The Modern Board Pack

The Modern Governance Environment

Recent cases like Centro and the media interest in the role of 7-Eleven’s board, with regards to the alleged breaches of employment and visa laws by its franchisees, highlight the need for directors to truly oversee the business, with a focus on growth, change, risk and resource deployment.

The Centro case introduced the key obligation for the Board to position on what “should” they know. Interest in the 7-Eleven case has taken the challenge of modern governance even further.

As one observer has questioned:

Did the board create the culture that led to the illegal act?

 In meeting the challenges of modern governance, more and more organisations are looking at their governance and reporting frameworks. I am constantly asked “How many board meetings should we have?”. My response is clear – “As many as you need…. but if an issue requires board attention or meeting, your governance framework should make it happen”.

Redesigning The Board Pack

The conversation often continues to the board papers. “What should be in a board pack to support the board to meet the challenge of modern governance?” Whilst most of the right materials are often found in board papers, I find the sheer bulk and hefty focus on last month and today (rather than a healthy balance on next month and next year), often render them dangerously inefficient and ineffective in the modern governance environment.

Below I have pulled together my recommendation around board papers and redesigning them to support the directors in their oversight role. Under each item is a brief description of what it will include. Further, the recommendations seek to better align the management of key issues with the reporting to the Board. The board pack should inform the Board of the key governance issues and support the its discussions and deliberations to meet its governance obligations.

My recommendations include

  • A redesign around the Board’s key governance obligations to oversee:
    • the delivery of the strategic plan;
    • responses to emerging governance issues - either changes to underlying assumptions behind our current strategic plan, or outside market forces that will have an impact on the business;
    • oversight of the management of identified risks to the business.
  • Introduction of a summary report against the key performance drivers to focus the risk/strategy/resource deployment discussion needed by the Board;
  • Board discussion as to the current priorities in relation to the strategic pillars;
  • Focus on reporting prospectively to the agreed delivery of initiatives and outcomes (Scope, Time and Cost), rather than a “status” against the previous quarter;
  • Introduction of reporting against adherence to existing practices, supporting delivery of the “business as usual” items;
  • Alignment of performance targets to the governance items, around strategy and risk;
  • Greater alignment between key identified risks and the management risk committees, to optimise the investment in reporting;
  • Clarity of the Board’s risk appetite through agreed definitions of both the relative impacts and likelihood of occurrence, as well as the Board’s tolerance for the current position of each risk;
  • Reporting against the key differences between the risk position:
    • Inherent – the position of the risk without any mitigating practices;
    • Residual – the risk position after the agreed practices are in place and working as planned;
    • Target – the proposed position of the risk, achieved through additional initiatives and /or redesign of existing practices to further reduce impact or likelihood of occurrence; and
  • Introduction of “positive assurance” from the field on adherence to critical policies, practices and procedures.

Indicative Board Pack

The list below outlines the key elements that should be, in my view, presented to the Board. Whilst the language may vary, the form and content must support the board’s key role to oversee:

  • Growth – through the implementation of the strategic plan;
  • Change – through consideration of emerging governance items; and
  • The management of identified Risks – with support from sub-committees and management

1. CEO Report:

  • Synopsis of the Board papers,
  • Provides guidance as to CEO’s view on the significant issue currently facing the business;
  • Will identify and overview any key decisions relating to resource deployment around strategy and emerging governance issues.

2. Key Performance Drivers:

  • Presentation of the key drivers that report the delivery of the strategic intent;
  • Like the current presentation of the risk tolerances, these will be presented within a “tram track” target range,
    • Bottom target to demonstrate the “minimum requirement” or “card to play”. Falling below this indicates potential loss of market position;
    • Top target to demonstrate the agreed link between risk, strategy and resource deployment – supporting the desired strategic position
  • This agenda item will support a discussion around the key governance challenge: “Is today and tomorrow under control, so we can focus on next month and next year”?  If the report is not “under control” (either a negative trend or movement outside range) Board discussion will focus on management’s strategies to pro-actively address trends. This is designed to focus Board time on the strategic oversight of managements suggestions around delivery of the strategic intent.

(The order of the next 3 items may vary according the specific issues at the time)

3. Strategic Pillars (Growth)

  • A report against the defined strategic pillars
  • The following will be reported against each strategic governance item:
    • the agreed strategic goal;
    • the consequence to the non-delivery of that goal;
    • management’s assessment as to the current attainment of the agreed goal;
    • the current practices, controls and processes in the business that support the delivery of the strategic pillar, supported by an assessment as to whether the practice is being followed. This is sometimes called “positive assurance” and provides the board comfort that what is meant to be happening is happening, as planned;
    • Status against the delivery of the endorsed initiative (and projects) to achieve the goal. These are the initiatives in the current strategic plan and the key projects the business is undertaking;
    • Key performance measures and targets to assess the delivery of the goal. The targets will support the boards attitude to risk/resource deployment and return;
    • A summary comment against each pillar, from the responsible person. This will provide an overview and summarise what management is doing when a current practice is not working as planned or an initiative will not be delivered to agreed scope, timeframe or cost.

4. Emerging Governance items (Change)

  • Key governance items that, whilst unlikely to occur, will have a significant (positive or negative) impact on the business;
  • Summary of proposed mitigation plans to either maintain a low likelihood of occurrence and proposed strategies to be actioned should there be event occur or become more likely to occur;
  • Emerging governance issues support the board to operate with a “should mindset” and provide a structure to support unscheduled board meetings, to address current or likely occurrence;
  • Each month, a report will be provided by the allocated responsible person, as to the views on any increased likelihood of the governance item occurring. This will support Board engagement around future governance challenges, rather than mitigation of events that have already occurred. Sometimes called the governance of “future risks”;
  • This section provides the opportunity for the board to focus externally on trends and events, the likelihood of which the business cannot impact;
  • Current projects that have been approved to either influence the likelihood and/or reduce the impact should the risk occur will be discussed under the relevant emerging governance item.

5. Identified Risks (Risk)

  • Key identified risks will be allocated to the respective management risk committees to support better alignment to governance challenge and provide a common methodology for the management of the agreed identified risk;
  • Each of the key identified risks will be reviewed and, where appropriate, elevated to the board for consideration;
  • This framework will support Board’s oversight of managements responsibility to manage;
  • Consideration is being given to extend some of the operational risks in the current risk report to refocus some of the head office functions around the risk. An example of redesign finance risks includes:
    • Non-delivery of endorsed budget;
    • Non-optimum balance sheet; and
    • Non-delivery of finance compliance obligations
  • The relevant management committee will consider a management report against the allocated identified risk as follows:
    • the impact area of the risk – allowing grouping of risks to support the oversight of key areas;
    • the agreed risk, including an understanding of the impact of the risk;
    • the current mitigations in place to address the inherent risk position;
    • against key practices, “positive assurance” from the field that provides comfort that the endorsed policy is being followed;
    • status against the delivery of any endorsed initiates to achieve a “target” risk position;
    • key performance measures and targets to report the status against the endorsed risk appetite in relation to each key risk.  The targets will support the boards attitude to risk/return;
    • a summary comment from the responsible person (and/or management risk committee), including elevation, where appropriate, to the Board risk committee/ full Board for consideration.

6. Other Business

  • Items of process or information to the board that are usually non-aligned to the key board obligations

7. Appendices

  • Supporting documentation as reference material to the core reports;

In Conclusion

In your continued Path to Good Governance™, the governance and reporting framework can provide significant value. The Board documents should be designed to support a governance discussion, which not only support the Board to oversee and not manage, but ensures optimum use of management time in preparing the papers.

 

About The Author, Simon Neaverson FAICD

Simon is a leader in governance, strategy and risk management having advised boards, partnerships and senior managers in numerous Australian and international organisations, across a broad range of industries for more than 25 years. He is the founder of TPPG Pty Limited, a consultancy aligning strategy, risk oversight and good governance. Simon’s extensive experience has seen him work with public and private companies and organisations in the government, educational and not-for-profit sectors.

Simon has fulfilled roles as executive and non-executive director, board chair and chairman of a range of board sub-committees for more than 20 years. Simon’s passion is to take the theory of good corporate governance and embed it into organisations to make governance work. His wealth of experience led Simon to develop the GovernRight Framework, a practical and robust tool that supports directors and senior executives to drive organisational performance and compliance, in complex and changing business environments. Throughout his career, Simon has facilitated over 300 planning sessions across a wide range of industries.

A Fellow of the Australian Institute of Company Directors (“AICD”), Simon is a senior facilitator and educator in corporate strategy, risk, governance and improving board effectiveness. He was recently presented with an AICD 20 year Faculty Award ‘in appreciation of (his) ongoing contribution and excellence to the gold standard in governance education.’