5Qs for Every Corporate Professional: CimplyFive’s Five Qs to Measure Effectiveness of Information Flow to the Board of Directors

Effective board meetings depend on timely, predictable, and smooth information flow. While this is true for all meetings where decisions are taken, in board meetings this assumes critical importance as there is a statutory duty cast on the members for specified decisions and in addition, many of the members could have non-executive role limiting their time to prepare for these meetings.

Recognising this, the regulators have specifically mandated the Independent Directors in a separate meeting, without the presence of promoter or other non-independent directors, to review the adequacy and timeliness of information flow. Based on practical experience, this article identifies five distinct elements that measures the adequacy and timeliness of information flow to the Board of Directors for their decision making.

  1. Is the information flow predictable and timely to help directors plan and give adequate time and attention to prepare for the meeting?

Indian law specifies a seven-day prior notice to the directors for the board meeting and circulation of agenda papers with the notice. In most cases, this seven-day period is adequate for preparation. This presumes that the agenda note circulated is complete-containing not only all the agenda items tabled for discussion, but also the proposal, the proposed resolution and the background material need for taking an informed decision. Any deficiency in the agenda note circulated can lead to ill informed decision making that would be either sub-optimal or detrimental to the company.

  1. How is supplementary information shared with the directors after the initial agenda is circulated?

In an ideal world, there is no place for supplementary agenda items or supplementary information to be sent to the directors after the original note is circulated. In practice, where corporate teams work under tight timelines, for some agenda items like audited accounts, M&A transactions, or final negotiated agreements, these documents may be only available only after the initial note is circulated.
A recommended practice in sending the supplementary information to directors is to mark them as supplementary, highlighting the date and time when it is shared, and where feasible integrate it with the original document so that all participants can refer to a single document with uniform page numbers that helps to conduct an effective meeting.

  1. Is there a specific person identified/u> to whom request for additional information or queries on the board docket circulated can be made by the Directors?

Company Secretary is the person identified by the statute for circulation of agenda items and coordination for the board meeting. In large corporates where multiple people are involved in the board meeting and the short time between agenda note circulation and the meeting date, defining the process for seeking additional information or identifying specific person who can be called to handle queries on the agenda notice circulated is essential for completing the communication prior to the meeting for enabling an effective and efficient board meeting.

  1. Are the sections on business decision, governance responsibilities and statutory compliances grouped together and presented to the directors?

A typical board agenda note is of 100-page length and in certain meetings where specific transactions are approved, or in listed companies where a list of predefined agenda items are to be considered, the note can run into a few hundred pages with more than 20 agenda items. In these companies, it may be appropriate to group the agenda items into sub-categories like administrative items like confirming presence of quorum, approval of prior meeting minutes, granting leave of absence etc., items to take note of, approval of financial statements for the quarter/year, minutes/recommendations of sub-committees, business presentations for review and statutory items to be considered. This classification apart from helping with better time management during the Meetings, can also help directors with specialisation skills to actively participate in the set of items grouped together by handling all the related items together and leveraging their inter-relationship.

  1. What is the frequency of new agenda items that are placed in the board meeting with the permission of Chair without prior circulation of the documents for decision making?

Only in the rarest of rare cases should agenda items be taken up in the board meeting without prior circulation or intimation to the directors with the permission of chair, as the time provided to the directors to consider the issue and take an informed decision is not provided. Ideally this should be business-related decisions and not be related to governance issues like Related Party Transactions or statutory issues requiring board approvals that can be pre-planned. Frequently introducing agenda item/s reflects poor flow of information and could be taken up as issues requiring remedy.

Like in all elements of corporate governance, good governance goes beyond complying with the letters of law and adhering to its spirit. Intent is a key element in this, and seeking regular feedback goes a long way in establishing both the intent and ensuring optimum information flow that is timely and effective for taking good decisions.

2021-08-27T14:55:01+00:00
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