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Hello and welcome to this Board Intelligence Podcast – ‘SMR: Have You Done Enough?’
I’m Niamh Corbett, and I’m joined by Paul Mumford. This podcast is a recap of our recent webinar of the same name.
What is on the agenda?
Today we are going to be discussing the impact of SMR on board reporting. We will look at the impact SMR has had so far, some of the challenges we are seeing companies facing at the moment, and finally, how we can address those challenges quickly and effectively.
Some listeners will have already implemented SMR, and some will have it introduced in 2018, but what you all have in common is the pressure of the regulatory focus on the boardroom and the challenge of how the board papers feed into this.
How has SMR impacted organisations so far?
Now what has the impact been so far? Well, SMR was designed to strengthen the accountability of senior managers in light of the financial crisis. And so the regulator designed a series of measures which (at a high level) made individual responsibilities clearer and placed a greater burden on the individual to ensure they were delivering on those responsibilities. We have so far seen companies undertaking a lot of work around defining those responsibilities and defining what topics therefore need to go to each board, committee or management forum in order to achieve that.
But the aspect that has so far received much less focus is how, for each topic that goes to one of those forums, we can provide the information needed to deliver those responsibilities effectively. It is the author who is responsible for the information reported from their area, and they are responsible for giving the board the right level of detail. But in our experience, many aren’t sufficiently equipped to do this. They may not have written board papers before, or they may not know the appropriate detail that needs to be provided to allow the board to adequately challenge. So I would encourage you here to ask yourself how you are helping report authors and readers to fulfil their duties under SMR and educate them on how to provide effective papers.
What challenges can you face under SMR?
To help you think about that we wanted to share with you some of the common challenges companies are facing at the moment. These are a collection of challenges that we have seen through working with clients who have implemented SMR, clients who are preparing to implement in 2018, and through conversations with the regulators on some of the challenges they are seeing in the market.
So what are these challenges?
- We need to make sure board packs are concise and focussed: A common reaction to SMR has been to provide more information to make sure the bases are covered, but the impact of this deluge of information is an added risk that the reader can’t grasp the key messages from the report.
- We need to make sure packs are comprehensive: A lack of structure in board papers can also make it difficult to see at a glance whether everything that should be included has been, leaving directors unsure whether they are missing things they need to know.
- They should be insightful: The increase in the amount of information that we are seeing in response to SMR hasn’t in all cases led to an increase in the insight provided as well. A core facet of SMR is providing the necessary information, but also providing the ‘so what?’, outlining what we are doing response, and taking accountability for addressing any issues raised.
- Board papers should have a clear purpose: The reader shouldn’t be left wondering why they are reading the paper, it should be clear up front why that paper is coming to that forum, and what is expected from the reader in response to it.
- Board papers should also stimulate the conversation and debate needed in the board meeting: The purpose of the board pack is to enable that conversation and that challenge, and it needs to focus the board on the areas where they can add value, so they are not left to raise questions just to evidence that they have discussed an issue.
- And of course, we want this process to be efficient. SMR has only increased the burden on report writers, and on the secretariat team, and we want to help reduce that burden for everyone involved.
How can you address these challenges?
These challenges can’t be solved overnight but we do know that there is a pressure from the regulator to address these quickly.
So we want to share with you a couple of principles that we have seen go a long way to addressing these challenges in a short period of time, and what that means for board reporting under SMR.
We like to think about this in terms of the reporting cycle: what we consider to be the board reporting ecosystem and the critical workflow. It is a structure by which you can help report authors discharge their duties under SMR, help ensure that the right information goes to the board, and help make sure that the board reporting process is as efficient and effective as possible. There are four key steps to the process:
As we go through this, hopefully you will be able to see how you might start to apply this to your own board papers and processes.
Step 1: Planning
The ecosystem starts by identifying which items should go to the board, which should go to committees, management forums, etcetera. It’s important to ensure that there is no unintended duplication or items missed, and that the board is focussing its attention in the right places.
To help with this we use the ‘Six Conversations’ model – these are the 6 key conversations across Strategy, Performance and Governance that boards should be having, reflecting their dual role of steering and supervising. We would encourage you to use this to help you board think about where they are currently spending their time, and to contrast that with their priorities and where they feel that they should be spending their time. This will then feed the annual calendar and ensure agendas are focussed on the items needed for the board to be effective.
Once the agenda is in place, the board pack can then set the board up to succeed and help them discharge their duties effectively.
Step 2: Briefing
The absolutely crucial area where we see so many board papers going wrong, is right at the beginning in agreeing the brief for the paper. A clear brief can make sure that the right papers are being written, that they answer the questions on the board’s mind, and that they provide, up front, the key points that the board needs to know.
We see the executive summary as a crucial part of this briefing process and we have designed our approach specifically to help this. A good executive summary pulls out all of the key information from the paper, focuses the board’s attention in the right places, allows them to know where to challenge, and is very clear on what input is sought from the board.
Under SMR, it is essential that papers provide a clear direction for the reader, and a concise summary of the key points, to enable them to provide the challenge required.
Step 3: Drafting
Once you have agreed the brief and Executive Summary for the paper, how can you write a high quality paper that answers the key questions on the reader’s mind and allows them to fulfil their directors duties.
We advocate using a question and answer approach, and over the years have seen a consistent set of questions that should be addressed within each type of paper. Providing the answers to those questions is crucial under SMR because the regulator is scrutinising papers to see evidence the board had sufficient information to make a fully informed decision.
Step 4: Reviewing
Once you have produced your board pack, how do you know whether your board pack stacks up under SMR, and if it doesn’t, what areas let it down?
We have developed a methodology to evaluate and benchmark board packs. We identify problem areas and requirements, showing the secretariat where they need to focus their time and attention.
The approach covers the four critical areas for an effective board pack: scope, style, impact and efficiency:
- Scope: Does your board pack cover the right scope of information, ensuring there is a holistic and balanced story, and one that doesn’t create blindspots for the board? Particularly under SMR, it is important that the right items go to the right committees.
- Style: Can you clearly identify the key messages, in the right level of detail, and that there is adequate insight and accountability from management?
- Impact: Does your board pack stimulate the challenge and debate required from the board, in the right areas?
- Efficiency: how smooth is your board reporting process, from writing individual reports to delivering the final pack to the board?
How can you be successful under SMR?
Now you see how this all fits into the ecosystem, what steps do you need to take to ensure you are successful under SMR:
- Ensure you plan appropriately to have the right topics going to each forum. Particularly under SMR, you should make sure you apply equal scrutiny across all aspects of your business – covering topics that are often overlooked (like People and Culture, or Customer) not just focussing your attention on the usual topics of Finance, Risk and Compliance.
- Ensure authors have a clear brief from Exec sponsors on the paper required, to enable them to draft it appropriately. We advocate using templates and executive summaries that provide guidance to the author on the requirements for each different type of paper. We also advocate training report writers so that they understand their requirements, and understand how to write effective papers with the appropriate level of detail. All of this can help senior managers, who are either authoring or sponsoring reports, to meet their requirements under SMR, and can also set the board up with the best possible opportunity to meet their requirements as well.
- As a Company Secretarial team, you should review your papers regularly and benchmark against best practice under SMR, or alternatively use an external party to provide an independent benchmarking.
You can download the accompanying slides by clicking the blue button below. Do get in touch if you would like any support or more information on any of the topics we have discussed, or if you would like to find out more about how Write, our reporting toolkit, can support companies in producing effective, compliant reports.