The much anticipated Essential Services Commission (ESC) determination on the 2016-17 Higher Cap applications is now out.
The four ways senior executives can serve their board better is based on Insync’s recent research report titled, “Taking your board from good to great: the best 101 ways to improve”. The research report is based on suggestions made by some of the most senior directors who sit on Australian and New Zealand boards as part of board effectiveness research.
The four ways senior executives can serve their board better were selected from 856 suggestions made by 345 directors who serve on 47 boards of some of the largest and most important organisations in Australia and New Zealand; these are boards of ASX listed companies and other organisations with assets or annual turnover exceeding $500 million each.
The suggestions made by the senior directors are in italics and are followed by supporting commentary.
1. “Better financial information on individual decisions, including alternatives and priorities“
Directors quite rightly expect a high standard of financial information prior to making important decisions. They also have the right to expect to see the main alternatives that were considered before arriving at management’s recommendation. It is good practice to include in board papers the alternatives considered and the reasons why the alternatives not chosen were rejected. If this is not provided the board will often spend time asking management what alternatives they considered and why each of those alternatives was rejected. As management have already done this hard work they should include it in the board papers as this will make the board meeting much more effective.
Management should also have a clear sense of their priorities, set out why the relevant recommendation is a priority and why it is so important for the execution of the organisation’s strategy.
2. “More thoughtful management recommendations evidencing analysis of underlying material rather than presenting all the underlying material“
This is a common criticism of management by directors. It is reasonable for directors to expect that management have not only included the appropriate financial information in board papers but that they have also analysed it and set out their conclusions from such analysis. Management’s analysis and depth of reasoning will form a good foundation for rigorous and robust discussions around the board table prior to important decisions being made.
Directors are also often critical of management when they simply present information without a clear and compelling recommendation and expect the board to make the relevant decision for them. If management can’t make a compelling case in relation to a proposed course of action and indicate that the proposal has strong engagement, buy-in and commitment from the leadership team then the proposed course of action has a high likelihood of failure.
3. “Management speaking to agenda items could highlight key points or subtleties/nuances not expressed in the paper, rather than rehashing all the points in the paper“
This is another common criticism of management presentations at board meetings. Board meeting time is precious. Management can assume that directors have read the board papers (which should be and is usually the case) so rehashing what is already written adds little if any value. Expressing matters raised in a completely different way, highlighting subtleties and matters that have arisen since the board paper was signed off and allocating extra time to questions will add far more value.
4. “Board papers being so structured that they focus more on the issues that are challenging management re the future“
The nature, extent, content and style of board papers continue to be re-assessed, debated and refined on most boards. The debate about the extent to which papers and meeting time are devoted to strategy, performance and compliance matters will continue.
Board papers obviously need to report past performance compared to budgets. However, boards also need to ensure that their board papers are sufficiently forward looking and deal with the issues that are challenging and concerning management. The board, and the chair in particular, need to know what is of most concern to the CEO and executive team and what is ‘keeping them awake a night’. Boards will be much better positioned to add extra value if they are acutely aware of and discuss these crucial matters.