30 January 2018 by Chris Hodge
Instead of helping directors do their job, many board packs are an obstacle to oversight
Anyone who has spent time discussing with directors what frustrates them about the role will have heard their complaints that too much time is spent at board meetings on compliance and operational matters rather than strategic ones, and that the sheer length of the board papers makes it impossible for them to prepare properly.
Does the evidence bear this out? And, if it does, why does this happen, whose fault is it, and what can be done about it?
Recent research by ICSA: The Governance Institute and Board Intelligence suggests that – if the balance of the board pack reflects the balance of the board discussion – this is a real issue.
It seems that, far from facilitating effective board decision making, many board packs form an impenetrable barrier instead. This is not just a concern for listed companies or other large and complex organisations, but for organisations from all sectors and of all sizes.
We surveyed the governance professionals who support boards on what they saw as the main deficiencies in board reporting. The full results are set out in ‘Challenges to Effective Board Reporting’, published in December 2017 and available on the ICSA website. Nearly three-quarters of all respondents believe that their board packs were currently too long.
Taking into account the frequency of board meetings, large organisations are producing an average of 2,000 pages of information for their board members to absorb every year, and for many this figure will be significantly higher. Even the smallest organisations in the survey produce on average 750 pages of information for their boards alone.
“A huge amount of internal resources get consumed in the writing, rewriting and distribution of board packs”
These figures do not include the separate reports produced for board committees and executive committees, which can have a significant multiplying effect in terms of the volume of information produced and the resources required to do so.
The most common problem identified by respondents is that board packs are too time-consuming to prepare. This is the view of over 70% of respondents from each of the four sectors (78% of total respondents).
This view is obviously informed by the belief that board packs are too long but it may also reflect a view that some of the information contained in the board pack is unneeded.
A large number of respondents think the board pack is too focused on operational rather than strategic issues (68%), on internal rather than external developments (56%), and that it is not sufficiently forward-looking (59%).
Although these concerns are shared by the majority of respondents from organisations of all sizes, some are felt most acutely by the smallest organisations.
For example, 86% of them feel their board packs are too operational and 71% that they are too backward-looking. By comparison, 64% of respondents with a turnover of over £500 million feel their board packs are too operational, although this is still a significant percentage.
Analysis by sector suggests that most of these problems are common to all sectors, although respondents from the public sector are less concerned about their board packs being too backward-looking and operational – 43% raise this concern, as opposed to over 60% in all other sectors.
Overlong and unbalanced board packs do not just have an adverse impact on the board’s effectiveness, but on the organisation’s efficiency as well. A huge amount of internal resources get consumed in the writing, rewriting and eventual distribution of board packs. Nearly 80% of respondents believe this takes up a disproportionate amount of time.
The fact that the results of the research are so consistent across all sectors and sizes of organisations might suggest that many of the causes are behavioural rather than a result of external pressures.
In preparing reports, for example, there may be a natural tendency to emphasise things that are measurable – and by definition therefore mostly backward-looking – rather than those that are not.
Similarly, there is a tendency for those writing reports to highlight the information that they themselves use to measure progress at an operational level, which may not always provide the bigger picture that boards require.
“In some organisations, there may be an element of operational decisions and the information that supports them being pushed upwards to cover for managers”
In some organisations, there may be an element of operational decisions and the information that supports them being pushed upwards to cover for managers, and there may be an element of ‘pull’ as well as ‘push’ from directors concerned about potential risks to their own reputations.
My own view is that this last factor has been exacerbated in recent years by external pressures and expectations: in particular, a trend for regulation that makes boards collectively, or board members individually, directly responsible for matters that were previously considered the domain of management.
The Senior Managers Regime in the financial services sector is perhaps the prime example, but not the only one.
It is clear from the research that all those involved in commissioning and writing board papers can play their part in making board packs better tailored to the needs of the board.
But the primary responsibility rests with the board itself. If it is not happy with the information that it receives, it has the ability to change that.
The chairman in particular needs to get to grips with the issue. As ICSA’s chief executives Simon Osborne notes in his column this month: ‘One of the main duties of a chairman is to ensure that directors are properly informed and that sufficient information is provided to enable them to form appropriate judgments. They are also responsible for developing and setting the agenda for board meetings’.
Although only those inside an organisation are capable of producing a board pack that is fit for its own purpose, others can provide assistance, and ICSA and Board Intelligence will be working together to do so.
Over the next six months, we will be developing a cost calculator to enable organisations to work out how much resource they currently devote to board reporting, and some guidance and a self-assessment diagnostic tool to help organisations assess their current board packs and identify ways in which they might be improved.
When developing guidance and other forms of support, there is no substitute for learning first-hand from practitioners, and we are keen to involve governance professionals from all sectors in the development and testing of these tools.
If you are willing to assist, please drop me a line at email@example.com. I would be delighted to hear from you.