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Focusing board attention on management

February 9, 2019 Leave a comment Go to comments

My good friend, Jim DeLoach had two pieces published in January.

Both are full of good ideas and suggestions for boards, well worth reading.

They are:

·        Briefing The Board On Technology Matters

I differ from Jim and other advisors to boards on one paramount point.

Rather than trying to make sure themselves that everything is right, the board should focus its limited time on gaining comfort that it has the right management team in place, a team capable of getting things right.

The board only meets to discuss a limited number of topics a limited number of times each year. They cannot hope to run the company in a few board meetings, assessing new technologies or financial reporting.

Instead, they need to ask the questions that will help them assess whether they have reasonable assurance that management is making intelligent and informed decisions on matters like these – every day.

So, I think it’s better for the board to ask questions such as:

  • Are you, CEO, comfortable with the ability of the management team to identify, assess, select, and implement the new technologies that will advance the company? If so, why?
  • Are you, CEO, assured that intelligent and informed decisions are being made as a part of setting and executing on strategies, decisions that incorporate a solid understanding and appreciation of the full range of things that might happen and affect the achievement of objectives? If so, what gives you that assurance?
  • Are you, the management team satisfied that the internal audit team is providing you (and us) with the assurance, advice, and insight we need to be successful? If so, why?

What does this mean for practitioners?

  • Provide the board with information on the adequacy of management’s processes and capabilities, not just on specific topics.
  • Be ready to provide your professional opinions not only on the processes but also on the people involved in running the organization. If people are not up to the job, it is wrong to sit and watch failures from the sidelines.

I welcome your thoughts and perspectives.

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  1. Anonymous
    February 9, 2019 at 7:01 PM

    Norman, I have to agree. In the spirit of the Sarbanes-Oxley legislation, if nothing else, executive management should be able to positively assert that controls are effective.

  2. February 9, 2019 at 10:46 PM

    Norman I endorse fully your, what I might call, meta- questions. Satisfactory answers to these are indeed critical for Board assurance. I also believe, in the case of the Technology piece that Jim’s article highlights specific questions that may or may not need to be posed to obtain that assurance, depending upon the confidence the Board obtains from the meta- questions.

  3. February 10, 2019 at 9:27 AM

    I agree with you and I have commented on the quality of management in the past, including one instance in the conclusions to an overseas subsidiary internal audit report where we had concerns that the MD had such ‘strength of character’ that he could override any controls we could implement. Lucky we did as he subsequently diverted payments to the advertising agency into his own account to earn a few month’s interest.
    If you are going to make such comments though, you must have rock solid evidence. The more serious the allegation the more solid the evidence. That requires the internal auditors to ask the right questions and fully document the answers, filing copies of any evidence. The audit conclusions must reflect the results of audit work, and any opinions must relate back to the conclusions (IIA Standards 2450). You can’t subsequently criticize management if the audit report covering their objectives did not clearly set out the problems, if necessary in a confidential report.
    The IIA standards could be amended to place greater emphasis on the need to report on management’s ability although the governance section (2110) does contain some guidance.

  4. February 10, 2019 at 11:16 PM

    I would add one: is it possible to express a different opion then the opion of the board. Else you create organisations in which people follow there leader like blind sheep even when it is the wrong direction.

  5. Anonymous
    February 11, 2019 at 5:11 AM

    Norman, spot on at least in Malaysia context. Board members just follow for fear of losing their income and perks. If it is government link companies (GLC) board are politicians as rewards. Recent change of government in Malaysia, hope what you advocate will see the light here, guess just a matter of time. Board tends to be too dependent of CEO especially if there is trend of good performance worried to rock the boat.

  1. February 9, 2019 at 11:36 PM

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