The search for Board Effectiveness is often an elusive one. It is highly specific to the Company, the sector it is in, the business challenges it faces, the Board Chair and the history of the Board, to mention but a few of the contextual factors impacting on a Board’s performance.
There is plenty of advice from Board consultancies, Guru’s, Institutes, Government Bodies, Journals and Websites on what goes to making an Effective Board. However, while the issue of Board Effectiveness is very contextual, having carried out hundreds of independent Board Reviews, there is one factor which appears with monotonous regularity, Board Information.
So, it is with interest I have been reading the current hype about AI and its possibilities and challenges. While the long-term challenges and opportunities of AI are something we can continue to ponder and debate at the Board level, with the FRC (Financial Reporting Council) currently consulting on how the Government White Paper on Artificial Intelligence might impact on the Corporate Governance Code. I am drawn to the possibilities of AI in addressing the thorny problem of creating Board Information, which is designed and targeted on the needs of the Board Directors.
When undertaking External Independent Board Reviews, we see a ‘Board Pack’ which is an unrefined subset of the Executive information pack, with formidable amounts of data and detail not designed for easy and accessible assimilation. In this spirit of enquiry, I asked ChatGPT (latest AI Chatbot) what it saw as “the challenges of providing an effective information pack for a Board of Directors”. The response was a fairly good summation of those challenges, created within seconds, namely:
Balancing the quantity and quality of information, Board members need enough information to make informed decisions, but not so much that they are overwhelmed or distracted by irrelevant details.
Detail, too often, Board packs are dominated by inward- and backward-looking detail, rather than the sort of information that will help the Board to plan its future Strategy.
Ensuring the accuracy and timeliness of information, Board members need to trust that the information they receive is reliable, up-to-date and consistent. Any errors or omissions can undermine the credibility of the Management Team and the Board's confidence in their performance.
Timeliness, Board packs should also be delivered well in advance of the meeting, to give Board Members enough time to read and digest them.
Aligning the information with the board's needs and expectations, Board members need information that is relevant to their role, responsibilities and Strategic objectives.
Discussion and decision making, Board packs should be tailored to the specific agenda and topics of each meeting and provide background information and analysis to support informed discussion and decision-making.
Relevance, Board packs should also reflect the Board's risk appetite and Governance Framework.
This gets to the crux of the dichotomy of Board Information. If the Board just receives an asymmetrical pack of the detailed Executive information, this can distort one of the key roles of the Board of Directors, namely, to make informed decisions and ensure those decisions are carried out and create value. In the absence of easily assimilated data, the concentration becomes upon digesting and understanding the sways of information and less on insight and evaluation of the implications. This has a tendency to drive the Board to an inappropriate level of detail and ‘intrusive’ questioning as they seek to make sense of the ‘data set’.
This in turn favours personality traits which are detailed focused, diligent, hard-working, meticulous and careful; but not necessarily open, flexible, spontaneous, proactive and visionary. While these detailed conscious traits are clearly admirable qualities to bring to a Board, we need to ensure that they are not an overly dominant aspect of the Board capabilities. The additional contrasting more ‘open’ traits are important for a diverse and well-rounded Board. This spectrum of personality traits described, are part of the Structure Category of the OPQ (Occupational Personality Questionnaire a leading business personality survey), this category reflects how we approach tasks, organise our work and handle information.
As the AI Reporting World develops, there is an opportunity to create Board Information structures with bespoke, intelligent summaries and insights, a significant upside for Boards. It should overcome the often-quoted blocker to existing Board Information reform, that the Finance department and busy Executives do not have the time to re-cut the data into a specific Board format. With the application of some creativity, the bespoke Board format should be within our grasp, as Businesses and Finance departments re-align their data structures to maximise their effective use of AI. There should be little additional burden to create and adapt Board Information ‘Packs’ which are relevant and supportive to effective decision making.
While the debate rages as to whether AI ‘Bots’ will replace Directors on the Board, I am more practical in looking forward to a point where a Board of Directors has an ‘AI Bot’ at its command. I have long held the view that a Board should have its own ‘Analyst’ to facilitate the questions and gather information pertinent to the Board deliberations, unfortunately this is currently prohibitively expensive.
In my mind AI is less likely to ‘replace’ the Board Directors but to become a valuable aid to make them more effective and wider deliberations. Supporting the fine balances needed in effective decision making based on a multiple range of factors across “Stakeholders”, Governance and Societal Values. If a Board cannot rise above the narrow detailed numerical corridor to apply Emotional Intelligence, wisdom, judgement to decisions and Strategies, it might as well be a Board of ‘Bots’.
I can also see it becoming less and less defensible for a Board to rely on incomplete and out of date information in its deliberations with the consequent adverse outcomes written large across the financial and popular headlines. Having evaluated and sat on Boards where there are Private Equity Directors, it is salutary to see them reach for their own reports prepared by their own ‘Human Bots’, which give them a significant analytical advantage in steering a Company in the direction they see fit.
To give the final words word to ChatGPT, which while recognising the specific Company contextual perspective on Board Effectiveness, also suggests:
“AI can enhance Board decision-making by providing data-driven insights, analysis and recommendations. AI can help Board members access relevant information, identify patterns and trends, evaluate risks and opportunities, and generate scenarios and alternatives. AI can also augment Board members' expertise and judgment by offering different perspectives and challenging assumptions. AI can also pose ethical, legal and social challenges for Board deliberation. AI can raise questions about accountability, transparency, fairness, privacy and human dignity”.
To my mind a diligent use of AI has the opportunity to support and enhance the nature, composition and dynamics of Board deliberations, complementing such routine roles as monitoring, reporting, auditing or advising. Significantly, AI can also positively impact the Diversity and Inclusion of Board Members, by creating new opportunities or removing barriers for participation in the Boardroom.
While AI will challenge Board Members to adapt to the changing expectations and demands of working with AI and develop new skills and competencies” it has the potential to positively impact on busy NEDs by facilitating and focusing their roles on debate, discussion and challenge to ensure a Strategic and sustainable future for the business such as the impact of AI in their Company’s business.
