OVERSIGHT SHOULD ONLY GO SO FAR: BOARD MEMBERS ADD REAL VALUE THROUGH INSIGHT AND FORESIGHT - November 2007
In addressing CPAs and auditors from some of Australia’s largest organisations, Julie Garland McLellan highlighted the importance of ensuring a balance between oversight, insight, and foresight to maximise a Board’s effectiveness in its governance role.
While oversight is an important function of Boards in ensuring adherence to the company’s policies and procedures, legal obligations, and the monitoring of its business performance, Julie asserts that there is only so much oversight that should occur.
“To be satisfied that all is in order, the Board should give the branches a good shake, but they don’t need to shake the fruit off the tree and they should certainly never napalm the entire orchard,” says Julie. “After a certain point, no amount of additional oversight will add value to the organisation. In fact it can be detrimental, adding compliance costs and complexity with no improvement in outcomes.”
With five to ten Board members each being paid on average $50,000 per year, plus the cost to the company of staff preparing reports and presentations, Boards and their members must demonstrate a measurable return on the investment. They can add value by using their strategic and technical skills, the natural channels through which insight and foresight flow.
“The best Boards focus on performance. Their members provide insight and foresight in addition to oversight; compliance focussed boards only provide oversight” says Garland McLellan. “Oversight is the process of checking, diligently, that the company is doing what it is supposed to do and that when it does so, it gets the expected results. Board members offer insight when they examine information and reports presented and suggest how the company can improve its performance, to be more efficient and effective in its business.”
“Foresight amongst the best Boards involves board members making contributions by understanding big picture trends, how to position the company for future success, and what competitive threats are emerging. To really add value they must do this sooner than the rest of the market.”
This observation resonated strongly with the audience. Julie says anecdotal feedback indicated a strong feeling from attendees that oversight tended to dominate the agendas of their Boards. They responded very positively, and believed they could be more effective in their roles, if there were more opportunities to interact with boards on issues including risk and strategy.
As a result, Julie has written a white paper to explore this issue further. Entitled ‘How do you see your company? Three types of sight for effective boards’, the paper can be viewed at www.mclellan.com.au/news/papers
Julie Garland McLellan is the author of 'All Above Board - Great Governance for the Government Sector' and is a one of Australia's leading governance consultants.