Deciphering Management Reports

How can directors possibly know what is going on in the organizations they serve? After all, while management spends all their time immersed in operations and strategy, board members spend a comparatively small amount of time on their board duties and seldom step outside the boardroom.

That makes for a huge information gap.

As a board director, you’re pretty much completely dependent on management reports and presentations to best inform the discussion that’s needed to fulfill your responsibilities.

And yet, in my experience, those management reports are often a source of deep dissatisfaction for board members. Many organizations rate them as weak or poor! What gives?

What should the Savvy Director expect – or demand – from management reports? And what can be done to improve them?

Reports – What are they good for?

The flow of information from management to the board enables directors to fulfill their duties as board members. Whether you call this information management reports, board papers, or board packs - without it, directors would be in the dark about goings-on in the organization. Directors rely almost completely on the CEO and senior management to provide them with all the information they need about the organization and its activities.

Good quality reports are absolutely critical to the board’s ability to challenge and scrutinize management. They’re also the best way for management to extract value from their board. To get the job done, directors must understand the organization – its business drivers, operating environment, strategy and risks.

I’m using the term ‘management reports’ to encompass all the different kinds of information that management provides to the board as part of their pre-reading material. They might take the form of a slide deck, a narrative document, a dashboard, or a spreadsheet – or all of the above. These come from several different sources – the CEO, CFO, Internal Auditor, etc. – and serve a multitude of purposes including ensuring compliance, reviewing financials, monitoring performance, overseeing risk, and planning for the future.

Perhaps the most critical management reports are those that support informed decision-making on the part of the board by bringing forward management’s recommendation for a course of action and making the case for board approval.

A side benefit of good management reports is that they can build trust between the board and management – provided, of course, that they’re accurate, well-organized, and timely, and that they are written for consumption by board directors, not managers.

On the other hand, poorly written, confusing, one-sided reports that don’t tell the whole story accomplish just the opposite – they arouse suspicion.

“If a mix of positives, negatives, and ‘I just don’t know’ isn’t present, I get suspicious about the nature of the information I’m getting and start wondering, ‘Why is it being presented that way, and is the pack being used in a way to manage the board rather than empower it?’” - Lord Victor Adebowale CBE, Chair, Visionable

What goes wrong?

So, we all agree that high quality management reports are necessary, serve multiple purposes, and build trust.

But, judging by what I hear from a great many directors, there are lots of ways to go wrong with management reports. Why is that?

First of all, what the board needs is not the same as what management needs. Whereas management wants and needs operational details, the board has to deal with the big picture - prioritizing strategic concerns and paying attention only to material issues.

Secondly, the report writers know their material inside-out, and they often assume that directors share that knowledge, so they don’t provide enough explanation. Add in the frequent use of abbreviations, acronyms, and technical jargon, and you have some very frustrated readers.

Another problem is that management doesn’t realize that, in the lengthy gap between board meetings, directors can lose track of the thread of a discussion. When a report simply picks up from where the last one left off, they are at sea. Board members need a brief recap of what’s happened, where we are now, and how it links to the strategic plan.

And sometimes, routine reports become disconnected from what the board needs to know. Over time, additional items keep getting added, and the report just grows and grows, losing its original focus.

(By the way, often these reports are presented – or simply read aloud - at the board meeting. That gives rise to a whole other problem and might be the subject of a blog for another day!)

But by far the most frequent complaint about management reports is that they are too long. As a result, huge swaths of information just don’t get read. It takes a lot of work on the part of management to extract a concise, intentional board report out of the masses of detail available to them.

“If I had more time, I would have written a shorter letter.” - Blaise Pascal, French philosopher

Best Practices in Management Reports

The go-to source for excellence in management reports is Performance Reporting to Boards: A Guide to Best Practice from the Chartered Institute of Management Accountants (CIMA). CIMA lists the following characteristics of good board information:

• Relevant. The information should reflect the organization’s objectives and strategy and shouldn’t obscure the big picture with excessive detail. There should be a capability of drilling down if needed, with sufficient information to allow the board to explore alternatives.
• Integrated. The information should satisfy both internal and external reporting needs.
• In perspective. Information should be presented in a timeline, focusing attention on historical, current and projected scenarios.
• Timely. Imperfect information is preferable to perfect information that is out-of-date.
• Frequent. Different information should be provided at different times. More frequent reports should focus on critical success factors, while less frequent ones should have broader coverage and focus on qualitative aspects.
• Reliable. Directors must have confidence in the information, knowing that the data is of good quality, trustworthy, unbiased and from a credible source.
• Comparable. Reports should allow for easy comparison of actual performance to benchmarks and targets.
• Clear. Reports should be written in a clear, simple way. Complex technical terms should be explained, and the text should be free of acronyms and jargon.

The CEO Report

The report that carries the most weight with directors is often the CEO Report, which usually covers current issues, a strategic plan update, KPIs, a risk and compliance update, and other matters of interest to directors.

As I was researching this blog, I was surprised to find one source that described the CEO Report as ‘The One and Only Thing That Gets Read.’ I certainly hope that’s not the case! But I do admit that, in prepping for a board meeting, I will very often start with the CEO Report. A good one is like a first-rate executive summary for the meeting – it tees up the rest of the material.

As a director, here’s what you should expect from a CEO Report.

• Link to the big picture. It should focus on what really matters and link to the organization’s purpose.
• Include both good news and bad news. You should be able to conclude what the CEO is worried about and where they would most welcome board input.
• Look forward as well as backward. Past performance is important, but the report should also reflect on significant developments and the risks and opportunities the CEO sees ahead.
• KPI dashboard. Presenting performance numbers in a snapshot frees up the narrative to focus on overall trends and significant performance issues.

“The CEO’s report is a chance to solve the problems that are troubling the chief executive, but also to lead the directors towards things they can’t easily see — such as competitors’ activity.” - Penny Hughes CBE, Chair, The Gym Group

How to Get What You Need

So now that we’ve looked at what constitutes a good management report, what should you do if you’re not getting it? First of all, we need to recognize that, even though management creates the reports, as directors we are responsible for the way we receive information and the level of detail provided.

To this end, we need to ensure:

• We have sufficient information and time to make informed decisions.
• We receive all the relevant information – both the good and the bad.
• The information we receive enables us to properly assess performance and evaluate issues.
• The appropriate internal controls are in place to protect the integrity of the information.

You can assume that management is working hard to provide the board with what it needs. What frequently happens is that the board expresses dissatisfaction with management reports, but provides no concrete advice as to what its expectations are and how they can be met. Instead, directors complain in vague terms and then hope that the next batch of reports will be more to their liking.

The following – more concrete - suggestions are adapted from the e-book 5 Simple Steps to Board Pack Success, from Board Intelligence.

• Turn data into insight. Be clear about what matters to the board. Ask management to bridge the gap between volumes of data and valuable insights. The mantra should be, ‘Don’t tell me everything you know, tell me what I need to know.’
• Look to the future. A report with a backward focus tells only half the story. The board needs to focus on the key drivers of the business and consider risks and opportunities under different scenarios.
• Be concise. Establish a limit on report length - 3 to 5 pages is ideal. Include critical information in the body of the report, with additional detail available in optional appendices that interested directors can choose to dive into or not.
• Be clear about the purpose. Answer the questions, ‘Why am I getting this report in the first place?’ and ‘What do you need from me?’ The best place to address these questions is right up front, in an executive summary.
• Support robust decisions. When management needs the board to make a decision, the report should make a clear recommendation, include the decision criteria, and list all options considered and rejected, and why.

I would argue that, to really get what it needs, the board should actively work with management to articulate the criteria for the content and format of high quality reports. The board chair and CEO could take up this work, or it could be delegated to committee chairs or assigned to a small working group.

Your takeaways:

• The board relies almost completely on management to access the information it needs to fulfill its role.
• High quality reports that bridge the gap between data and insight help build trust between the board and the management team.
• Board directors have the responsibility to ensure they receive the information they need.
• Consider working actively with management to develop templates and criteria for high quality reports.

Resources:

• 4 Tips for a Powerful CEO Board Report. Anna Humphreys. Board Intelligence. March 2021.
• Another Netflix Disruption: A Transparent Board. Bill Snyder. Stanford Business. May 2018.
• Reporting to the board. Australian Institute of Corporate Directors. 2016.
• Performance Reporting to Boards: A Guide to Good Practice. Chartered Institute of Management Accountants (CIMA).
• Board information requirements: How to get the best from your management team. Effective Governance.

Leave a comment below to get in on the conversation.

Thank you.

Scott

Scott Baldwin is a certified corporate director (ICD.D) and co-founder of DirectorPrep.com – an online hub with hundreds of guideline questions and resources to help prepare for your next board meeting.

Share Your Insight: What suggestions do you have to ensure your board receives high quality management reports?