July 11, 2017

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Richard Stringham

Who Reports ‘What’ In the Annual Report?

I expect that the intent and content for an organization’s Annual Report are as much mysteries to most board members as they are to those who read them. After all, when scanning a number of annual reports, the most common elements are the financial statements. Beyond that, they seem to be a collection of activities reports (i.e., here is what we’ve been busy doing) and some statistics.

Furthermore, it is not unusual to see the Board Chair’s Report, if separate from the CEO’s report, address the operational issues, albeit at a higher level.
What then, should be included in the Annual Report and who should provide the information? It would seem that the report readers (mostly shareholders, members, regulators, funders and donors) are most interested in knowing that the organization has achieved what it should, avoided what is unacceptable, and that the Board is doing its work acting on behalf of the ownership. In other words, split the report preparation according to job responsibilities.

Let’s start with the CEO. Recall that the CEO’s job is to achieve a reasonable interpretation of each of the Ends policies while complying with reasonable interpretations of each of the Executive Limitations policies. The former should be the subject of primary interest to the audience. Regardless of how busy the organization has been, has it made a difference for the intended recipients? Did it do so in a manner demonstrating that the resources applied were worth it? This shouldn’t be a difficult task if the CEO has been properly monitored during the year (i.e., the Ends monitoring should report on what has been achieved, for whom, and for what worth, not on activities intended to create achievement).

Although reporting the status of compliance with Executive Limitations policies may not be as prominent as that of the Ends policies, a short, concise dashboard type of report card which aligns with the Board’s assessments of Executive Limitations policies monitoring reports would be effective. Each policy set would benefit from a bit of a descriptor rather than just a title.

And of course, there is the inclusion of the obligatory financial statements.

If the CEO is providing the above information, what then should the Board Chair report?

Given that the Chair is responsible for the integrity of the Board’s governance process when using Policy Governance, the answer lies in the Board’s job description.

  1. Linking with owners: What segments of the ownership/moral ownership did the Board link with over the year and what information did it learn from those owners which is relevant to the Board’s policies? Is it connecting with a representative sampling of the owners over time?
  2. Ensuring that the appropriate policies are in place: Has the Board been on track in reviewing its directive (policies) to ensure that the content is right for the organization? Were there any significant policy changes, in particular, those that were influenced by the input from the ownership? What did the Board do to prepare itself for better policy development? Did it use a systematic process of scanning the environment and exploring potential futures? How can the Annual Report readers be confident that the Board’s leadership is enhancing its abilities to produce better policies?
  3. Monitoring the CEO: Although the CEO will indicate the successes in Ends achievement and compliance with the Executive Limitations policies, it is important that the owners and others realize that the Board has been diligent in its pursuit of monitoring. At the very least, mention of the Board’s rigorous monitoring process is needed. If the Board has included external monitoring for independent experts and/or direct inspections, mention of those would be helpful as well.

Of course, if the legislation or other authorities under which your organization operates requires reporting of certain types of information, then it is necessary to do so. Consider though, whether that information is under the authority of the Chair, a Board Committee, or the CEO. The appropriate authority determines which person should be reporting.

As a final note, consider that your audience might not be Policy Governance savvy. Write your reports accordingly. For example, it probably makes more sense for readers to know that your connection with the membership helped you to recognize that the members wanted a shift in priorities and that, as a result, you have made those priorities clear for the organization’s direction.

When all is said and done, how confident can the readers be that the Board was doing its job to ensure that, on behalf of its ownership, the organization achieves all that it should and avoids what is unacceptable?

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