Shifting the focus: Moving beyond the numbers and into strategic conversations

While it is easy to get lost in the minutiae of financial data, finance goes beyond the realm of numbers and spreadsheets. The real power of financial reports lies in the conversations we have around what we set out to achieve, how we performed, and the critical insights derived from the variance between the two. High performing Directors (with or without formal accounting or finance training) will not fixate on the figures themselves but rather explore the reasons behind the variances and the future implications and possible opportunities that may arise. By placing the explanations for variance alongside the corresponding line items in a Profit and Loss Statement, for example, we can invite directors to focus on the underlying causes and what has changed since the original year-to-date figures or budget. Equally important is dedicating a section at the bottom of the Profit and Loss Statement titled "Strategic Implications for Board discussion". Here, we delve into the implications these variances hold for our overall strategic direction.

The Balance Sheet also provides insights into some key ratios (eg liquidity ratio), but should also provide guidance for discussions around acceptable and non-acceptable ranges for these ratios, and the strategic implications of movements in these ratios. Again, a section at the bottom of the Balance Sheet titled "Strategic Implications for Board discussion". where we delve into the implications these ratios hold for our overall strategic direction.

What makes this approach so powerful is its ability to engage individuals who may not have a finance background. It empowers everyone in the boardroom to participate in high-level strategic discussions that are rooted in financial insights but do not lose sight of the bigger picture. By fostering a culture where finance is a shared language, we unlock the potential for multidisciplinary collaboration and diverse perspectives that can unlock strategic innovation and assist in making the choices that need to be made.

In pursuit of this paradigm shift, the Finance Audit and Risk Committee plays a pivotal role. The committee's primary responsibility is to ensure that it possesses the necessary expertise to elevate board conversations beyond the realm of numbers. By developing a deep understanding of the strategic implications arising from financial and risk management practices, they become catalysts for change within the boardroom.

However, if your Finance Audit and Risk Committee currently lacks the capacity to fulfil this crucial role, it is essential to embark on a mindset transformation journey. By nurturing a culture of strategic thinking and encouraging Committee members to broaden their perspectives, you can equip the Finance Audit and Risk Committee to embrace its strategic mandate fully. One of the easiest ways to actualise this, is to bring in someone external who has these skills and experiences, appoint them as a non-Director to the Finance Audit and Risk Committee, (even possibly as Chair of this Committee) and specify as part of their job description that they have to mentor and up skill all other members of the Committee.

The role of the board is to have conversations about the strategic implications of the finances, not the finances themselves. Finance is not just about the figures; it is a gateway to strategic insights and decision-making. Shift the conversation around finance from a myopic focus on numbers to a broader discussion on the reasons for variances, the ratios and strategic implications of these. By leveraging the expertise of the Finance Audit and Risk Committee and fostering a mindset of strategic thinking and insight, we can dramatically improve boardroom discussions.

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