If information is power, if board members really are knowledge workers, then the quality of information they get is critical. But Catch 22 here is that this information is usually shaped for them into agendas by management. In the most cynical of scenarios this is quite literally managed information, though the reasons behind it are understandable. Boards have limited time to absorb the complex information presented at their meetings. They do however need to influence the information flow so they can concentrate on strategic thinking.
Assessing boardroom performance, the Harvard Business Review looked at range of issues, including the presentation of the right information, and concluded: “To be effective board needs broad range of information about the condition of its corporation… The board needs to get its information from broad range of sources such as outside stakeholders, customers, employees, and the directors themselves.”
Far from Mahogany Row, motherhood offers useful analogy. Mothers can sleep through great deal of noise, but routinely wake when their babies cry – sometimes even anticipating the cry. The challenge for boards is to filter out the really important signals in the avalanche of information, much of which is historic. This material has its place but the question is whether it assists or hinders strategic thinking.
Boards need relevant, topical information which not only helps them, but chief executives – what CEOs want most from outside directors is advice according to the Harvard Business Review.
“… Directors on empowered boards are likely to be more knowledgeable and involved than those on traditional boards and therefore to be better advisers”. The Harvard Business Review noted that these boards were more likely to deal effectively with crises:
“Directors who passively await crisis will have neither the necessary information nor the decision-making and communication mechanisms they need to resolve issues quickly… Directors must have the information they need to focus on the right issues and use their time productively. The effectiveness of the group is the true source of their empowerment.”
One other issue underlines the need for broad range of board information. Governing and managing require different modes of thinking, as Boardworks International magazine points out.
Managers use “convergent” style of thinking, which reduces uncertainties and narrows the range of options to enable decisions to be made. Applied in boardrooms this could mean that ideas are cut off too early, says the magazine. By comparison, governing involves “divergent”, open-ended thinking which explores the different dimensions and possibilities of an issue or idea.
“An open-mindedness and willingness to get all the ideas possible out on the table first is critical.”
However boards usually comprise part-timers. Managements always know much more about everyday activity at the coalface. So what happens when they not only shape information but suppress or tailor elements of it to the board? Embarrassment and the potential for lawsuits are two possible outcomes.
Wellington human resources consultant Karen Martyn believes that sometimes, managements will work to keep embarrassing and potentially litigious issues away from the board. One case she investigated as an impartial third party revealed that the respondent was the CEO. She doubts it ever reached the board. The CEO of the Commonwealth Association for Corporate Governance Geoffrey Bowes, believes all directors should insist that they will decide what information they want, and in what format.
“Secondly any director is entitled under law to request any information from the company – management cannot withhold it,” he says.
Finally Bowes has one last suggestion for boards – to structure their own agendas so that urgent matters are at the top of the agenda.
“That means you don’t have to wade through all the crap at the beginning. If management sets the agenda you will end up having to wade through all that stuff first,” he says.
Bowes believes in having only three items on the agenda: confirmation of minutes; matters that must be decided that day; and finally, routine matters – including the CEO’s report.
Some American boards, like Monsanto, have already dealt with some aspects of the information flow. They have asked directors to provide one another and management with an explicit review of information discouraging the company from supplying the same data because “that’s how it was always done”.
In the end, it all comes down to respect for the different demands and roles of governing and managing. If it’s not there, then the first casualty of the board-management nexus might be the most valued – trust.
Sources: Empowering the Board by Jay W. Lorsch, Harvard Business Review, January-February 1998; Boardworks International July-August, 1998; Appraising Boardroom Performance, by Conge, Finegold and Lawler.