The principles of management for boards are a set of best practices that assist a board to achieve its goals of governance. These principles include the use annual assessments to examine the performance of an organization, the appointment of an independent chair, and the inclusion non-management directors in CEO evaluations. They also utilization of executive sessions to discuss sensitive issues like conflicts of interest.
The board’s obligation is to take actions that are the best interests of the company as well as its shareholders. Therefore, while a board must consider the opinions of shareholders, its responsibility is to exercise its own judgment independently. A board should also consider the threats that could impact the company’s ability to generate value in the short and longer term, and weigh these factors when making decisions and strategies for the company.
There is no universal model for board structure and composition. Instead, boards should be more open to playing with various models and think about the impact each model has on the effectiveness of the board overall.
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 ineffective in addressing risks and challenges facing the company. Boards must be aware of the growing emphasis placed on environmental, social and governance (ESG) concerns of investors demands that they be more flexible than they were in the past.