The principles of management for boards are a set of best practices which help boards to fulfill their purpose of governance. They include the use of annual assessments to examine the performance of a board, appointment of an independent chair and the inclusion of non-management directors in CEO evaluations as well as the use of executive sessions for discussions of sensitive issues like conflicts of interests.
The board’s obligation is to do what they believe are the long-term best interests of the business and its shareholders. Therefore, while a board should take into consideration the opinions of shareholders, its duty is to use its own judgment independently. The board should also assess the potential threats that could impact the company’s ability to create value in the short and longer term and consider these aspects when making decisions and strategies for the company.
There isn’t a single universally accepted model of board structure and composition. Instead boards should be open to experimenting with different models and thinking about the impact each model has on 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 could result in boards that are too insular and ineffective in addressing the challenges and risks facing a business. Boards must 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.
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