The Influence of Cognitive Communication Factors on the Preparation of Financial Narrative Board Reports

Internal communication of financial information to boards of directors is a key element of corporate governance practice. Cognitive communication factors (CCFs) have the potential to affect or influence, often unconsciously, the judgement of managers preparing internal financial board reports. This study explores the influence of CCFs on the preparation of financial narrative board reports. Qualitative semi-structured interviews were conducted with 24 senior finance executives from a range of industry sectors. The data was analysed using thematic analysis. It was found that communication between management and non-executive directors is facilitated and influenced by a range of CCFs: common ground and shared intentionality; the curse of knowledge and knowledge illusion; intuition; perception; and context. Some of these factors are considered necessary for good communication and have a positive effect; the effect of others can be either positive or negative depending on circumstances. We provide a model illustrating the potential influence web of the identified CCFs. If management are unaware of these factors, or have not considered them, we suggest the result can be an unconscious effect on their judgement regarding what information to provide to directors and how to present it. An enhanced awareness and understanding of these factors, and how they interact, should lead to improvements in practice in the preparation of board reports and the overall communication between management and non-executive directors (NEDs).