The principles of management for boards are a set of best practices that can help the board fulfill its governing mission. They include the use of annual assessments to evaluate the 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 such as conflicts of conflicts of interest.
A board’s responsibility is to act in what it believes are the long-term best interests of the business and its shareholders. So, while a board must take into account the views of shareholders, their responsibility is to use its own judgment independently. The board should also evaluate the threats that could impact the company’s ability to create value in the short and long run and weigh these elements when making decisions and strategies for the company.
There isn’t a single universal model of board structure and composition. Boards must be prepared to test various models, and consider how they might 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 too secluded and unable to effectively address the challenges and risks facing the company. Boards must be aware that the increasing focus on environmental, social and governance (ESG) concerns by investors demands that they be more flexible than in the past.
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