5 Best Practices of Board Reporting
Board reporting is more important than ever, even though the only thing most board rooms are gathering is dust right now. Just like closing the books remotely and holding virtual shareholder meetings, the board has also had to get creative in how they meet. That means regardless of whether you're working in the office or from home, the creation of board reports still must go on—making the manual, time-consuming, and just plain risky process that much more painful.
In fact, I was speaking to some of my colleagues the other day who support the board of directors. They told me in many cases, their boards are meeting as frequently as weekly to address damage control, alter business strategy, adjust forecasts, and assure there is enough cash to protect the business.
In addition, increasing shareholder activism, high-profile board failures, and expanding regulatory demands are driving increased expectations of board performance. As board accountability increases, directors are engaging more deeply and more often with management and staff to develop and implement competitive strategy.
Not surprisingly, strategy is the #1 thing discussed in board meetings. Your board makes extremely strategic decisions that set the entire organization in motion, from culture to operational strategy. That’s what boards do.
But, it’s not based on magic or gut instinct. They are looking to the analysts and accountants—and the reports, books, and decks they create—for support. Are you clearly delivering the numbers and narrative needed to help inform and shape that strategy?
What should be in an effective board report
Results may vary, but there are some commonalities to board reporting. The Chartered Institute of Management Accountants (CIMA) recommends a focused financial report of 3–6 pages summarizing the issues and highlighting the overall position. Use graphs and charts to replace lengthy tabular information. Activity data should link to financial performance, and variances should be calculated and explained.
The report should also integrate nonfinancial and financial reporting. Also suggested are an abbreviated P&L account showing period and cumulative positions with highlighted variances against budget, trend analysis, YoY comparisons, full-year projections, and performance indicators used to illustrate trends in liquidity, asset utilization, etc.
According to one survey, providing this level of decision-making data for more effective board reports is easier said than done—especially when accounting and finance teams are already crunched for time with the regular cadence of financial reporting and ad hoc analysis.
When finance leaders were asked how they would use an additional day per week, 44.5% responded that they would use the extra day to provide insights into the business. It's obvious that finance leaders recognize the importance of analysis—they simply do not have the time to devote to it.
To fulfill these expectations, board demands for high-quality financial and management performance reporting have never been greater—many finance professionals are struggling to meet the demands of their organizations. Systems, processes, and culture are challenged by:
- Time-consuming and inefficient processes
- Inconsistent and inaccurate data
- A lack of transparency that undermines data governance
These challenges are just three of many which undermine an organization’s value. In order to overcome these challenges, consider the following best practices to ensure your business creates the highest quality board reports.
1. Measure only what matters
High-quality financial and management performance reporting should contain all the information the board of directors needs to make decisions about corporate governance, to oversee the development and execution of corporate strategy, and to execute specific duties in audit, risk, and compensation.
Keep in mind, too, that boards today evaluate corporate performance on a wider range of issues, including corporate policies, environmental, social and governance (ESG), and reputation practices.
What is meaningful to measure, monitor, and report to the board are the ongoing discussions between business units, the C-suite, and directors. CIMA says that in order to be useful for board reporting, financial information must be material, relevant, reliable, comparable, and understandable.
In addition, a report by the National Association of Corporate Directors (NACD) recommends using the following questions as guidance when determining what to report and how to narrow which nonfinancial metrics to monitor.
- How does this metric reflect and support our strategy?
- Does this metric reflect a key performance driver for our company?
- What aspects of performance does this metric drive?
- Is this metric used in our executive compensation plans?
- Do we as a board understand how this metric is calculated and why it is used?
- Is this metric commonly used in our industry? Do our competitors use this metric, and if so, how do we compare with them?
- What other metrics does our industry use?
- Do we have information about this metric for past performance periods, and if so, what is the pattern?
- Is the company required to disclose this metric to investors (e.g., under the U.S. Securities and Exchange Commission’s Regulation S-K as part of the annual 10-K filing). If so, what message does it send?
- Is this metric required by executive branch agencies such as the U.S. Department of Labor or the EPA? If so, is our score above or below what is considered desirable?
- Will a low score on this metric bring us negative media and/or shareholder attention?
- Is there good news that the company should promote through its website and media channels?
The most effective boards collaborate with management to create well-defined key performance indicators (KPI), comparisons, and benchmarks to monitor performance. As stated in the NACD report, the greatest challenge for directors will be to select and apply the metrics that are the most relevant to their organizations. Well-designed board books will provide meaning and insight, and they will tell a consistent story.
2. Automate data collection
Cloud systems have streamlined information management, yet they haven’t dislodged spreadsheets entirely as preferred business tools. Change is hard, but the consequences of not changing can be greater. Manual processes are error-prone, time-consuming, inefficient, and lack transparency and tracking—risks that are no longer acceptable in a contemporary business environment.
The solution? Standardize the data collection process through automation or well-defined processes in order to reduce error and the time it takes to create reports. An end-to-end data management process works through documented reporting policies and procedures, ongoing communication with the team, training and cultural change, and the resources needed to meet performance expectations.
At the business unit level, it is important that data is entered once and only once into a centralized information management system where it can serve as a single source of truth. Automated data collection solves multiple problems and allows more time for staff to conduct high-value business analysis, consistent data across reports, and easily traceable audit history.
3. Use a centralized information management system
Companies are hampered by outdated processes and information management systems that can’t keep up with the demands of cross-functional financial and management performance reporting. Their biggest complaint: the inability of internal systems to integrate information across business units. All too often, creating a report involves duplicate efforts between the finance and business units.
A centralized information management system makes it possible to aggregate the correct information, in the correct format, and can provide detailed analysis of key information and the raw data. It can be tracked and traced to the source and accessed by multiple users.
This kind of centralized system fulfills three critical business functions:
- First, it integrates information from multiple sources into a consistent body of business intelligence.
- Second, data governance and user transparency are ensured through the right tracking mechanisms.
- And third, technology can be the enabler of collaboration between finance and the business unit. Liberated from low-value tasks, finance can focus their analysis on transforming data into business insights.
4. Automate your reporting
Board books are recurring documents with delivery schedules penned in ink a year in advance. There are also interim board presentations and reports that are required on a more frequent basis, especially in times of all-hands-on-deck leadership like these.
Automated reporting solutions streamline the process of document consolidation, production, review, and approval. The less time your finance and business unit teams spends fighting with software, the more time they have to collaborate on analysis and insight.
The right automated reporting solution:
- Streamlines repeatable processes
- Enables team collaboration by supporting multiple users
- Consolidates all data in a single, secure cloud platform that is easily accessible while working from anywhere
- Provides extensive permissions during report production
- Maintains document history through version control and audit trails
- Ensures data governance from source through report
- Enables simultaneous changes to linked number, text, and chart data across multiple documents
- Provides opportunity to present narrative around the numbers
- Is compatible with the leading business software suites
- Contains a full suite of document production tools to enable team editing
- Allows the ability to make changes even after board book distribution
- Delivers a final board book through a secure cloud portal
- Delivers digital binders on all devices, tablets, and operating systems
5. Transition to the cloud
Many companies have made the transition to cloud service providers to create, store, and distribute their board books. Printed board books are burdened with inefficiency, expense, and weak security. Shipping physical board books to directors around the country is costly. In addition, most directors want the flexibility of accessing their board books anytime, anywhere, and from any device they choose.
If reducing expenses and increasing efficiency isn’t persuasive, consider corporate security. Printed board books are easily lost or left behind in hotel rooms and airplanes—and it happens more than you would think (or your legal team wants to admit). A lost or stolen board book that contains sensitive material and insider information is a high-risk situation that exposes the company to threats and legal liability, not to mention a lack of trust going forward.
These five board reporting best practices are designed to give time and accuracy back to the team.
By automating processes, reducing manual and duplicative work, and investing in technology, you can give the board of directors the insights it needs to make strategic decisions.
To learn how Brown-Forman modernized its board reporting with Workiva, watch this short video.
Editor's note: This blog post was originally published Aug. 24, 2017, and has been updated to reflect recent circumstances due to the COVID-19 pandemic.
About the Author
Dominick Fatibene, Senior Product Marketing Manager at Workiva, works exclusively with controllership and financial planning and analysis (FP&A) organizations to identify and support simplified internal financial reporting approaches that reduce risk and drive efficiency. Prior to joining Workiva in 2018, Dominick spent seven years at General Electric, holding various positions across finance, including operational finance, global and operational controllership, internal audit, and corporate FP&A. Dominick has been involved in all aspects of finance, including entity and segment accounting, consolidation, strategic planning, earnings, investor, and board reporting. Dominick was a member of GE’s prestigious leadership programs, including the financial management program and corporate audit staff.