January 10, 2013
A Candid Look at Board Practices
Bridging Effectiveness Gaps: A Candid Look at Board Practices is the title of a new study by the accounting and consulting firm McGladrey LLP on behalf of the National Association of Corporate Directors (NACD).
The report focuses on the quality of information provided to and used by the board. In the words of the authors:
- Effective board oversight demands information that is as current and relevant as possible. There are, however, natural gaps between what management communicates and what the board needs to know. The information flow between management and the board may not always be perfect, and board committees may have similar troubles bringing the full board “up to speed” on certain issues.
- [The] oversight role is largely dependent on the quality and scope of information the board receives, exclusively in some cases, from management. The sole reliance on one avenue of information may limit or skew needed dialogue on the most important issues facing the company. Information on risk management, for example, may be accurate but incomplete.
- If the board’s oversight relies on the information it receives, then a board may be limited by management’s ability to present data in a manner consistent with its own views and artfully direct the board’s decision process.
- The C-suite’s ability to transfer their knowledge of strategic risks is paramount to the board’s oversight and understanding. Unfortunately, some CEOs may be unwilling to unveil the full scope of risk facing a company because it may be seen or felt as an admission of weakness.
A couple of other board practice topics are covered, but barely touch the surface. In my opinion, this is a skimpy and disappointing document.
However, it does raise the important question: how can the board provide effective oversight without assurance that it receives the information it needs, when it needs, and in a useful way?
I think this is a good area for the internal audit function. They can and probably should perform audit engagements designed to provide the board with assurance on this important area.
What do you think?