The principles of board management are a set of best practices that can help a board achieve its governing mission. They include the use of annual assessments to examine a board’s performance, the appointment of an independent chair, the inclusion of nonmanagement directors in CEO evaluations, and the use of executive sessions for discussion of sensitive matters, such as conflicts of conflicts of interest.
A board must be accountable to act in the best interests of the company, and its shareholders, over the long run. Thus, while a company’s board must take into account the views of shareholders, their responsibility is to use its own judgment independently. A board should also carefully evaluate the potential for both long- and short-term risks for the company’s value creation and weigh them in reviewing corporate strategies and decision-making.
Therefore, there is no one-size-fits-all model for a board’s structure and composition. Boards should be prepared to experiment with different models and think about the ways they can impact their overall effectiveness.
Some boards are prone to adopting a geographic or special-interest-group representation model in which each director is perceived to represent the views of individuals located in a particular geographical area. This can lead to boards that are overly insular and unable to effectively address the challenges and risks facing the company. Boards should also be aware that investors are putting more emphasis on environmental governance, social and governance (ESG). This requires more flexibility.
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