Board Reports Should Be Built Backward From Decisions

The package for a monthly board meeting landed on the table at sixty one pages. I watched a director work through it during the first item, turning pages with the patience of a man looking for one number he already knew was in there somewhere. He found the cash balance on page thirty eight, inside a schedule that had been built for a bank.

Nobody in that room had chosen a sixty one page package. It had grown there, one addition at a time, over four or five years.

I am Rosser Newton, and across a career of more than 35 years in energy banking, private equity, and company leadership I have never once seen a private company reporting package that somebody sat down and designed. They accumulate. A lender asks for a schedule and it stays. A director asks a question in March and the answer becomes a permanent page in every package that follows.

Why a board package grows and never shrinks

Every page in a reporting package was added by someone who had a reason. That is exactly why the package never gets smaller. Removing a page requires a person willing to say out loud that a thing another person asked for is no longer worth the paper.

Management teams also read length as diligence. A controller who produces sixty pages feels covered, and in a bad quarter that instinct gets stronger rather than weaker. The volume goes up precisely when the board most needs a short document.

The cost lands on the director, who has other work and a fixed number of hours. He arrives having read the summary and skimmed the rest, which means the questions he asks are the questions the deck invited him to ask. A package that buries the cash number on page thirty eight has made a decision about what the board will discuss, and management made that decision rather than the board.

Building the package backward from the decisions

The fix is to start at the other end. Write down the decisions this board will actually make over the next twelve months, then build the reporting that serves those decisions and nothing else. For most private energy companies that list is short, usually capital spending above a threshold, hiring at the top of the company, the hedging policy, distributions, and what to do if a covenant comes under pressure.

Once that list exists on a page, most of the package answers questions nobody at the table is going to decide. Utilization by unit matters if the board approves capital spending on units. It does not need eleven pages to say so.

A reporting package should be built backward from the decisions a board actually makes, and everything else belongs in an appendix nobody presents.

What survives that exercise is usually one page that reconciles to cash. Cash at the start of the month, cash at the end, and the three or four lines that explain the difference, tied to the same numbers the company reports everywhere else. Directors who want the underlying detail can find it in the back, and the ones who do not can still see the only figure that decides whether the company has a problem.

The second thing that survives is a variance column with a name beside it. Not a footnote, a name. Somebody at the table explains the two largest variances out loud, in plain language, before the board moves to the next item.

That practice does more for the quality of a board than any amount of additional reporting. A manager who knows he will explain a number in a room tends to understand that number before he walks in. The discipline sits with the person rather than with the document, which is the only place discipline has ever actually lived.

What belongs on the page that reconciles to cash

I have a bias here and I will state it plainly, because a thoughtful director could argue against it. Most private company board packages should run under fifteen pages in the body, and nearly everything now sitting in the middle should move to an appendix that is distributed and never presented.

The body I would defend is short. A page on cash and the variances that moved it, a page on the operating measure that actually drives the business, one page on safety and people, one page on whatever the company is currently deciding, and the standing items a private board owes its shareholders. Everything else is reference material, which is a real thing with a real purpose and a different job.

Working capital deserves particular attention in a service business, because the gap between what a company is owed and what it owes can move faster than earnings in either direction. A package that reports revenue monthly and receivable aging quarterly has told the board about the slower of the two. That is the wrong way around.

None of this is an argument against detail. It is an argument about where detail goes and what gets read aloud. I have written before about why a minimum cash balance deserves covenant treatment, and a floor of that kind only works if the number sits on the first page of every package rather than deep inside a schedule.

Where a shorter package fails

Here is the part that keeps this from being a rule. A package cut hard enough loses the early signals that only show up in the detail, and those signals are worth real money.

I have argued the wrong side of this myself. On one board I supported cutting a reporting package by two thirds, and among the pages we removed was a customer level receivable aging schedule that nobody discussed and one director apparently read every month. Four months later a receivable problem at a single operator arrived as a surprise, and it had been visible in the pages we had cut.

So the cut line moves from company to company, and it moves with the season. A company in a stable year can run a shorter package than the same company in the first quarter of a downturn. A board that sets its reporting once and never revisits it has made the same mistake in the other direction, and there is no formula that finds the line. The board has to argue about it roughly once a year, which is itself an agenda item worth the time.

This can also go wrong in the other direction, for a different reason. A management team told to shorten a package can shorten it into an advertisement, keeping the pages that flatter and moving the difficult ones to the back. The right cut is made by the chairman and the chief executive together, and the test of a good one is whether the hard number got shorter along with everything else. The statement of cash flows is the least flattering document in the file, which is a large part of why it belongs in front.

The other honest limit is capability. Some companies cannot produce a clean one page cash reconciliation on a monthly close, and no instruction from a board conjures a finance function that does not exist. If the page cannot be built, the board has learned something more useful than anything the page would have said, and the basic financial management practices underneath it are the actual project.

A board package is a claim about what matters. Sixty one pages says everything matters equally, which is another way of saying nobody decided.

Rosser Newton is a Dallas businessman, energy investor, and the author of Richard Coke: Texan.