McGladrey, NACD Help Boards Identify Asymmetric Information Risks
Asymmetric information, or the widening gap of information between the executive suite and board, is a concern of company directors. It can pose significant risk to boardroom operations and/or lead to flawed conclusions or decisions misaligned with strategy. The six warning signs that a board might not be getting the information it needs from management are outlined in a new white paper from McGladrey – the nation's leading provider of assurance, tax and consulting services focused on the middle market – and the National Association of Corporate Directors (NACD). The paper, Mitigating Board Information Risk, also identifies several areas directors can evaluate to ensure they get the information they need to properly serve the organization's stakeholders.
The six warning signs that directors should look for are:
- Significantly increased time commitment
- Information overload
- Management's negative perception of the board
- Poor culture
- Lack of necessary expertise on the board
- Poor relationship between CEO and chair (or leader of independent directors)
The white paper is the result of a series of roundtables with corporate directors and executive suite officers, where asymmetric information was discussed. The conversations specifically honed in on the warning signs that gaps in the flow of information have become too large and specific preventative measures a board could take to address the issue.
"One director referenced in the white paper noted that 'information asymmetry is a good thing,'" said Phyllis Deiso, leader of McGladrey's SEC practice and a member of the McGladrey board of directors. "However, it can quickly create gaps that are counterproductive to strategic objectives if the board is not paying close attention to these warning signs."
Even if the board's relationship with management appears to be strong, board members can evaluate some areas, such as board composition, leadership and processes, on their own, thus increasing their value to the organization.
Open lines of communication between the boardroom and the C-suite are also critical in ensuring that necessary information—and the context of the information—is being shared. "Directors have the task of determining what information they need from what sources and then taking a critical eye to that data," Ken Daly, NACD president and CEO, said.
The National Association of Corporate Directors (NACD) is the only membership organization focused exclusively on advancing exemplary board leadership. Based on more than 35 years of experience, NACD identifies, interprets, and provides insights and information that corporate board members rely upon to make sound strategic decisions, confidently confront complex business challenges, and enhance shareowner value. With 14,000 corporate director members, NACD provides world-class director education, director training, and proprietary research about leading boardroom and corporate governance practices to promote director professionalism and bolster investor confidence. Furthermore, to create more effective and efficient corporate boards, NACD provides independent board evaluations and custom-tailored in-boardroom education and training programs, as well as director-led conferences, forums, and peer-exchange learning opportunities to share ideas about current and emerging issues. Fostering collaboration among directors and governance stakeholders, NACD is shaping the future of board leadership. To learn more about NACD, visit http://www.NACDonline.org. To join, contact Kelly Dodd at firstname.lastname@example.org or 202-380-1891.
McGladrey LLP is the leading U.S. provider of assurance, tax and consulting services focused on the middle market, with more than 6,700 people in 75 cities nationwide. McGladrey is a licensed CPA firm and serves clients around the world through RSM International, a global network of independent assurance, tax and consulting firms. McGladrey uses its deep understanding of the needs and aspirations of clients to help them succeed. For more information like us on Facebook at McGladrey News, follow us on Twitter @McGladrey and/or connect with us on LinkedIn.