The smart director: good decisions are based on good information. Here are some ideas for rethinking and enhancing the information flow to the board.

• Author: Palmer, Russell E.

The fast-paced, hyper-competitive, litigation-prone business environment that today's corporate directors operate in makes it imperative that companies have effective information flows to their boards and that directors do their homework.

Board members must be knowledgeable about the company itself, the industry the company is a part of, the competitive landscape, the management of the company, succession plans, the firm's long-range strategic plan, and its prospects for the future. The business judgment rule, common expectations of what the duties of directors are, SEC requirements, and legal implications are just a few of the reasons why today's directors must be enlightened about the specific issues they vote on and about their general oversight responsibilities.

I'm not sure whether there ever was a day when the "mushroom theory" of directors was acceptable. But if there was, its time has long since passed. This ill-conceived idea holds that if you keep directors in the dark and give them some food and water once in a while, everything will turn out fine.

Like anyone else in business, directors need information to do their jobs well. But directors are in a peculiar situation. If your company wishes to improve the flow of information to its board, you should remember that directors are not full-time employees wholly immersed in the day-to-day activities of the firm. They have other positions, other duties, other demands on their time. The information that flows to directors relative to their board obligations must be pertinent, crisp, and as informative as possible. Directors have a limited amount of time in which to digest information, analyze it, and use it as a basis for fulfilling their responsibilities.

Before I discuss these various matters at length, I should point out that in the past 12 years I have had the pleasure of sitting on 13 corporate boards as well as a great number of non-corporate boards. The ideas that I have concerning information flow to the board do not reflect in any way on the boards that I have been associated with in the past--nor with those I continue to sit on--since they have performed this task in an exemplary fashion. My thoughts stem from research conducted after I was asked to write on this subject, discussions with other directors, and my experience in having spent a considerable amount of time interacting with corporate boards.

My idea of a board's role is simple. It should provide independent oversight, but it should be supportive. It should not be an "auditor." Nor should it be confrontational or feel that its mission is to provide "beneficial tension."

Each year when I went before the nominating committee that selected the board members at my old accounting firm, I stated, "The board's job isn't to run the firm; it's to determine that the firm is being run." Even though it's important for directors to be informed, they'll never know enough to make decisions on day-to-day operating matters that are better left in the hands of management. Boards can't micromanage.

There are many overall issues of corporate governance that are being addressed in today's environment that I could comment on, but I won't, since this article is directed at information flow. I do believe, however, that as we continue to sort through certain of the "macro" issues of governance, we will never achieve effective corporate governance if we don't have knowledgeable directors who know what is going on in the company.

What boards need to know

In a survey of corporate board practices by Korn/Ferry International, CEOs said the five areas their boards were most concerned about were: maximizing shareholder value; financial results; management succession; strategic planning; and long-term survival. All of these were ranked as extremely important (70th-plus percentile) by the CEOs of the 300 companies surveyed. All other concerns were not ranked higher than the 35th percentile in order of importance. Given these findings, I would suggest that information flow to the board should, at minimum, include coverage of issues the...