Observations on Board Oversight & Monitoring

Directors can be most helpful in oversight and monitoring by first having a clear understanding about the company’s business and the environment in which it operates. A good understanding of the company’s business means that the directors understand the drivers of the business, the risks the business faces, and how these risks are being analyzed and managed.  Second, by holding management’s feet to the fire, directors propel management to present plans that are well thought through, but the risks of failure and the downside are also taken into account and clearly stated. Otherwise, management risks the board’s disapproval of their proposals. The board in its oversight role can ask questions – knowledgeable and insightful questions – of the management.

In asking management questions, board members must be very careful not to put management on the defensive. If a director wants to challenge some statement or financial forecast made by the CEO or other member of the C-team, one technique is to say something like: “I don’t know if this is relevant, but in another case that I saw, this type of situation raised some real problems, could you explain what we’re doing about this….”  In this situation, the director has at least allowed the CEO to make a positive statement to clarify that issue.

Finally, the board can be helpful in its oversight by heaping praise where it is deserved. Everybody likes to get a good pat on the back , and that simple, cost free step goes a long way to encouraging people to do better.