To properly execute their duties Directors need both the right skills and tools to understand and plan for eventualities.
Industry consultant Warren Tapp explains.
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Director Financial Literacy
Understanding Board financial reports is not just filling a role, it is about fulfilling your legal duties as a Director. Whether you are on the Board of an incorporated association, a company limited by guarantee, a public company or a charity, the law is clear about your legal obligations.
The Centro law case is a good example of Directors not understanding the financial reports.
Here are some suggestions:
- Assess your current financial skills
- Get training to understand such reports
- Start with the basics and keep learning
- Get a routine for financial monitoring
- Ask the CFO or other directors for advice
- Get a set of questions to ask about performance, growth and solvency
Research has found that over 30 per cent of directors admit relying completely on management about finances, which can be a fatal mistake!
Get clear strategic insights with KPIs
How can Board members get better insights into what the road ahead looks like for their company?
Board reports help directors see past results, but that is history. Understanding what is coming next is the crucial foresight needed to set the strategic direction.
It is essential to have ‘lag’ indicators (KPIs) that measure what has already happened, but you also need ‘lead’ indicators (KPIs) that show you what might happen in the future. These might be KPIs such as customer satisfaction, competitor actions or market share. For not-for-profit entities it might be member satisfaction, membership growth or donor engagement.
Lag indicators are beyond your control, they have happened. Lead indicators are still within the control of the Board to do something about.
Make sure you have strategic KPIs for all aspects of your company, and monitor them.
Warren Tapp
