In the sidelines of a recent, excellent ICSA panel discussion, the question arose “when does an company become too complex”? As the meeting concerned the role of activist shareholders, the first response was “when it starts to erode shareholder value”. The second response has more general application: “an organisation is too complex when its Directors no longer understand it”. That happens more often than you might imagine, particularly in respect of companies that deal in complex financial instruments.

The Company Secretary has an enormously important role to play in these circumstances, in helping create the necessary clarity required.

All organisations have some degree of complexity within them, and with Non Executive Directors who may not be subject matter experts, the trick is in understanding whether it is they that need to get up to speed, or the company that needs to calm things down.

However, when it comes to complexity, there’s one thing that all on the Board should be in no doubt about – what do the institutions, regulators and other informed, external parties think?These entities will have opinions, and whilst some have rules precluding them sharing their opinion with others (activist shareholders seeking to build a stake ahead of action, for example, will find that some institutions refuse to disclose their views – although they will listen politely to what they have to say, and may support them later), they will tell the company what they think.

The question is, does that thinking make its way into Board papers, or is such criticism mistakenly corralled by the Executive (‘it’s a CEO or Finance Director matter – no need to bother the Board with it’)? You may have to ensure the Board is given regular updates on these external views, and any concern set out fully, rather than being shrugged off (‘the CEO met X shareholder and explained why the company’s strategy/operations/financial structure/governance was correct’). And clearly, any concern from a regulator should always be reported to the Board. It may also be worth making summaries of the earnings calls of businesses that have complexity issues similar to your own, and summaries of analyst notes and the output of the informed financial media available to Boards, as background / contextual material.

But if all the indications are that the external landscape is benign, you then have to wonder if it’s the Board papers that are the problem.

It’s incredibly common for Board papers to be overly long; deal with complexity through dumping detail on the reader; through over-simplifying; being badly structured; self-censored to omit outliers and contrary opinions; and contain instances where data and the expression of that data is open to divergent interpretation.

Some papers don’t explain who authored them, nor explain the pathways the documents may have taken through the organisation. Others may, for historic reasons, cover matters that stakeholders no longer consider of prime importance. Sometimes, the overly restrictive use of PowerPoint or templates may create a problem.

So asking yourself if the papers pass the 90 second test is a great starting point. If the answer is ‘no’, then there’s an important job to be done in getting the commissioning and drafting of papers looked at afresh.

Do those drafting the documents fully understand the levels of knowledge of the NED’s? Have the documents been through the right Governance processes, with all relevant departments having contributed? Do the papers directly address the concerns that gave rise to their commissioning? Do they reflect the concerns of stakeholders? And have the papers been well-written? Are they crystal clear, with conclusions that are supported by the arguments presented? Do they contain outliers / contrary opinions (or has everything been ‘smoothed’ along the way)? Have they been properly planned; correctly structured; edited for comprehension, not just length?

If not, then – ahem– you should do something about that.

What if there are no external concerns, and the papers are as clear as possible, and Directors still don’t understand something about them, or the conclusions they reach?

Well, it’s important you don’t sit there and do nothing. First off, do you understand the business, despite its complexity? If you don’t understand a particular issue, you must rectify that, or the service you give the company may be compromised. This does not mean that you have to make yourself an expert in risk, or pricing, swaps, recognition of income or whatever – just that as a professional you have a working understanding of the matter at hand.

As to the others, maybe it is a matter of education? A NED hired for their digital marketing expertise, for example, may not understand, say, Stochastic analysis of early pensions redemptions, but the business will have people who can explain such things and perhaps you could put them in touch, when you can see what’s coming up on the Board agenda. Is the comprehension problem confined to the non-subject matter experts, or is it more widespread? If the latter, that suggests a more structured approach to explaining the complexity may be required.

Is the Board composed properly? A big question this, and one that needs to be considered regularly, anyway.

And what if, having exhausted all the above, there are still a number of Board members, who don’t understand a significant, complex matter or its implications for the business.  You would hope that they would flag this up themselves rather remain silent, but if not then it’s probably time for a conversation with the Chair, who can determine the seriousness of the situation, and how to proceed.

As always, there’s much to do and time is short, so good luck and get cracking.