Board management principles are best practices which help a board to achieve its purpose of governance. These guidelines include the use of annual assessments to examine the performance of the board, the selection of an independent chair, as more well as the inclusion of non-management directors in CEO evaluations. They also use of executive meetings to discuss sensitive issues, like conflicts of interests.
A board must be accountable to act in the best interests of the business, and its shareholders, in the long run. Thus, while a company’s board must consider the opinions of shareholders, its duty is to use its own independent judgment. A board must also examine the risks that could affect the company’s ability to create value in the short and long term, and weigh these factors when making decisions and strategies for the company.
This means that there’s no universal model for a board’s design and composition. Instead boards should be open to experimenting with different models and thinking about how each might impact the overall effectiveness of the board.
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 secluded and are unable to effectively address the challenges and risks facing the company. Boards should be aware of the increasing focus on governance, environmental and social (ESG) concerns by investors requires them to be more flexible than in the past.