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Boardroom BI – It’s Different from Executives’ Corporate Performance Reporting November 7, 2006

Posted by Cyril Brookes in BI Requirements Definition, General.
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A colleague has asked me to comment on the issues in building business intelligence systems to support the independent directors on a company board.  He sits on three boards, and is disappointed with the information he is routinely given to support his role.  These are companies with quite advanced executive BI systems.  Specifically, he says the reporting he receives has too narrow a focus, and is all numeric – mostly divisional rather than corporation wide.  He finds it difficult to assess risk, and to determine implications for shareholder value.

Any review of the available papers (I hesitate to call it literature!) on BI shows that information requirements definition for the boardroom is a much neglected area of Business Intelligence theory and practice.  Specifying these needs is complex because the independent directors do not have the same set of objectives and concerns as their executive colleagues.  Boardroom BI often is simply a regurgitated subset of routine profit center executive reports.

The usual excuse is lack of time to meet board meeting deadlines, but in my experience the hassle of a difficult board meeting caused by lack of adequate information warrants a large amount of effort in preparing appropriate information reports.  In this area there is no substitute for quality. There are usually three main players to this equation, the independent director(s), CEO, and Chairman plus the BI analyst/consultant charged with providing the synthesis. 

It is a non-trivial task to manage the competing interests, and create what is best for the business (however that’s defined!).   Although each situation is different, there are some consistent themes that may be used to build a useful specification.   

I’ll offer my prescription later, but first want to discuss the cultural and business issues that drive the reporting needs.  Obviously it is the independent directors’ reporting requirements that are the subject of this discussion.  The CEO and an Executive Chairman will normally be served by a conventional BI specification – my posts of August 27 and July 28 summarize my approach to specifying executive reporting. 

The CEO and other executives have a focus on KPIs, performance metrics, and progress against plans or other benchmarks.  Their needs are the main driving force behind data warehouse design, data modeling, cube specification, metadata documentation, etc.  This is the mainstream of corporate BI and is certainly over-serviced by software marketing, research and the plethora of white papers. 

Independent directors’ information needs are obviously related to their perceived role on the board. They are not executives, they don’t make corporate decisions individually, and their knowledge of the business process models is imprecise.  They always want to contribute where they can to the enterprise, but their shareholder responsibilities often drive them to have a risk assessment fixation, especially since the Enrons and Sarbanes-Oxley.   

These different objectives are the source of the conflict between optimal executive and boardroom BI specifications, and the need for boardroom BI to be considered a special project.

Independent directors’ concerns often include: 

Overall corporate performance relativities  

It is extremely difficult to judge absolute values when you don’t fully understand the business process.  So comparisons, and relativities, are essential guides to performance assessment.  Benchmarks of value to the independent director will often be different from conventional CPM actual versus budget and last period.  They include industry best practice, competitor comparisons, and changes in target plans. Trends and forecasts are more valuable than historical analyses.  This type of reporting is usually unavailable. 

Pre-digested assessments 

Probably the biggest BI related complaint I hear from independent directors is the lack of commentary on the numeric performance figures.  They clearly look to the executives for guidance on implications for the business from the metrics.  Numbers that look bad can really be good if special circumstances are considered, and vice-versa.  To the director, the executives are the subject experts and they should advise on implications along with the supplied numbers.  All too often, however, the numbers are provided without any commentary.   

Identifying and monitoring potential risk of downside for the enterprise 

Risk identification takes up much of the independent director’s mind-space.  Downside protection for the enterprise, and its shareholders, is a major preoccupation.  Regular readers will know that I believe soft information sources are the critical resource for identifying potential problems, be it competitive intelligence, customer relationships or almost any form of risk.  Any complete boardroom BI specification will focus heavily on risk, and this must include marshalling the soft (tacit) information resources.   

Corporate image and community positioning  

Independent directors are often more conscious of, and influenced by, community attitudes than corporate executives.  They are also likely to have a wider personal network that is the source of sensitivities and inter-relationships unknown to professional managers.  They will want to be aware of events, issues, and plans that have had an impact the corporate image, or have such potential, to a greater extent than their executive colleagues.    

Human factor analysis  

Directors are always concerned about the human factors that influence the business.  The relationship between the CEO and Chairman is the most important by far in any enterprise.  However, the quality of the interaction and mutual cooperation between and among all senior executives will be of great significance – since these factors are often the source, or an indication of presence, of risk and potential loss of shareholder value. 

Shareholder value preservation 

At the end of the day, as they say, the independent director is responsible for enhancing and protecting shareholder value.   There is no BI report that can address this specifically, but the directors’ task will be made much easier if we can satisfy the other concerns through intelligent, effective, information reporting. 

 In my next post I’ll summarize how I approach boardroom BI specification, taking the above as guidelines.

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Comments»

1. Specifying Boardroom BI: Helping Directors Find Problems for Executives to Solve? « Cyril on Business Intelligence - November 19, 2006

[...] If you’ve read my last post, you’ll know I believe that key concerns for the independent board member range from assessing risk to proposing new ideas and executive performance analysis.  Apart from a necessary awareness of enterprise status, their BI emphasis is on finding and assessing potential problems that may impact shareholder value.  [...]

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