According to the Canadian Institute of Corporate Directors, boards need to take responsibility for ensuring that they have the right information from management rather than relying on the data that they are given. Context is key, and the right board portal will have contextual data alongside traditional financials.
Information is key to reaching the right decisions at a board meeting. Having the right information available before and during a board meeting streamlines the meeting process, ensures that the decisions made at the meeting are informed ones, and overall ensures good corporate governance.
It is very important that this information is accurate, and that it is delivered to the board well in advance of each board meeting in order for members to digest it thoroughly. In 1985, two Western Canadian banks, the Canadian Commercial Bank and the Northland Bank, failed due to faulty management practices and bad oversight from external auditors. Their collapse led to a reform of oversight of the Canadian banking system, with the office of the Inspector General of Banks and the Canadian Deposit and Insurance Corporation (CDIC) being combined into one strengthened organization.
In his report on the collapse of the Canadian Commercial Bank and the Northland Bank, the Honourable Willard Estey blamed most of the mess on inaccurate information being given to the Board. This is part of what he had to say about it: “If there is one key to the troubles encountered by the Board in directing the affairs of the bank, it was their composite failure to insist upon simple and straightforward regular and timely information from management.”1
In its Director’s Responsibilities in Canada 2015 handbook, the Institute of Corporate Directors states that it is important for boards to ensure that they have key information, not to simply rely on the information that is handed to them by management. It recommends two-way communication between the CEO and lead director in order to communicate its informational needs properly to management. The next step is to ensure that the information is presented in a digestible, simplified format which is secure and made available in the cloud for board members to review in advance.
Stanford’s advice on building a better board
An indepth two-part Deloitte survey highlighted that the majority of board members surveyed did not receive the necessary contextual information on nonfinancial key performance indicators (KPIs) from their businesses. These indicators can include employee commitment, brand strength, product and/or service quality, and workplace safety. Stanford University released a Closer Look white paper in 2017 to speak to the most common items that some board portals lack. Overall, they are items that favour short-term outcomes over the organic, long-term growth of the company.
- Data Lacking Context
A board portal may detail performance to plan but may not include important context such as performance relative to the rest of the market, historical trends, or financial metrics from competitors and/or clients.
- Data About Results, Not Drivers
Information may tout results without the cost of the results for context. For example, if there were 100,000 new subscribers on a music streaming service, but the cost of acquisition of these users rose in the past quarter, the results are not as good as they may look on paper.
- Data Does Not Inform Organic Investment Decisions
Boards should review data about expenses that drive long-term growth and overall profitability, such as research and development, alongside the more common data reviewed about things such as promotional budget versus product sales. Where possible, business analytics should tie these items together as much as possible.
- Accounting Allocations Should Paint a True Picture
Financial statements are generally done to meet regulatory requirements, and allocations driven by these requirements may obscure the true profitability of the business. The board should work with management to ensure that the financial statements are painting a true picture of the company’s viability.
- Data is Not Matched to Individual Managers
Data should be broken out by manager rather than spread across multiple areas of the business in order to properly evaluate the performance of both the manager and the line of business.
- Unexplained outperformance is not investigated
If there is a runaway success in any area of the business, the results should be reevaluated by various members of management before the metric makes it to the board. If, for example, one product line had 200% growth, the reasons and costs attributable to this success should be part of the board book.
Leveraging technology and customization to build the right board portal
Building the right board portal begins with having the correct tools. A board portal such as DiliTrust Exec can be used to build board portals, conduct meetings remotely and securely, and share and store board portal securely on servers within Canada – important for companies which want to keep their files out of reach of the United States government.
Part of DiliTrust Exec’s advantage is that it is highly customizable, and DiliTrust helps your firm set it up with the metrics, reports and charts that are important to your industry and organization. A software company will want metrics such as number of users and cost of acquisition in addition to regular financials, while a resource company will want to see metric tonnes of resources or similar measurements. We’ll help you build the board portal your board needs to see to make the right decisions.