Board Reporting

Principle 4: Board reporting and performance

Each organisation should have a comprehensive reporting and performance management system in place to ensure organisational effectiveness and efficiency. It is essential that directors are provided with timely and accurate financial accounts to ensure effective decision making can occur.

In addition, the board should review the directors' individual and collective performance, including the effectiveness of the chair, to ensure they are discharging their responsibilities against that of the stated objectives. Ensure a board and individual director development program is in place, including mechanisms to respond to non-performing directors.

An effective system of reporting and performance management should include:

• comprehensive and complete financial accounts
• review and consideration of the accounts by an audit committee
• ensuring the independence of the organisation's external auditors
• directors and board committee members being knowledgeable, well-briefed and informed having access to the appropriate information or advice when required, and being provided with the opportunity for continuous improvement and education
• a board and director performance evaluation system
• an alignment between key performance indicators and the strategic objectives as outlined in the organisation's strategic and operational plans.

Principle 4.1:

That the board should ensure its officers and directors have appropriate insurance cover.

Commentary and guidance

It is essential that all directors and officers in an organisation have the appropriate liability and indemnity cover no matter what the purpose or structure of the organisation (for example, not for profit), as once an organisation starts incurring debts and liabilities, directors are potentially liable to provide for any losses incurred.

Principle 4.2:

That the board should ensure all new directors undergo an appropriate induction process.

Commentary and guidance

The induction process should ensure all directors have:

• an appropriate level of knowledge of the industry in which the organisation operates
• a clear understanding of an organisation's business operations
• a clear understanding of the organisation's financial circumstances
• a clear understanding of the organisation's strategy and direction
• a high-level knowledge of the business risks that may affect the organisation's success
• access to relevant background information.

Management should provide a briefing session to all new directors once they have had time to assess the information just listed. This will allow them to address any concerns or queries they may have regarding the organisation. Continuous education and professional development programs should be made available to directors as necessary.

Principle 4.3:

That the board should ensure that a director can access independent professional advice if required and that this is appropriately protected with a deed of access or similar.

Commentary and guidance

Board directors and board committee members should be entitled to obtain independent professional or other advice at a cost to the entity on predefined terms. These rights should be documented and provided to directors and committee members. Board directors and board committee members should be entitled to obtain certain resources and information from the entity. These rights should be documented in the deed of access or similar document.

Principle 4.4:

That the board should receive timely and accurate financial statements that are presented regularly (preferably monthly). These statements should include the following:

• profit and loss statement
• balance sheet
• cash flow statement
• written report regarding material variances from budget
• budget versus actual report on a month and year-to-date basis as well as identifying the full-year budget
• listing of all major outstanding debtors and creditors
• bank reconciliation (including bank account evidence).

Commentary and guidance

The organisation should have a one-year fully costed operational plan, as well as having a more strategic 3-5 year financial plan that should link the financial objectives of the organisation with that of its strategic objectives. It is critical that all directors understand and take their financial responsibility on the board seriously by ensuring they are able to comprehend and challenge the financial information presented to them by management. It is critical that the board has detailed knowledge of the financial health of an organisation, as it is illegal for an organisation to trade while insolvent and the directors could be held
personally responsible.

Principle 4.5:

That the full board of directors should annually meet and be debriefed by the external auditor on the state of the financial position and systems within the organisation and any issues identified throughout the audit process.

Commentary and guidance

To ensure that each director can fully extinguish their fiduciary responsibilities, it is good practice that the full board meets with the external auditor annually to discuss the findings of the audit and any identified issues that may have arisen from the audit. This open and frank discussion allows individual directors the opportunity to receive further clarification of any particular issues to ensure they fully understand the financial operations and health of the organisation.

Principle 4.6:

That the board should regularly review and assess its own performance and the performance of individual directors, including that of the chair and its committees.

Commentary and guidance

Done well, board assessment can be an extremely productive process. A robust and successful assessment process will give the board:

• a balanced view of its performance, identifying the positive aspects of the board's operation and areas for improvement
• a benchmark against which the board can assess its collective and individual progress and performance over time
• a basis to establish agreed performance objectives for the board.

The process should include mechanisms such as external facilitators, assessment questionnaires,confidential non-attribution interviews and a workshop of the findings. Additionally, 360-degree feedback from the likes of management and key stakeholders enhances the comprehensiveness of any program. An effective program should also include separate assessments of individual directors' performance and that of the chair.