Improving Financial Reporting to the Board: Is Your Board Bored?
At a next board meeting, study the behaviors of the directors when they listen to the CFO as he or she reports on the financials for the company. Are eyes looking down at the floor or at their laps? Or, are people giving the diplomatic glassy look to pretend they are paying attention?
I hear often from frustrated directors about how the financial review is “too verbose, too detailed, not helpful or just plain repetitively boring.”
In contrast, I know CFOs are most often trying their best to report the details they feel are important for directors to know at the granular level they feel responsible to report. Brian Barnier, Head of Analytics at Value Bridge Advisors reminds professionals: “There is a danger in simplifying financials because backtracking on failures usually reveals that the red flag was filtered out by some criteria based on the “last war” or management’s view of importance. It is important to look at the right boundary conditions and to do the right math. In nonfinancial companies, there are significant management problems in capital budgeting criteria and such, despite decades of good guidance.”
The issue is finding the balance between the financial duty to inform and the directors’ duty to monitor and address issues.
If your company fall prey to this frustration, there are ways to solve it.
Define the metrics vital to watch. Meet with your Audit Committee or Advisory group if you don’t have an Audit committee. The group should be comprised of professionals who understand the financial reporting and evaluation of the business. The intent is to develop – together – the list of metrics most important to evaluate and monitor related to the strategic goals of the company. This is an important exercise, as it engages the board and management to: 1) align about goals and investor interests, 2) determines how the governance process should work and how the management and directors learn and make better decisions, 3) defines how the board will oversee the management’s capability to manage risk related to business objectives, and 4) creates a reliable way to discuss the health of the company with investors, regulators and analysts in the business community. These metrics are built together as a “theory of the case” about how the company succeeds. Keep in mind that this model of metrics is dynamic. As a group begins to assess the business with metrics, it learns more about the business. New metrics may need to be introduced as you learn more.
- Set parameters. With the committee, agree to how to classify three categories for each metric: below, on target and above target. Color code these are red, yellow and green, respectively.
- Create a standard dashboard. Design a one-page template including each metric and a column to the right that codes the metric for red, yellow or green. Use this dashboard as the standard introductory slide for board presentations.
- Parse the presentation. Not every metric needs to be discussed in the precious time of a busy board review. Divide the deck into two parts: 1) Topics that need discussion in the main deck, and 2) an appendix with data for those that provide information but do not need discussion. Prepare the information needed for each metric and sort the slides between “To Discuss” and “To Inform”.
- Focus on discussion items. Tailor the time to engage the board on the topics that are red, strategic and need decisions. This provides the quality of time on what needs the most attention. When done, ask if there are any questions related to the appendix items.
- Send the deck well in advance of the meeting. Directors are generally conscientious about preparing for a board meeting. Providing the information well enough in advance gives them the liberty to study the details in both the appendix and the key topics. They can prepare the questions they have and be ready to discuss topics when they arrive. This makes the most of the time you have with them to have valuable discussion, explore solutions and make critical decisions.
Organizing your material and the use of the time with directors in this way improves engagement and the quality of outcomes overall. Building better performance together helps everyone involved. If you seek help with establishing a new dashboard approach to your financial reporting, feel free to call.
In 1986, Mr. Weis became a pioneer in the contingent management movement as the founder of CFOs2GO. As “the original CFO”, he served as Chief Financial Officer for more than 100 companies developing the proven practices that make “as needed” support valuable.
Bob leads the International Practice Group helping companies set up and maintain foreign operations inside and outside of the U.S. as well as attract top talent for their US team. He also co-leads the M&A Practice Group.
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