Hello and welcome to this Board Intelligence podcast — SMR; A Missed Opportunity? I’m Niamh Corbett and I’m joined by Esther Odida. This podcast looks at some of the highlights of our current series of roundtables on the same topic.
Today we are going to be discussing why SMR should not be treated as a box-ticking exercise, and why it is still very much a live conversation outside of its impact on board papers. We will look at the divergence between board papers and minutes, and we will also look at what steps you should take to be comfortable that your actions will pass the ‘look-back’ test in the eyes of the regulators. Finally we will look at why you should embed SMR into the culture of your business.
Now what has been the impact of SMR on organisations so far? Well, SMR was designed to strengthen the accountability of senior managers in light of the financial crisis. And so the regulator designed a series of measures which (at a high level) made individual responsibilities clearer and placed a greater burden on the individual to ensure they were delivering on those responsibilities.
We have seen companies undertaking a lot of work around defining what topics need to go to each board, committee and management forum to allow senior managers to discharge their duties, and also focus on how tightly and effectively their papers were written. Most companies (whether currently subject to SMR or not) now have their board packs sorted and their house in order.
While this podcast is not focused on what SMR means for board papers (incidentally, an earlier one of ours does), at a very high level, what does good look like? Well, your report authors should already be trained to write short, sharp papers that answer the key questions that are on the board and the senior manager’s minds. Those papers should all start with a one-page Executive Summary that draws out the key points; you should have templates that reflect the questions on the board’s mind, and finally you should have a critical review process and feedback loop between the board and report writers.
Many companies are falling into the trap of thinking that means SMR is now over and done with for them and the regulators attention will turn elsewhere. But that is a mistake. The regulators’ attention has now turned to what we call the second phase of SMR, the so-called ‘mind and management’ test. This focuses on the information in the board pack and how that is used to facilitate an effective meeting.
Where has this new focus come from? We have been seeing the regulator attend and observe more and more board meetings and they have been finding discrepancies between the information in the board pack, and the way key decisions were made in the board meeting. Where they have not been present in meetings, they have been using the minutes as a way of identifying any divergence in content, tone and decision making. So it’s the ‘mind’ — do you have the right information —, and then the ‘management’ — what are you doing with that information.
We are seeing companies being tasked, more and more, to address the second part of this equation. The regulator may be satisfied that the right information is in the board pack, but they are not comfortable that the board meetings (or indeed any meeting with SMRs present) are being run in an effective enough way to fully allow the directors to discharge their duties.
Why should you care, so you might ask? Why should I care whether all senior managers in my organisation are having effective meetings? If my own papers and my own meetings are satisfactory, does it matter that others may not be?
Yes it absolutely does matter — because of something commonly known as the Iceberg syndrome. This is the assumption by the regulators that if one senior manager in an organisation is negligent (and potentially subject to an investigation), the rest will come under the same suspicion — i.e. if the tip of the iceberg is rotten, it will be assumed that the rest is too.
This raises an important point. Regulators are now expecting senior managers to be responsible for the culture in their organisations, both individually and collectively. It is more important than ever that culture is at the heart of every decision that senior managers make — the nuance now is not asking can we do something, it is asking how do we do it. Aligning the culture of your organisation to support clear and transparent information flows is a key part of the role of any senior manager and governance professional.
It starts with the individual. There are a few key questions you should ask yourself:
Only by starting to answer these questions, and putting the frameworks and processes around them, can you start to be confident that you are operating effectively and compliantly under SMR.
Thank you very much for listening. This podcast is now finished.