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Management article
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Reference no. SMR50214
Published by: MIT Sloan School of Management
Published in: "MIT Sloan Management Review", 2009
Length: 8 pages

Abstract

Managers and directors alike face tough choices as they decide on the quality and quantity of information that the board receives and uses in its governance and fiduciary roles. As the fallout from recent crises such as the sub-prime mortgage debacle illustrates, both sides must address the problem of ''information asymmetry'' - the gap between the information available to management and to the board. The authors'' research suggests that tomorrow''s boardroom will be reshaped by three related forces: First, they face a thorough rethinking, brought on by concerned stakeholders, of directors'' information needs. In responding to these pressures, boards and management must overcome several impediments: (1) caution about altering the dynamics of the present manager-director relationship; (2) directors'' lack of needed skills for interpreting the new information; and (3) the inertia of cultural norms. Second, they face dramatic improvements in the performance assessment approaches used to guide the boards'' decision making. The core of a healthy information relationship between managers and directors is their agreement on the most useful performance metrics to track and assess. This selection enables the building of trust and an eased and more pertinent workload for the board (having been freed from the need to decode reams of data while also gaining some independence from management''s sometimes self-serving evaluations). Finally, boards and managers face the adoption of technologies that support critical board functions. Once access to such information is granted, new technologies can help directors obtain and use it. Board members may apply tools that, for example, enable improved visualizations and helpful alerts. And directors may engage in electronic ''what-if'' analyses, using company data as well as outside information - related, say, to competing firms - which is becoming increasingly available on-line.

About

Abstract

Managers and directors alike face tough choices as they decide on the quality and quantity of information that the board receives and uses in its governance and fiduciary roles. As the fallout from recent crises such as the sub-prime mortgage debacle illustrates, both sides must address the problem of ''information asymmetry'' - the gap between the information available to management and to the board. The authors'' research suggests that tomorrow''s boardroom will be reshaped by three related forces: First, they face a thorough rethinking, brought on by concerned stakeholders, of directors'' information needs. In responding to these pressures, boards and management must overcome several impediments: (1) caution about altering the dynamics of the present manager-director relationship; (2) directors'' lack of needed skills for interpreting the new information; and (3) the inertia of cultural norms. Second, they face dramatic improvements in the performance assessment approaches used to guide the boards'' decision making. The core of a healthy information relationship between managers and directors is their agreement on the most useful performance metrics to track and assess. This selection enables the building of trust and an eased and more pertinent workload for the board (having been freed from the need to decode reams of data while also gaining some independence from management''s sometimes self-serving evaluations). Finally, boards and managers face the adoption of technologies that support critical board functions. Once access to such information is granted, new technologies can help directors obtain and use it. Board members may apply tools that, for example, enable improved visualizations and helpful alerts. And directors may engage in electronic ''what-if'' analyses, using company data as well as outside information - related, say, to competing firms - which is becoming increasingly available on-line.

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