Can boards be effective and efficient whilst remaining transparent?
Stakeholders of organisations require a level of transparency from the board. But key questions around espousing board transparency—amidst its set of challenges—remains: does transparency impact the decision-making functions of the board? What are the gains to be had from being transparent? Finally, how can companies, both public and privately-held, go about committing to this core component of good governance?
We discuss these below.
DEFINING BOARD TRANSPARENCY AND ITS TWO MAJOR CHALLENGES
Board transparency provides visibility into the activities of the company’s board of directors. It provides shareholders knowledge and insight into an organisation’s corporate governance practices so stakeholders can make an informed assessment of directors’ individual and collective roles and performance.
This idea might seem slightly problematic. Let’s explore some of the challenges that come about when transparency is put to practice.
1. Maintaining Confidentiality
Boards often need to discuss confidential information. If highly-sensitive board deliberations (on compensation or litigation, for instance) or company data (such as strategic plans) were made publicly accessible, board members and senior executives may hesitate to discuss and share information for fear of increased and unjustifiable scrutiny, or the repercussions of information falling into the wrong hands.
In parallel, boardroom transparency can potentially impact the shape and substance of board deliberations. Board members might be less inclined to voice their input, challenge assumptions, or provide feedback. These can impair the decision-making process of the board.
To overcome this particular challenge, one viable solution would be to make prudent use of executive sessions for highly-confidential topics, issues, and discussions. Additionally, the board should establish clear protocols around board-related information and exercise good judgment on what can or should be shared publicly and what needs to be strictly confidential.
2. Resistance from Board Members
Board member resistance can be borne out of a desire to maintain the status quo, a lack of information systems and technology infrastructure to implement transparent processes, or the inability to appreciate its short and long-term benefits. In many instances, these reasons are correlated.
As in most cases, education on the role of transparency in strong corporate governance is key. Once board members appreciate the gains to be had, they may be more receptive to availing of technology and information platforms (such as a board portal solution) to better and seamlessly meet the board’s transparency objectives.
5 BENEFITS OF BOARD TRANSPARENCY
It’s easier to make the case for board transparency when boards can see that the benefits outweigh the obstacles and risks.
Let’s take a look at 5 clear benefits of board transparency.
1.) Greater effectiveness
Because relevant stakeholders have access to information and insight into board activities, transparency enables board members to be more responsive to their issues and concerns. Board members can be more in sync with their needs and appreciate their perspective. This inevitably factors into their decision considerations. It also opens up communication channels to allow them to explain why certain decisions are being/were made.
2.) Creates a culture of trust and respect
Board transparency helps establish the organisation’s reputation as one that takes good governance seriously — which can affect the company’s ability to compete in terms of acquiring talent, forming strategic partnerships, and retaining healthy stakeholder relationships. These can translate to gains in growth and value-creation.
3.) Enhanced accountability and compliance
Board transparency holds directors accountable for their actions. In this sense, meeting preparation, participation, and engagement become imperative for board members. It prevents the board from just being a mere “rubber-stamp” body.
This also places greater pressure on the board to adhere and comply with regulations and applicable laws. It does, to a strong degree, necessitate compliance.
4.) Prevents conflicts of interests and abuse of power
Transparency reduces the risks of conflicts of interest and the abuse of power that can come along with it. It provides a “check and balance” to ensure that board members are acting in the best interests of the company, shareholders, and wider set of stakeholders.
5.) Greater investor confidence
Board transparency helps ensure other components of good governance fall into place, such as accountability, compliance, security, and efficiency. And the benefits from having a good governance framework embedded into organisations include “significant bottomline benefits, better credit ratings, increased access to capital, improvements in operational efficiency, and reduced risk.” All of which leads to greater investor confidence and shareholder return.
HOW TO ACHIEVE BOARD TRANSPARENCY
1.) Define what transparency means for your organisation.
Come to a consensus about what transparency looks like for the board. What information should be shared? How and when should it be shared? Develop guidelines that are practical, sensible, and realistic.
2.) Establish a clear policy on conflicts of interest.
Require all directors to disclose any potential conflicts before participating in discussions or voting on related matters. This prevents any one individual director or board member from acting outside the interests of the organisation. This also helps maintain confidence in the integrity of the board’s decision-making process.
This is where an “interest register” might help. This details all of the personal and business interests of board members, specifically those that could lead to a potential or real conflict of interest. It should be available to anyone who asks.
3.) Communicate, communicate, communicate.
Whether this involves publishing a newsletter from the board or an annual report, or circulating meeting minutes, it’s important to keep interested stakeholders informed about the activities, decisions, and/or important changes implemented by the board.
Be ready to field questions and requests for clarification or supplementary information, and be proactive as well about responding to these.
4.) Utilise board portal software or similar digital platforms.
Timeliness is a key aspect of transparency.
Therefore, board transparency involves the disclosure of information on board activities, processes, and systems in a timely manner. Additionally, the information should be delivered in a form that’s acceptable and understandable to stakeholders – including regulatory or legal agencies. The use of a board portal makes sense here.
a. How Board Portal Software Can Facilitate Transparency
i.) Board portals can function as a highly-secure, centralised file repository, enabling both external and internal auditors/observers to have access to board information that they need, when they need it. All pertinent records and files associated with specific board meetings are available without spending hours rifling through voluminous paper-based board packs or emails and attachments.
With board portal solutions, board files such as meeting minutes, agendas, or board packs, are retrievable in a matter of clicks, not hours. This facilitates the sharing of information.
ii.) Meeting activities can also be digitally archived. Once the meeting is adjourned and all documentation is finalised, the agenda, board pack, meeting minute then become immutable documents for referencing board decisions, resolutions and discussion topics — making it easier to determine if actions, decisions, and processes have been proper and above-board.
iii.) Voting and signature trail. Decisions sometimes need to be made in between meetings. Voting and e-signing via board management software provides an electronic trail that adds a dimension of transparency for monitoring and auditing board approvals and decisions.
TO CONCLUDE —
To put the principles of transparency into play, a strong commitment to corporate governance from the board is required. Half-hearted resolve can be perceived as playing the “optics” game, which can be disastrous for the companies they lead.
Many might view board transparency as a one-way street. However, the reality is that it opens conversations around board effectiveness, accountability, and trust. It’s easy to focus on its challenging demands but one shouldn’t overlook the other side of the proverbial coin: transparency presents the opportunity to amplify the board’s contributions. Boards who are well-functioning will appreciate it from that lens and rise to the occasion.
Carissa Duenas