone at the top that is necessary to support or develop a more actively engaged board of directors.
Technology also can play a role in such process change, even if it is not immediately obvious. Of course, using their current resources any company can provide board books (documents prepared for the board of directors that present data in graphical and tabular formats as well as the related narratives) to directors far enough in advance to eliminate the need for a performance review at the board meeting. It’s also fair to say that for some companies changing how the board operates is likely to be a far more daunting task than any addressing any technology issues. On those boards, members comfortable with the routine and those who believe they are too busy to devote enough time to corporate matters ahead of the meeting will need to be convinced or replaced.
But technology can facilitate a fundamental shift in how directors engage if it makes the necessary information available sooner and in a more easily digestible format. For example, reporting packages that automate the creation of board books can shorten the preparation time, enabling companies to get this information to the board members sooner for review. Having these books available on mobile devices (tablets or smartphones) would also streamline access to the information. Reports that enable data exploration – drilling down and around to see the numbers behind the numbers – provides readers with deeper understanding of the business.
Accelerating the accounting close also would also be helpful in getting information to the board sooner. More than half (60%) of companies in our Office of Finance benchmark research reported that it takes them more than six business days to close their books; 26 percent take 11 or more days. Almost all companies that want to accelerate their close said the main reason for doing it is to have more time for analysis of the numbers before having to prepare reports and to make financial and managerial data available. Technology can play an important role in speeding the completion of the close. Our Fast, Clean Close research shows a correlation between the degree to which companies automate their close processes – especially handling minutiae such as reconciliations – and how soon they can close their books.
All organizations can benefit from a knowledgeable and engaged board of directors. Almost every company has the capacity to provide its directors with sufficient information before a board meeting, and it’s not unreasonable to expect all directors to come prepared to discuss the agenda so there is no need to present that same information. Chairmen and CEOs ought to consider taking this approach. They should also examine whether they can improve the effectiveness of their communications to board members by making it easier for them to consume the information they provide them and – if the company takes more than a business week to close its books – to accelerate their close. The role of the board of directors is too important to be undermined by sluggish business processes.
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