The Board Management Principles are best practices which help a board to achieve its primary mission. They include the use of annual assessments to examine the board’s performance, the appointment of an independent chair and the inclusion of nonmanagement directors in CEO evaluations and the use of executive sessions for discussion of sensitive matters such as conflicts of interests.
A board must be accountable to act in the best interests of the company and its shareholders, in the long run. Thus, while a company’s board should consider the views of shareholders, its obligation is to use its own judgment independently. A board should also look at the possibility of short- and long-term threats for the company’s value creation, and weigh them when making decisions and strategies for the company.
There isn’t a universally accepted model of board structure and composition. Instead, boards should be willing to experiment with different models and thinking about 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 result in boards that are too isolated and ineffective in addressing the risks and challenges that a company faces. Boards must also be aware that the growing focus on governance, environmental and social (ESG) concerns of investors demands that they be more flexible than they were in the past.