How To Build Mutual Respect, Trust And Support Between CEOs And Boards

Deloitte’s Chief Executive Program published a paper yesterday on “Seven steps to a more strategic board.” Its insights are well worth reading. They did, however, bury the lead. The seven steps add up to the importance of CEOs taking a leadership role in managing boards and building relationships rooted in “mutual respect, trust and support.” That’s the lead.
Deloitte’s Seven Steps:

CEOs, it’s really up to you – Take an active role in board management.
Be fearlessly transparent – Be open and humble.
Take advantage of tension – Grow through debate.
Facilitate the board experience, not just the board meeting – Build relationships over time.
Curate information, and then curate it again – Give enough, but not too much information.
To chair or not to chair? Think about it very carefully – Choose your level of influence.
Say your piece on board composition – Build the right board over time.

Relationships rooted in “mutual respect, trust, and support” don’t happen by mistake. They are built together, deliberately, and over time.
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Compliments And Criticism – Why And How To Encourage More

Everything communicates – everything you are, do and say, to what you pay attention, and the way you react to others. Receive compliments in a way that impacts how others perceive themselves – essentially by saying, “Thank you” with your words and actions. React to bad news about yourself or others by appreciating it in a way that encourages those messengers to give you more of it in the prompt, straightforward and unvarnished way you want it delivered.
Long ago in a galaxy far away someone suggested the best way to respond to a compliment was by saying “Thank you.” He urged us to accept compliments as the fully formed gifts they are meant to be. There is no need to build on them, defer them, or deny them.
Last year someone complimented me on something I wrote. I replied, “I’m not sure it was that good.” She jumped all over me, saying “Don’t ever say that again. It makes aspiring writers lose faith in themselves.”
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Why Leaders Should Not Manage Their Own Milestone Processes

The most effective senior leaders pay attention to strategy, organization and operations, driving what to do and why, who’s going to do it, and how to get it done. While the first two are essential, they are useless without the third. High performing organizations rely on a strong milestone management process to ensure things get done when they are supposed to get done. However, for a senior leader, “pay attention” is not the same as “manage.”
Consider the difference between leaders and managers. The best leaders spend their time inspiring and enabling others to do their absolute best together to realize a meaningful and rewarding shared purpose. The strongest managers spend their time directing and coordinating the actions of others.
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The Time Management Flip – Enable Others Before Doing Your Own Work

The time management flip comes in the instant at which your greatest leverage switches from making the best use of your own time to helping your team members make the best use of their time.
As a senior leader, leverage comes from your team. Success is no longer based on what you do yourself, but, rather, on what you inspire and enable in others. This is why individual contributors, managers, and leaders must think about time management differently.
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Why The Most Effective CEOs Spend The Least Amount Of Time Managing

The most effective CEOs concentrate their efforts on leading with vision and values to inspire and enable others to do their absolute best together to realize a meaningful and rewarding shared purpose. The most effective CEOs concentrate their efforts on leading with vision and values to inspire and enable others to do their absolute best together to realize a meaningful and rewarding shared purpose. They focus 20-30% of their time up, 20-30% out, and less than 50% down.They can do this because they delegate managing.
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Equip Yourself for Implementation of the New Credit Losses Standard

Last September, US
Securities and Exchange Commission Chief Accountant Wesley Bricker observed that
“the audit committee plays a vital role in overseeing a company’s financial
reporting, including the implementation of new accounting standards.”

One hotspot on the implementation front is oversight of how companies are implementing a major new accounting standard that will significantly change estimating and accounting for credit losses. The new accounting standard requires companies to measure certain credit losses under a new model, commonly referred to as the current expected credit loss model.

The standard will
affect accounting for a wide range of financial assets, including loans,
held-to-maturity debt securities, receivables, net investments in leases, and
certain off-balance sheet credit exposures. For most calendar year-end public
companies, the new standard is effective on January 1, 2020.

With this oversight challenge looming, the Center for Audit Quality has developed a tool to aid audit committee members. In addition to providing a concise overview of the standard, the tool provides ideas for audit committees regarding important questions to ask in key areas.

Evaluating the Company’s Impact Assessment

Company to company, the impact of the credit losses standard may vary based on a wide range of factors. Given this complexity, management may be performing high-level assessments to gauge whether the new standard’s impact will be limited, moderate, or significant. This impact assessment can be useful to guide the implementation plan, including consideration of needed resources.

As audit committees evaluate
management’s impact assessment, they should consider the following questions,
among others. (See the CAQ’s tool for additional questions.)

Were all relevant parties involved in assessing and understanding the potential impact of the standard? This pool could include the following departments and functions: accounting, tax, communications, financial reporting (including internal control over financial reporting), financial planning and analysis, investor relations, risk, credit, operations (data retention for forecasting), treasury, and information technology.What factors were considered in management’s impact assessment? How has management assessed the potential impact the new standard may have on key areas such as investor relations and communications, regulatory compliance, accounting for taxes, and the impact on financial statements of borrowers?When will management provide pro forma financial statements including disclosures and investor communications to the audit committee to demonstrate the expected impact of the new standard on the financial statements (including multiple scenarios based on potential economic environmental impacts)?

Evaluating the Implementation Plan

Companies should develop an
implementation plan and communicate it to the audit committee. As with the
impact assessment, audit committee members should have a number of questions in
mind as they evaluate the implementation plan.

How are milestones established and monitored? Are the milestones appropriate?How will the audit committee be apprised of status? Audit committees may want to consider requesting a quarterly progress report from management.Does a strong tone at the top support the effort required to implement the new standard? Is implementation receiving the appropriate resources (in-house and third-party) and priority?How is management’s assessment of internal control over financial reporting impacted?Has management created thorough processes to develop the expected credit loss model? Has it performed validation controls to verify that the model is performing as expected? Have governance processes and controls been put in place to determine that the model is—and will remain—fit for purpose?Who is responsible for new accounting policy decisions, and how does the company plan to revise written accounting policies?How has an internal communication plan been established (such that key stakeholders are aware of how the new standard will impact the company)? What is the view of the external auditor as it relates to the implementation plan? Will it satisfy the auditor’s plan and timeline to complete the audit in a timely manner?

Other Important Implementation
Considerations: Disclosure

The questions don’t
stop at impact assessment or implementation. One critical area for audit
committees is understanding how the new standard will affect disclosures.
Exploring the following questions and others in the CAQ tool can aid in
building that understanding.

Has the company disclosed the potential effects of the future adoption of the new standard in interim and annual filings leading up to the effective date? If quantitative amounts are not known, has the company provided qualitative or directional disclosures? What is management’s strategy for identifying, drafting, and communicating to the audit committee any new disclosures required as a result of the standard? To the extent that information for new disclosures is not currently available, how will the company develop new processes and controls to obtain required information?

Naturally, the questions listed above are just starting points in what should be a robust dialogue. For more, I urge audit committee members to download our tool, which, like all CAQ resources for audit committees, is a complimentary resource to the public.

Julie Bell Lindsay became the executive director of the Center for Audit Quality in May 2019.