What kinds of reports boards get and do? In the wake of Srikrishna panel finding ICICI ex-CEO Chanda Kochhar violating bank norms and propriety in favour of her husband, and the bank rightfully deciding to take back the very fortunes she was amassing, many experts wonder why the then board members (who had given her a clean chit despite the report) are getting away without any penalty or charges.
When you think about it, boards rarely develop their own work product. The great majority of the time, they review, monitor, question or approve information presented to them by others. Since the outside independent directors of a board are amateurs in many ways to deal with the work of the company's professional managers, this is inevitable, but it brings obvious dangers.
The quality of board decision-making is directly tied to the quality of the inputs that a board gets. Inadequate, confusing, sloppy, overly complex or just plain wrong reporting to the board will trigger disaster for the enterprise.
While this applies to information the board receives from managers, it is also an issue for committee reporting to the full board - turning the complexities of audit or pay issues into a quick summary for the board is certain to leave many gaps.
What can a board seriously do to avoid the "Garbage In, Garbage Out" reporting syndrome? Does this fall into regulatory compliance or fiduciary duties? By taking a wrong decision based on lack of adequate information will always land board members in soup eventually. If it is not happening today, that does not mean it is the right thing.
Just as in Chanda and ICICI board issue, if the board didn't have access to the Srikrishna panel report, it is one thing but if they had the access but in an abridged format, board members cannot feign ignorance, can they?
Here are a few suggestions for boards to get quality of reports improved:
Next time, if you are a board member, insist on some of the above suggestions to the management. And if you are a management member committed to providing information to your board, do remember some of the above to get better support and alignment from your board.
In the board master class and certification programme that Ralph is planning to conduct in India over the next one year, much such useful information will be shared for boards to deliver better.
Ralph is a global authority on boards, and Muneer is co-founder and chief evangelist at the non-profit Medici Institute.