Let's talk about information management. This is an element of governance advantage where the CFO is uniquely positioned and qualified to add significant value and provide massive insight. The goals for board reporting include information that is focused, credible, insightful, and regular. Let's look at each of these focused information is composed of the right information presented at the right level, it follows the Goldilocks principle, not too much, not too little, but just the right level. the right level of information allows directors to keep their fingers on the pulse of the organization. It allows them to raise pressing and challenging questions that stretches the thinking of both management and their fellow directors.

It's not easy to present information that teases out these sorts of discussions. There's a lot of discussion about how much information should be supplied To the board and the amount of resources it takes to assemble that information. I think more importantly, the CFO should spend more attention on ensuring the right information is communicated, which is much different than communicating all information. In fact, directors typically want to digest information about the business in the same way as management does, albeit with a focus on the material issues. When you use a materiality threshold, a lot of the minutia falls away it can be aggregated. Where management tends to get off track is when it's preparing separate and special board reports.

Trying to cover off explaining all the minutiae, for example, often receive information that's presented in nominal dollars. Sometimes even cents are shown, particularly when a report has just been pulled off a system and then circulated to the directors. If you want directors thinking in terms of hundreds of thousands of dollars, or perhaps millions of dollars, then don't show them the 10s the hundreds are Given the thousands in your reports you send them it's distracting to the directors and only encourages micromanagement. Instead, round your dollars to the level of which the directors should be thinking and discussing information. One report that I found particularly useful as an audit committee chair is where the CFO will include a summary of the change in account balances to the comparative period. And I've taken a picture of what this looks like in my board book to give you a sense of what I mean.

This is done for each of the financial statements, and typically at the same level we use for our gap financial reporting, and I'll tell you why I like this schedule. Personally, I've yet to see another schedule that immerses me as well in the accounting quite as efficiently as this approach. Generally speaking, by providing the schedule with my quarterly board book answers most of my questions about what's in the account or explains the results achieved during the period. It answers questions like you know, what is included in receivables and why have they increased What is included in the accrual accounts and why have they changed? Why is revenue or expenses higher or lower than last year? What has been purchased with capex spending so far this year?

This saves me time from having to ask these sorts of questions and helps move the meeting time along considerably faster. In my mind, it's also key internal control over financial reporting, as it forces management to justify each and every bounce in the financial statements to themselves. First, something to consider for your CEO CFO certification internal control framework. As the CFO, you can't anticipate every rabbit hole that a director will go down, nor should the board feel compelled to go down every rabbit hole. To avoid having boards going down rabbit holes, the information they receive must be both credible and insightful. So let's take a moment to talk about those qualities.

When management loses credibility with the board its attention Trouble shame. As the CFO, I often argue that credibility is your most valuable asset, but that is equally true of all management positions. If you don't have credibility, then your board will trust you. And then they will question all the information they receive. And unfortunately, this behavior of questioning information stifles strategic thinking, when the board loses the ability to add value through strategic thinking, and is only adding nominal value through compliance oversight, the overall governance advantage is greatly diminished. The second source of rabbit holes is when information lacks insight.

When this happens, boards will ask all sorts of questions of management seeking enlightenment that they fail to get from the information that they've been provided. Insight comes from information that gives directors knowledge and wisdom and you don't get this one a report is composed of data pulled from the system. A smart CFO and CEO We'll understand the strategic drivers of the business and establish ways to measure and communicate the health of these drivers. These measures themselves should be robust and beyond just Profit and Loss principles. A balanced scorecard are helpful in this regard. Establish a handful of measures that are practical to maintain, but give both management and the board insight, insight into the current and future performance supplemented with measures of the broader external context.

For example, a handful of industry statistics or competitors performance provide directors with invaluable insight. The last important goal of board reporting for the informer to consider is one up regular communication. With three months between quarterly meetings for many public companies, there are large information voids that can form these voids. disengage the directors from the business A smart CEO and CFO will work on eliminating these voids in ways that don't require constant board meetings. The most common way of dealing with this is by circulating a monthly update report. Some organizations call these flash reports.

These most often include summarized monthly financial indicators, which should be supplemented with other key performance indicators. Also consider the following principles when you are circulating this information, format it so that it looks pretty and it's easily digested by the director in the absence of having a manager there to answer questions. Keep in mind that many directors will be reading this information on a handheld device in airports or wherever. So ensure that the reports are self explanatory and legible. Secondly, this would include having a short commentary attached. The CFO should include a commentary that explains performance and highlights a handful of key drivers.

I like seeing a paragraph or two right in the email itself that identifies the key one or two insights that I should be getting from the attached report. Don't make the directors work so hard to draw their own conclusions. And then thirdly, the CEO should contribute a couple of points as well about progress he or she is making on items arising from the last meeting. If any deviations arise from the plan, then these should be communicated immediately to the board. Directors hate surprises, particularly bad ones, and it makes them lose faith in management when it happens, because it's indirectly reflecting on their own abilities to direct and protect as a governance body. The board leadership role of informer is an important role, one that should be not delegated to your staff or your assistants unless you're absolutely sure that the information they're providing is meeting the objectives of focus, credibility, insight and regularity as we discussed in this lesson, as we finish remember three important ideas.

First, the former role is vital to the board. The information circulated by management must educated and immerse the board in the business just as much as it needs to build trust. The information provides directors with important context to think about the business and ask the right sorts of probing questions of management. To be useful to the board. The information must be focused, credible, insightful, and regular. A failure on any one of these characteristics opens up rabbit holes and diminishes the value the board can provide because it focuses them on matters that should be dealt with by management.

And then finally, content is important. Board reporting shouldn't be something extra that management does. It should be as valuable an exercise for management to undertake for its own internal control and strategic thinking as it is for the board's understanding. In our next lesson, we're going to look at the role of the facilitator