The principles of management for boards are a collection of best practices that aid a board achieve its governing mission. They include the use of annual assessments to assess a board’s performance, the appointment of an independent chair, the inclusion of nonmanagement directors in CEO evaluations, and the use of executive meetings for discussion of sensitive matters like conflicts of conflicts of interest.
The responsibility of a board is to do what they believe is in the long-term best interest of the company as well as its shareholders. Therefore, while a board should consider the views of shareholders, its obligation is to exercise its own judgment independently. A board should also examine the possibility of both long- and short-term risks to the company’s value-creation, and weigh them when evaluating corporate decisionmaking and strategies.
There isn’t a single universally accepted model of board structure and composition. Instead, boards should be open to playing with various models and ponder how each could impact the overall effectiveness of the board.
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 result in boards that are overly insular and are unable to effectively address risks and issues that confront the company. Boards must be aware of the fact that investors are placing greater emphasis on environmental governance, social and governance (ESG). This requires more flexibility.
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