In this lesson, we're gonna have a discussion about what boards talk about. This can be framed by the board agenda, which is the primary tool used by our conductor to ensure discussions focus on all the important and relevant matters of the board. He or she who sets the agenda controls the conversation. And I'm not advocating that the agenda should be set unilaterally by either management or the board. In fact, just the opposite. The agenda is typically set through a joint conversation.

In the case of the board agenda, this is a conversation between the CEO and the lead independent director. In the case of the audit committee, this should be a conversation between the CFO and the chair of the audit committee. With that in mind, let's talk about each of these agendas and the flow of each of these meetings. The CFO is often management's lead when it comes to the audit committee. Most public companies in North America will convene for meetings of the audit committee each year to review quarterly results, though there may be special matters that require additional meetings. audit committee meetings can last anywhere from an hour to half day in length depending on the amount of materials to discuss.

As the audit committee exists to review a lot of very detailed compliance related materials. It's important to ensure that the right mix of written reports for management are available to complement and expedite the discussions during the meeting. Let's review the agenda presented here briefly. After the agenda and prior committee minutes are approved management will generally provide a review of the financial statements. Accounting memos should be provided to the committee members ahead of the meeting to discuss any important gap issues that have arisen during the quarter. The CFO and his controller are on hand to answer questions as the audit chair.

I like to encourage all committee members to submit their minor edification comments to management. I had a The meeting, but often discussions will arise on how we should discuss various performance related matters. Particularly in the management discussion analysis and the press release. The auditors will present their report next, which contains their findings from either their quarterly review, or the annual audit. And again as the audit chair, I like to talk with the audit partner ahead of the meeting to discuss any specific matters of interest to streamline discussions during the meeting. We then typically excuse management and talk to the auditors in camera that is in private.

This frank discussion gives the directors independent insight into any matters of contention and of management's performance during the engagement. Now, I've had auditors who have been viciously critical of management during these in camera sessions, which gives us something to talk about and deal with that would never have surfaced in the absence of those sorts of discussions. When management rejoice the meeting, the committee approves the financial statements mdna and press release for Board approval. The internal audit update is often another interesting discussion of the committee because it gives the committee another point of reference into corporate performance. I really like this role, though not all of my companies have an internal audit function given their size. But if your organization can afford an internal audit resource, it can be an invaluable source for the audit committee and the board.

It can also help management establish a mechanism for continuous improvement. The remaining items on the list are typically updates from tax and matters related to risk management. Different companies handled the risk management agenda differently, some allocated to the audit committee, others deal with it at the board level and yet others set up a separate risk Committee. The important point is that it gets dealt with is discussed and is continuously monitored. The board agenda tackles all the material business matters, even when a separate committee is set up such as an audit committee or compensation committee. those committees will typically present or even prepare a written report summarizing their deliberations.

If there are matters for Board approval coming out of a committee discussion, the committee chair will make a motion seeking the approval of the committee's report. And at this time other directors can ask questions of the committee. important matters will get documented with a legal resolution and resolutions of the board are moved, seconded, and voted upon. resolutions are typically used to document significant board decisions and may either be included in the minutes of the meeting, or as a standalone resolution. resolutions would be used for such decisions as authorizing an acquisition a dividend a buyback a new financing or setting up a new company. Other matters of general importance are discussed at the board itself.

On your screen, you'll see a list of the typical board agenda items I often see. Let's walk through this just to give you a sense of board conducts its business. Typically there's a bit of preamble to appoint a secretary for the meeting and to take minutes and ensure that do notice of the meeting has been made. In other words, that materials have been circulated in advance of the meetings allowing the directors to prepare. taking minutes is not only a legal requirement, but it provides an important synopsis of the discussion. Now, it's totally a legal debate as to how much detail is captured in the minutes.

Lawyers tend to prefer a less is more approach. But separately, I like to encourage the Secretary to capture the action items as the discussion ensues, and then have the action item list separately attached to the minute meetings. The second order of business is the approval of the agenda as circulated and this provides any directors with one last opportunity to add any matters that they want discussed at the meeting. A good CEO and chair will ensure that this has been dealt with in advance and that all relevant matters are already incorporated into the agenda and any supporting materials prepared ahead of the Meeting, some boards will start the meeting with an in camera session, one without management or the inside directors present. This is helpful to establish the objectives for the meeting and ensure that the directors are aligned on all the various agenda matters prior to the discussion.

Some boards will hold off on the in camera session until the end of the meeting, and yet other boards may do both. But the important role of the conductor is to ensure that an in camera session is included on the agenda, even if there's nothing specific to talk about. These are often the most Frank and important discussions of the board of directors. This is likely the only opportunity that the directors can talk amongst themselves without management being present, which helps them present a united front. The next item of business is the approval of the minutes from prior meetings. This is generally a formality and goes pretty quickly.

However, if your secretary has been diligent and attach the action item list from the last meeting, that a discussion can be had about the disposal of those items at this time. And I find this to be a nice segue between meetings. Then we get the CEO report, and I find the CEO report comes best when it's a conversation between the board and the CEO without any other management representatives present, though admittedly practice does vary. This enables the CEO to speak frankly about his own people and their contribution to performance. The CEO report is best when it's a frank discussion of the material challenges confronting the CEO. matters pertaining to summarizing performance or the activities underway aren't as useful to the board as those can be captured in written reports.

The more the CEO can immerse the board in his world during this conversation, the better the CEO should answer the following questions in their comments. What is the current state of the business? What is worrying you the most right now? How are you prioritizing competing demands for resources And is performance deviating from plan? And if it is, what are you doing about it? And what should we expect during this meeting and in meetings to come?

Help us readjust our expectation? By addressing these questions, the board's thinking is realigned with the CEO. It gives the board an opportunity to probe the CEOs thinking and advice is appropriate, the board will be able to evaluate the CEOs performance in large part through these sorts of interactions. Next, I typically get operating updates from all the various business units. A strong CFO will include in the board package and analysis of operating performance, including a suite of measures and indicators that helps the board evaluate the execution of strategy. A director should reflect on the results in advance in the meeting and come to the meeting prepared to ask probing questions of management, the type of monitoring questions that a director can Ask himself prior to the board meeting to help repair include some of those that are listed on your screen here.

If you can't answer these questions based on the information provided by management, then these are really good questions that should be put to the business unit managers to answer if the managers are to provide presentations to the board. The content and commentary should focus on the current state and the future outlook as opposed to past performance which can be captured in the written report. There's an important benefit to having the business unit managers present during the board meeting, in that it allows the board to continually assess the bench strength of the leadership team. The interaction between these managers and the board is mutually beneficial for the managers. It gives them firsthand insight into the thinking of the ownership group rather than getting a second hand through a debriefing with the CEO. And for the board.

It helps with succession planning discussions. The audit committee would typically present its report to the full board next culminating in emotion In a vote, having the financials approved by the Board prior to any other resolutions helps provide important context, context that will help the board in making any decisions pertaining to matters of capital allocation, which is the next item on the agenda. While I have labeled this item as capital allocation on our agenda, you are unlikely to see a called this in practice. And the reason is because capital allocation deals with a number of separate agenda items, all of which pertain to capital allocation in my mind. capital allocation is the process used by the board to determine what is you do with any surplus cash flow, and if there's a deficiency in cash flow, the discussion becomes one of where does the money come from to finance this deficiency.

This is perhaps the next most important discussion a board should have after picking the right CEO. The short version of capital allocation really boils down to measuring how much free cash flow was generated by the business and then determining what are the best uses of that free cash flow. It might be to fund capital expenditures, acquire another business, pay down debt, pay dividends to owners or to buy back our shares. So, what you see on many board agendas are resolutions to approve things like dividends, a resolution to approve a share buyback a resolution to spend capital a resolution to pursue an acquisition or divestiture, all of these very important decisions pertain to matters of capital allocation. You might wonder if these matters are so important, shouldn't they be dealt with first? And the answer is, no, they can't.

The directors need immersion into the current state and the thinking of management before they can use their judgment to make these sorts of decisions. So that's the logic around the placement of these items on the agenda. For significant items, say for an acquisition or a new offering. Most boards will have entirely separate meetings dedicated to looking specifically at Those urgent matters. However, regular meetings and updates for management still provide important context for making those decisions. Another important source of context comes from the strategic plan, and we'll learn about that more in the separate lesson.

Which brings us to the end of our agenda. If this feels like a rather long list of agenda items we've covered in this lesson, well, you're right it is the board meeting can range from a few hours to a couple of days in length. Depending on the scope of this agenda. A way of taking a pragmatic approach to setting the agenda of the board or its committees is to develop an annual meeting planner, sometimes called the 12 month agenda. This means that once a year the board considers and agrees upon as a group on the matters that should be discussed over the course of the coming year. The chair and the CEO can then sit down and begin structuring the regular meeting agendas around this list of discussion areas.

The board leadership role of conductor would look at this list of discussion areas and allocate them to One of the five areas we previously discussed urgent concerns people strategy, operating effectiveness and compliance. Board attention and discussion should be prioritized to those at the top of the list. Urgent concerns people and strategy. The board needs immersion in the operating effectiveness and compliance matters to not only fulfill fiduciary responsibility, but as context for decision making. However, this immersion can often be achieved through regular reporting and offline discussions, which helps alleviate taking up valuable meeting time. This is where the board leadership role of informer is invaluable.

Let's probe that more deeply in our next lesson. In this lesson, we cover three really important points when it comes to the conductor's role to set the agenda of the board and its business. The audit committee is probably the most relevant to the CFO. The audit committee chair and the CFO will jointly strive The committee agenda to ensure an efficient review of financial reporting, audit, internal audit, tax and possibly risk management matters if not dealt with elsewhere. The board's agenda is set by the board chair or an independent director and the CEO. That is tier two first set context and establish a common understanding of the current state.

And then secondly, to facilitate a discussion about capital allocation. Even in a nonprofit and a government governance context, capital allocation remains one of the highest most important discussions a board can have. And finally, the business of the board is broad and spans between meetings. The development of an annual meeting planner, using communication mediums outside of the boardroom are both important mechanisms for engaging and immersing the board throughout the year. It also helps with setting agendas that focus discussion time on matters of substance and importance while still addressing The fiduciary responsibilities of protecting the ownerships interest. Let's pick up this discussion in our next lesson.