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Board management principles are a set of best practices that aid the board to fulfill its mission. These principles include the use of annual assessments to evaluate the performance of a board, the appointment an independent chair, and the inclusion non-management directors in CEO evaluations. They also include the use of executive sessions to discuss sensitive issues for example, conflicts of interest.
A board must be accountable to act in the best interest of the company, and its shareholders, over the long run. So, while a board must take into account the views of shareholders, their responsibility is to use its own independent judgment. A board should also assess the potential risks that could impact a company’s ability to create value in the short and long run and consider these aspects when evaluating the effectiveness of corporate decisions and strategies.
As a result, there’s no universal model for a board’s structure and composition. Boards should be prepared to experiment with different models, and consider 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 could result in boards that are too insular and unable to tackle the issues and risks that a company faces. Boards should be aware of the increasing emphasis on governance, environmental and social (ESG) concerns by investors requires them to be more flexible than in the past.