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Avoid corporate disasters

Practically every week the City resounds to the rattle of stable doors closing. It might be the collapse in a share price, the forced departure of a chief executive or the discovery of an accounting error.

On all these occasions it is difficult for the average shareholder to avoid asking a silent, exasperated question: ‘Why on earth didn’t they spot this problem earlier?’

It is worth recalling the origins of the Higgs report lay in a number of corporate disasters where the part played – or not played – by the non-executive directors was called into question. And it is within this report that we can now find answers about how potential corporate disasters might be headed off in the future.

Much of the attention given to the report so far has focussed on personalities, boardroom relationships and corporate governance. There is another very important element which is in danger of being overlooked: the quality of information available to non-execs and, implicitly, to the board as a whole.

After the hue and cry about the report has died down, what we are faced with is something of a revolution in the information requirements of the board.

What is needed is a simpler presentation of key information which enables directors to cut through to fundamental issues.

Board directors need to ask themselves a few simple questions before deciding what kind of information they really need.

For example: ‘Do I really understand the financial performance information in the monthly board report, or is it just an impenetrable wall of numbers?’

‘Do I know what our key performance drivers are and how they link into our bottom line?’

If any of the answers to these and others is no, then, whether these questions are being put to an executive or a non-executive director, it is practically impossible for them to fulfil their roles effectively.

So unless directors pay heed to this part of the Higgs report, corporate governance may improve, but actual corporate performance may not.

  • Robert Bittlestone is managing director of Metapraxis, a management consultancy and software group.

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