Boards of Directors certainly do care about the quality of the information they receive from the business. They must have confidence that comes from knowing that the information managers provide to them has been sourced and delivered through a reliable, validated, and easily traceable process. Accuracy of the information is key, as was noted in the recent Risk Management Knowledge Exchange article entitled "No more playing 20 questions."
In board rooms around the globe, corporate directors strive to make well-reasoned and fact-based decisions on important governance and business strategy concerns. This can only occur when the board is fully informed of the facts, and when information is presented in a timely manner. Having access to information is not only a right, but a duty for every director.
Boards need to have the right information
At this point, you may be wondering "What information does the typical board need?" This question is actually the focus for a working group of directors that was formed by L' Institut Francais des Administrateurs (L'IFA). During my visit to Paris this past May, I was fortunate enough to learn more about their work and findings. Essentially, boards must digest a great deal of information. At the same time, there is a duty of care which can be difficult to exercise because natural information asymmetries exist between senior managers and the board. This is partly due to:
1) The need to aggregate and summarize information for consideration.
2) The periodic, rather than day-to-day, nature of board meetings.
After becoming better acquainted with the thinking of the L'IFA Working Group, I am certain that they are on the right track. Furthermore, I am convinced that there remains much to be done in order to assist directors in:
1) The general process by which they conduct targeted research into matters of interest to the board.
2) Enabling a systematic and more organized means of exploring and analyzing information leading up to, and including, making and communicating a decision.
Better information leads to better corporate governance
My current research in this area attempts to find answers to the following:
1) "What information, and in what form, do boards need to monitor the institution's performance relative to all goals (not just financial ones), to surface problems early on, and to adjust the corporate risk appetite when necessary by having The Power to Know when to draw the line?"
2) " How can Boards more effectively make decisions, such that all relevant factors and attractive alternatives are identified and taken into account, and so that risk, value and time preferences are weighted, and all information, models and probability assignments are validated and well-documented?"
I am very fortunate to have the opportunity to collaborate on this research on better decision making through the power to know with a network of directors whom I have come to know through my work and studies with the National Association of Corporate Directors (NACD). I will have much more to share about these efforts in future posts.
Asking the right questions leads to better decisions
I've observed, in my role as a Board Director of Social Compact, that directors are respected for their knowledge and experience. However, I have found that even more importantly, directors are valued for the questions they ask to put management's minds on the right things.
Having quality data, the confidence that comes from knowing its origins and the means by which it was processed, validated and communicated enables Directors to focus on what that information implies for the business and their important considerations, rather than wonder how to determine if that information is any good in the first place.
Quality information makes for a more efficient and effective board meeting, and it sets the stage for improved decision quality. I can't think of anything more important in business, or in life, than the ability to make fewer bad decisions and more good ones. Can you?!