What follows is an edited version of chapter 12 (“Managing information flows among board and management”) of NYSE: Corporate Governance Guide, written by Robert B. Lamm and originally published by White Page Ltd in December 2014. Many thanks for its permission to reprint here. Information is the lifeblood of a board. While board members should seek out current, complete and accurate information about the companies on whose boards they serve – and many do so – their knowledge of those companies is necessarily dependent upon information provided by management. Similarly, management cannot properly follow the mandates and views of its board of directors if those mandates and views are not communicated in an effective and timely manner. Thus, information flows between the board and management are critical to the proper functioning of both, as well as to the execution of a company’s strategic plan and many other critical processes. This chapter considers the factors and processes to be kept in mind in managing these information flows.

Information to the board

Let’s start with the basics, noting that while the following discussion concentrates on materials for board and committee meetings, the same considerations apply to less formal information flows, which are discussed below. The Goldilocks principle: Moderation in all things We all remember the story of Goldilocks, particularly that she always searched for an ideal midpoint. She disliked the bowls of porridge that were too hot or too cold, the beds that were too hard or too soft, and so on; instead, she sought out the bowl, bed and so forth that was “just right.” Managing information flows between management and the board should utilize the same principle: Determine what’s “just right,” based upon the specific facts and circumstances. 1. Quality of Information: Before addressing other aspects of information flow, it’s critical to focus on the most important “just right” – namely, that the board and its committees receive full and fair information, including bad news as well as good news. Bearing in mind the earlier statement that boards are largely dependent upon the information provided by management, it’s unconscionable – and dangerous – to sugarcoat information given to the board. We have all read (often in articles about scandals) of boards that were not informed about adverse developments. A very good if tragic example is the scandal that rocked Penn State a few years ago; according to published reports, management consistently opted not to tell the board of the allegations of sexual abuse and even of inquiries by the authorities. Examples in the corporate context abound, as well. Of course, the Goldilocks principle applies here as well – everything in moderation. But, at a minimum, management needs to avoid even a soupçon of the “no bad news” approach. In fact, the first questions management (including the corporate secretary) should ask when something bad – or good – happens are, “do we need to tell the board, when do we tell them, and what do we tell them?” Some examples:

  • When preparing materials on acquisitions and similar corporate transactions, it’s important to candidly discuss the risks of proceeding – and not proceeding – with the deal. Giving only the upside is simply not good policy. And, if the upside (or downside) is based upon certain assumptions, be straightforward about the assumptions and how realistic they are. The same goes for timing, antitrust implications, and other aspects of the transaction.
  • When informing the board about litigation brought by (and against) the company, it’s important to be realistic about likely outcomes.

Just think about how not being realistic may play out in court:

Plaintiff’s counsel: Director Jones, when the board considered the $50 billion merger with Red Inc., what was said about the statement in the board materials that the acquisition would be accretive within the first year?

Director Jones: Well, that was pretty impressive; it’s not often the case. So the fact was noted during our discussion.

Plaintiff’s counsel: In giving that projection, did anyone indicate that it was premised on 10% growth in GDP during that same first year? Or that the synergies resulting from the acquisition would be fully implemented within six months after closing?

Director Jones: Well, er, I don’t remember anyone saying that, and I also don’t remember anything about those assumptions in the materials.

Plaintiff’s counsel: How about the fact that Red is involved in a lawsuit challenging the patent protection on its principal product?

Director Jones: Well, I know that the materials said that the lawsuit was entirely without merit. I guess that turned out to be wrong …

2. Amount of Information: It may be tempting to give the board massive amounts of information to avoid omitting something that may be of significance. The thinking goes that you are protecting the directors against liability by making sure that they have every piece of potentially relevant information. However, think of Goldilocks: there is such a thing as too much information, and giving your directors everything that may possibly be of interest falls into this category. There is no assurance that the directors will find the important needles in massive haystacks of information. In fact, by giving them too much information, you may be forcing them to choose between reading it too quickly and thereby not absorbing it, and not reading any or all of what you’ve given them. In either case, you may be causing problems – not the least of which may be that your directors will not be prepared for discussions at board meetings; the worst of which may be that your directors are found liable for not considering the appropriate information. Consider how furnishing mass amounts of information may play out when a matter considered by the board is litigated:

Plaintiff’s counsel: Director Jones, we note that the board received a 50-page memorandum, copies of the merger agreement and a number of ancillary documents, and a 60-page banker’s “blue book” in connection with its review of the $50 billion merger with Red Inc. Did you notice a footnote on page 42 of the memorandum pointing out that the assumptions underlying some of the anticipated synergies between your company and Red had not been tested? How about the statement on page 25 of the banker’s blue book that Red had been sued based on allegations that its principal product was defective?

Director Jones: Well, I read the materials, but I don’t remember those two items. I’m sure I read them, but I just don’t remember.

Plaintiff’s counsel: Did any other members of the board ask about either of those two items when the merger was discussed and approved at the board meeting?

Director Jones: I don’t recall.

Instead, it is (or should be) management’s task – often executed by the corporate secretary – to make sure that the information provided to the board is reasonable in amount and can be read and digested prior to the meeting (and it’s acceptable to let the directors know that they are expected to do so). Even if the company’s culture calls for the use of lengthy, highly detailed materials, that approach is unlikely to work for non-executive directors. 3. Timing of Delivery: Again, the Goldilocks principle applies – avoid giving your directors information too early or too late. It may seem desirable to get them information as soon as it is ready, to assure that they will have “all the time in the world” to review and consider it. However, this runs the risk that they will forget some of it by the time the meeting rolls around. Also, giving information too soon may result in the failure to update the information as more details become available or in the directors missing that critical new factoid. The risks associated with giving your directors information too late seem obvious; they may not be able to review it on time, or they may read it too hurriedly, possibly overlooking key details. And think about how late delivery of materials might play out when a matter considered by the board is litigated:

Plaintiff’s counsel: Director Jones, we note that the board received a 20-page memorandum and other materials in connection with its review of the $50 billion merger with Red Inc. Frankly, it looks like these materials were very carefully prepared; they are neither too long nor too short – in fact, they look just right. However, when did the board receive these materials?

Director Jones: I believe we received them a couple of hours before the board meeting got underway.

Plaintiff’s counsel: You mean two hours before the board meeting at which the board was asked to approve, and in fact did approve, the merger with Red Inc.?

Director Jones: Umm . . . yes.

Plaintiff’s counsel: Were you able to read the materials, much less carefully consider them?

Director Jones: Well, it was tight. I’m glad I took that speed-reading course last year …

Good governance does not involve a one-size-fits-all approach, but delivery of materials five to seven days prior to a meeting is generally regarded as appropriate. Provide good road signs for your directors Have you ever noticed that road signs seem to be made by people who already know how to get there? You see a road sign that says “I-95 ahead,” so you stay on the road on the assumption that there will be an entrance ramp, or another sign that tells you how to get on I-95 – but it never happens. Don’t you wish that road signs could follow a consistent format and actually do what they’re supposed to do? The same concerns apply to the information you provide to your board. If every document your board receives follows its own unique approach, you are making your directors’ jobs harder – without any commensurate benefit. Why not make it easier for them, as illustrated by the following?

  • Format – Materials furnished to the board should follow the same format; that way, directors will know where to find what it is they’re looking for or what you want them to see. If directors know that the request for authorization – that is, the specifics of what the board is being asked to approve – appears in the same place in every memo or slide presentation (preferably in a prominent place on the first page), it will guide their reading. The same goes for any glossary or list of acronyms. If tables continue on several pages, make sure that the header row appears at the top of each page, and try to avoid having rows split across two pages. These are small tips that can make a director’s job much less arduous, increasing the likelihood that he or she will read – and absorb – the document in question. And if your board members are reading materials on a tablet or computer, you should consider avoiding double-column formats; while there are studies indicating that double-column formatting is easier to read, that’s not necessarily true when you’re reading something on a screen.
  • Technical Terms – Where technical terms must be used, provide a glossary. Don’t assume that your directors know common acronyms in your industry or your company; in fact, it’s likely that some of your directors serve on other boards where the same acronym means something entirely different. Therefore, include acronyms in your glossary or explain them in some other manner – and not on the last page, either.
  • Readability – It should go without saying that anything going to the board should be carefully proofread. However, write in plain English rather than legalese and make the materials easier to follow through use of shorter paragraphs, bullet points, and other tools to focus the directors on what is important.

Informal communications to the board When to engage in informal communications with the board and/or a committee should be guided by the following questions:

  • Do we need to tell the board?
  • When do we tell the board?
  • What do we tell the board?

In considering whether and when to engage in informal communications with the board, remember that sending something to the board on a too-frequent basis may be a bit like the boy who cried wolf; if you’re constantly sending materials to the board, it may be hard for directors to distinguish between routine matters that might better be collected for distribution on a regular basis (for instance, on a weekly or biweekly basis) and materials that truly require their attention. There’s no sure way of knowing this, but it can be very helpful to ask directors for their candid views as to how often they want to receive routine updates on various matters. Once a decision is made to communicate with the board, the Goldilocks principle continues to apply. Specifically, as is the case with formal board and committee materials, it’s important that distributions between board meetings need to be moderate in length and tenor and that format and similar factors can make informal materials useful and informative. The same can be said for content – different directors and boards may want to see different things. Some boards may want to receive analyst reports on the company as they are published; others are content to wait for a weekly or biweekly summary. The best way to gauge what your directors may want to see is to ask them.

Information to management

Because of the very nature of board-management relations, communications from the board to management are far more likely to be informal than informal. However, the same rules apply as those outlined above, with a few extra wrinkles. First, clarity of tone is very important. Management can be sensitive to board criticism, and if a communication comes across as harsh or insulting rather than constructive, relations between the two groups can be seriously impacted. Depending upon the circumstances, it may be desirable to have a second director review the communication before it is sent, in case the drafter is unaware of how the communication will come across to the management team. Second, while clarity of substance should be a given in all communications, it is particularly important when the board is giving directions to management. Management may be timid about questioning the board’s directions, so rather than ask for clarification, management may implement what it perceives to be the board’s direction only to find out that the board meant something else entirely. Third (and this surely applies to all communications in both directions), the board and individual directors may want to think twice before putting anything in writing. If the board is not represented by its own counsel, it should consider consulting with the company’s general counsel or outside counsel to determine whether a particular communication may be discoverable; too often, boards assume that their communications are confidential without realizing that confidential communications will generally be available to plaintiffs and others unless some type of legal privilege can be claimed – and that it is very difficult to sustain a claim of privilege. The original chapter, and entire corporate governance guide, can be accessed via Image courtesy of suphakit73 via


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