New research from ICSA and Board Intelligence suggests the size of board packs is an obstacle to effective oversight
Board members in all sectors frequently lament that they spend too much time at board meetings on compliance and operational matters, and not enough on the issues that will determine the future success of the organisation.
It seems that the Financial Reporting Council has been listening. One of its stated intentions in updating the UK Corporate Governance Code is to encourage listed companies and their investors to pay more attention to its principles than to its detailed provisions – to remind them that the outcome the code seeks to promote is effective governance, not compliance for compliance’s sake.
The draft revised code that the FRC issued for consultation earlier this month sets its stall out in an opening section that it calls ‘Leadership and Purpose’. Its first principle defines the role of the board as being ‘to promote the long-term success of the company, generate value for shareholders and contribute to wider society… [and] to establish the company’s purpose, strategy and values’.
Most directors would probably agree that this is a reasonable summary of what they should be spending their time on. So why are they not?
We surveyed the governance professionals who support boards, on what they saw as the main deficiencies in board reporting. The results are startling. Nearly 70% of respondents felt that the papers were too focused on operational rather than strategic issues; 60% that they were too backward looking; and 55% that there was not enough attention paid to external developments and factors that impacted on the future of the organisation.
The research also shows that this is not just a concern for the listed companies to which the UK Corporate Governance Code applies. By and large, there was a striking similarity in the views of respondents from all sectors and from organisations of all sizes.
Regulatory requirements and external expectations that boards should be all-seeing and all-knowing have no doubt contributed to the excessive length of board packs and the imbalance in the information that boards receive.
But although external pressures impose some constraints, the remedies largely lie in the hands of boards and those who support them. Boards can be clearer about the nature of the information they require – providing the leadership to go with the purpose, to use the FRC’s terms – while management and the secretariat can think more carefully about the format, the frequency and so on.
It is not just a question of effectiveness, but of efficiency as well. A huge amount of internal resource is consumed in the writing, re-writing and eventual distribution of board packs, with nearly 80% of respondents believing this used up a disproportionate amount of time and three-quarters stating that board packs are too long. In many organisations, it seems, the quantity outstrips the quality.
Prompted by this research, ICSA and Board Intelligence have decided to work together to help organisations address the challenge of making their board reporting more effective, so helping to ensure that the board’s discussions ‘promote the long-term success of the company’.
This will include providing a cost calculator to enable organisations to work out how much resource they currently devote to board reporting, developing a self-assessment tool and guidance to help them assess their current board packs, and identify ways in which they can be improved. Watch out for progress reports on this blog.
Chris Hodge is policy advisor for ICSA: The Governance Institute and Board Intelligence