Board management principles are best practices which help boards to fulfill their goals of governance. These guidelines include the use of annual assessments to examine the performance of a board, the appointment an independent chair, and the inclusion of non-management directors in CEO evaluations. They also use of executive meetings to discuss sensitive issues like conflicts of interest.
A board must be accountable to act in the best interests of the company and its shareholders over the long run. So, while a board should take into consideration the opinions of shareholders, its duty is to use its own independent judgment. A board must also look at the possibility of both long- and short-term risks to the company’s value-creation and weigh them when reviewing corporate strategies and decision-making.
There isn’t one universal model for board structure and composition. Instead, boards should be willing to experiment with various models and ponder the impact each model has on the board’s overall efficiency.
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 too insular and unable to effectively tackle risks and issues that confront the company. Boards should also be aware of the fact that investors are placing more importance on environmental as well as governance and social concerns (ESG). This requires greater flexibility.
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