In espousing deployment of corporate governance frameworks it is not enough to discuss principles only, details of how to effectively operationalise these principles are just as important. One of the crucial operational aspects of corporate governance is managing board meetings. Board meetings are the focal point for dissemination of performance information, discussion of major issues and strategic decision making. Since there are usually only four to six board meetings per year it is critical that these meetings are conducted effectively as there is little room to make up for delays.
The challenges that are faced include getting the right information to the board at the right time, balancing meeting time between discussion and decision making, balancing individual director input between those who continue to speak long after they have made their point and those who do not contribute enough of their valuable opinions, control of the meeting by the board and not the executives and finally clear capture and communication of outcomes and action items.
The first step is ensuring that the agenda for the meeting is set by the board itself and not by the executives. This includes avoiding directors or chairmen of the board with executive authority from interfering with this process. There is usually a standing set of agenda items to which directors may request additional items. The chairman, or if he is an executive, the senior independent director, then finalises the agenda. This approach ensures that the board remains firmly in control of its meetings without undue interference from the executive management. This needs to occur early enough to allow the management team time to prepare the requested information.
The next step is ensuring that the information pack is circulated in a timely manner to the board, usually one business week. The problem here is not that this concept is new, it is in fact well understood, but it often is not fully complied with. Critical information is often circulated too late for proper reflection and quite often is handed out on the day of the meeting. This outrageous behaviour borders on the negligent as it robs the board of the ability to properly analyse the company’s performance data. This is a key tactic in circumventing the board’s authority and protecting executive decisions at the expense of the shareholders and if allowed is no different than allowing executives to set their own bonus. Boards need to change this entrenched culture and to do so they need to act forcefully.
When it comes to the actual meeting, selection of a chairman of the meeting (‘CoM’) is key and the chairman of the board should not be blindly selected for this challenging role. The CoM must not be an executive and must be strong enough to ensure that the CEO does not informally run the meeting. This means that the CoM needs to be well prepared.
The CoM has to be willing and able to defend meeting time ruthlessly, ensuring that attention is focussed on new critical information and discussion so that decisions may be made. A major time waster is review of the minutes of the previous meeting. All too often there are several board members who have not even reviewed the minutes and proceed to do so during the meeting, wasting precious time. An easy way to manage this is to request comments well in advance with a board enforced cut off. Directors who repeatedly breach this requirement should be held accountable at the next board review or earlier if necessary.
The next items on the agenda are usually reviewing the reports of the board committees and the outstanding action items from previous board meetings. Boards all too often misunderstand the word review and begin debating issues. First, the whole reason that a board committee is formed is to empower it to look at specific issues on behalf of the board and once it does make decisions it hardly makes sense for the rest of the board to rehash the issues. Any points raised by these reviews deemed important for full board discussion should be pushed to any other business at the end of the meeting, to circulation or to a subsequent board meeting.
The heart of the board meeting is the management presentation. The point of this exercise is not to impart new information to the board, the board should have already received a detailed information pack and have acquainted themselves with the pertinent issues. The point of the management presentation is for the board to ask for clarification of issues and question the validity of assumptions. The CoM needs to be disciplined and ensure that meeting time is not wasted on directors who have not prepared or on executives seeking to hijack the meeting.
Finally, outcomes and action items must be captured and disseminated in a timely manner. This usually requires a two pronged approach: action items are circulated within one to two days and minutes are circulated within one week.
Board meetings are not informal discussions in the majlis, but focussed and disciplined value creating meetings.
You may also like: What the Board Should Expect from a Management Presentation.