5 Best Practices of Board Reporting
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. This response, in the 2017 Private Company Business Trends and Insights Survey, indicates that while finance leaders recognize the importance of analysis, they do not have the time to devote to it.
In addition, increasing shareholder activism, high visibility 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 oversee competitive strategy.
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, 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. According to the Chartered Institute of Management Accountants (CIMA), in order to be useful information for board reporting, financial information must be material, relevant, reliable, comparable, and understandable.
A recent report, Director Essentials: Understanding Nonfinancial Metrics by the National Association of Corporate Directors (NACD), provides the following questions as guidance when determining what to report and how to narrow which metrics to monitor.1
- 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), and 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 U.S. Environmental Protection Agency? 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 to build the right foundation.
Cloud systems have streamlined information management, yet they haven’t dislodged spreadsheets entirely as preferred business tools. Change is hard, yet 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 today 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 a duplication of effort 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. Do not reinvent the wheel: use an automated reporting software solution.
Board books are recurring documents with delivery schedules penned in ink a year in advance. Automated reporting solutions streamline the process of document consolidation, production, review, and approval. The less time your finance and business unit teams spends working 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
- Provides extensive permissions during report production
- Maintains document history through version control trails
- Ensures data governance from source through report
- Enables simultaneous changes to linked number, text, and chart data across multiple documents
- 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. Printing and shipping board books to directors around the country is costly. In addition, most directors appreciate 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. It happens more than you would think: printed board books are easily lost or left behind in hotel rooms and airplanes. A lost or stolen board book that contains sensitive material and insider information is an explosive situation that exposes a company to threats and legal liability.
These five board reporting best practices are designed to give time and accuracy back to finance professionals. By automating processes, reducing duplicated work, and investing in software, they will able to give the board of directors the insights it needs and is looking for in order to make strategic decisions.
To learn how Brown-Forman modernized its board reporting with Wdesk, watch this short video.
1Director Essentials: Understanding Nonfinancial Metrics. (2017). National Association of Corporate Directors.
About the Author
Joseph Howell is the former Vice President, Strategic Initiatives at Workiva. Prior to cofounding Workiva, he served as Chief Financial Officer for a number of public and private companies. He also served as the cofounder, organizer, and community moderator for the SEC Professionals Group.