I was party to a rather interesting, and at times quite vigorous, discussion while working with 24 delegates at the Institute of Directors' Company Directors Course on Tuesday last week. My task was to present the strategy material, and to facilitate a wide-ranging conversation to help delegates understand the board's role in the respect of strategy.
The question that precipitated the discussion concerned information sharing and accountability: How and when should the board discover that there is a major problem with the performance of the business due to the approved strategy is not being achieved as expected? Should the board rely on the standard reporting process (and risk ignorance if management decided to remain silent), or should the board ask searching questions if things don't quite seem right? When I asked this question last week, one delegate suggested, almost immediately, that management should report any and all material information to the board. By implication, this position places the responsibility and accountability directly with management. Another delegate responded strongly with a counter view, by suggesting that the board should not simply "trust" management to decide what needed to be reported, but that it was sometimes necessary to ask searching questions. A vigorous 20-minute discussion ensued. Points and counter-points were exchanged, with some great supporting examples (which I cannot share unfortunately, due to the Chatham House rule).
Where the did discussion land? The majority of the group appeared to hold the view that, if directors are to add value, and to fulfil their duties to act in the best interests of the company, then it is their duty to discover the real state of affairs by asking searching questions—even though such a position requires them to be more fully engaged in the process of governance than a lesser "monitor based on what is reported" position would require. While my personal view is consistent with that of the majority of the group, I'm not at all sure whether such a position is representative of how the majority of boards actually act. The Christchurch City Council, Fonterra and Solid Energy cases all suggest the board relied on management reporting rather than on the asking of searching questions...
I would appreciate hearing what others think...
Thoughts on corporate governance, strategy and effective board practice; our place in the world; and, other things that catch my attention.