Ensuring adequate and accurate reporting to the Board is one of the most important elements of governance.
But who makes sure that performance reporting provided to the Board is accurate, complete, timely, and free of bias?. Management prepares these reports, yet conflicts of interest, undocumented assumptions, and selective disclosures often make the process vulnerable.
This raises a critical governance question: how can Boards be confident that what they receive truly reflects reality? Here are some ideas worth exploring:
- Establishing a Board/Corporate Reporting Policy that sets standards for accuracy, completeness, timeliness, and integrity.
- Implementing controls over reporting processes, similar to financial reporting, but extended to non-financial KPIs.
- Requiring that assumptions, methodologies, and exceptions be documented and acknowledged by the Board.
- Involving the Nomination & Remuneration Committee (NRC) in scrutinizing performance metrics, especially when it drives executive evaluation, remuneration, and incentives.
- Considering independent assurance (internal or external) for critical non-financial metrics.
- Rethink the need to establish reasonably Independent functions on corporate/enterprise level to take on this challenge and ensure proper control and check and balance exists. these functions used to be common among majority of reputable, listed companies.
Board members should also challenge management with questions such as:
- How do we know this information is complete and not selectively presented?
- What controls exist over the data and calculations behind these reports?
- Which assumptions, exceptions, or judgment calls influenced the reported outcomes?
- Have these methods been formally reviewed, and by whom?
- How do we ensure that executive incentives do not distort the integrity of reporting?
Part of effective governance is ensuring the Board receives reporting that is transparent, reliable, and complete so that decisions rest on a sound foundation allowing for quality, fair, and sustainable decisions to be made