THE BOARD meeting attendance statistics required in annual reports are a wonderful example of useless information. They tell us nothing of board members’ contributions. A board member who attends all the meetings, but says nothing, is serving his board colleagues and shareholders less than the one who attends some of the meetings, but does much by way of mentoring executives, being an ambassador for the company, or leading investigations, executive recruitment or adviser appointment groups.
That assertion also leads to saying that non-executive directors (NEDs) must spend enough time with their companies, and have enough contact with executives to build trust and create effective communication with them. There are many ways of achieving this, including pre-board dinners, strategy reviews offsite, regular coffee chats, subsidiary visits and participation in corporate events. All of these contribute to the NED’s knowledge of the company, as well as providing the basis for the sort of open dialogue NEDs and executives need if they are to make an effective team. Being able to criticise something or being criticised without taking that criticism as a personal attack requires this level of familiarity and is unlikely to happen without it.
One angle for an FD is to get his audit committee chairman to tell him stories from his experience. This will help the FD to identify what matters to the NED and also help identify which of his experiences are most likely to be helpful. It also allows the FD to ask questions in a way that will bring out the audit committee chairman’s relevant experience. Questions in board papers are not seen enough – beyond the one implicit in “the board is invited to approve this paper”. Board papers do not have to provide all the answers. It is not a failure to identify questions that need answering before deciding upon a course of action. Questions can be a useful way of finding out what your board colleagues really think about a subject. Boards that have found themselves facing financial restructurings after covenant problems usually wish they had drawn out everyone’s views earlier, and those who kept their reservations to themselves realise how much they let themselves and their shareholders down.
Questions to ponder in board papers do place a premium on getting the papers to the board in good time to allow for timely responses. When faced with having to attend some board meetings by phone or Skype, I took to sending my colleagues an email containing my comments/questions on the papers. I am considering doing this for all meetings, as it will ensure that I read them and sort out my thinking in good time. It also allows the executives time to deal with any responses that require their attention. I would also advise setting deadlines for comment after a meeting on anything in the meeting on which comments were requested. The action points that appear with the next meeting’s agenda are usually too late to serve as a useful deadline.
I have a telling example of how early communication to the NEDs and the pre-meeting response worked to improve the decision we (I was the FD) were proposing. He made it clear he thought we should take legal advice on whether what was proposed constituted an “oppression of a minority shareholder”. The advice we received was to obtain clearance from the minority shareholder. We did so and the meeting approved the item very quickly. Although the CEO and I thought what we were proposing was right and thought that the minority shareholder would agree, receiving that consent prior to the meeting allowed for a much higher-quality and lower-risk outcome. We thanked the NED for his contribution – that was how it should be.