Understandably, expectations of board performance have increased significantly in the wake of financial reporting scandals and the financial crisis. New laws, regulations, and stock exchange requirements have put more responsibility on:
* Audit committees related to financial statements and internal controls
* Compensation committees related to management's compensation and the compensation discussion and analysis
* Risk committees related to key operational and financial risks
These changes all serve to reinforce the board's oversight role, not to supplant management.
To perform their oversight role properly, "We have found that board members prefer to be actively engaged in the company's data, the company's competitors and industry in general, and the processes that management goes through to analyze the data and manage the data," says William Keams, director of financial reporting at Alaska Air Group.
Kearns is responsible for external and internal financial reporting at Alaska Airlines and participates in the preparation of reports to the Alaska Airlines Board of Directors. He recommends that management should help the board understand the critical information available and the process management goes through to make key decisions.
"Board members are seeking candor and insight from management on the key challenges and opportunities facing the company. In turn, management should look to and take advantage of the experience, diverse perspectives, counsel, and input of the members of the company's board," says Robert Herz, former chairman of FASB, current board member of Morgan Stanley and Fannie Mae, and senior advisor to Workiva.
Here is what experts advise as the best way for management to help the board fulfill its role.
Get on the Same Page
Effective oversight begins with an effective agenda. Setting the agenda should be a partnership between senior management and the board of directors to ensure the board is discussing the correct issues--those most important to senior management and those that increase efficiency and effectiveness.
When the board sees what management sees in context, it may understand the information differently. The issue does not lie in distrust of management, but rather in understanding what is important to both parties
A Financial Executives International Daily article, quotes Mary Jo White, chair of the Securities and Exchange Commission.
Ensuring the right 'tone at the top'for a company is a critical responsibility for each director and the board collectively. Setting the standard in the boardroom that good corporate governance and rigorous compliance are essential goes a long way in engendering a strong corporate culture throughout an organization. The board is responsible for and is involved with strategy, cybersecurity, hiring the CEO, senior management compensation, succession planning and talent development processes, as well as board effectiveness and major company events. It needs to make decisions on key issues based on the information obtained from senior management...