managing risk.pdf

30 Chapter 2 - Good Governance: Managing Internal RiskInformation and disclosureBoard oversight quality is heavily dependent on the quality and timeliness of information supplied to membersby the MFI’s management. This dependence is closely tied to the quality of the MFI’s management informationsystems, accounting personnel and practices, and internal controls systems. To avoid faulty decision making, theboard should clearly understand what information it needs, what should and can be tracked regularly, and howthe management information systems are able (or unable) to gather that information.The board should be aware of the MFI’s reporting requirements. A good starting point in designing a financialperformance monitoring system, for example, is for the board to do an inventory of existing reportingrequirements. The board should pay particular attention to how well management is using information toinform operations, make decisions, and propose new strategies. A list of common reports and informationprovided to board members includes the following:• Financial and operating reports on a monthly or quarterly basis, including a set of carefully chosen indicatorsfor tracking progress against financial goals, operational plans, and the MFI’s social mission. These reportsshould give the board a complete and focused picture of progress regarding the triple bottom line. 8• A complete board information package for each monthly or quarterly meeting including (1) the currentagenda, (2) minutes of the prior meeting, (3) management reports, (4) board committee reports, and (5) anyadditional information relevant to issues to be raised in the meeting.Additionally, the board should use the following to verify reports it receives from management: independentlyaudited financial statements, together with the auditor’s management letter and any responses given by MFImanagement on a yearly basis, and internal audit reports as frequently as deemed necessary by the Audit Committee.Training and developmentGood governance must be developed over time. Effective boards undertake specific activities aimed at helpingmembers to learn and grow in their ability to support and lead their MFI to the achievement of the institutionalmission and objective (see box 2.7). Common training and improvement activities include• Training sessions on best practices in microfinance and understanding of key financial and social indicatorsfor measuring progress, which may involve internal MFI staff members or external experts• Retreats to build relationships and consensus between board members regarding the balance of financialand social objectives• Client visits to acquaint members with the MFI’s operations, products, and services and also to gain theclients’ perspective• Self-evaluation on a yearly or biannual basis to measure effectiveness, identify strengths and weaknesses,and develop further strategies to improve board performance8. For more information on financial performance monitoring from a board’s perspective, see Bruett and Natilson (2002).