Board Management Principles

The Board Management Principles are a set of best practices that aid the board fulfill its governing mission. They include the use of annual assessments to examine the performance of a board, appointment of an independent chair and the inclusion of nonmanagement directors in CEO evaluations and the use of executive sessions for discussions of sensitive issues such as conflicts of interest.

A board’s duty is to take actions that are the long-term best interests of the company as well as its shareholders. While a board must take into consideration the views of shareholders, it is also responsible to exercise its own independent judgment. The board should also assess the potential risks that could affect the company’s ability to generate value in the short and long-term and take into account these factors when evaluating corporate decisions and strategies.

There is no universal model for the structure of boards and composition. Instead boards are encouraged to play with various models and think about how each could impact 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 too secluded and unable to effectively tackle risks and challenges facing the company. Boards should also be aware that the growing focus on governance, environmental and social (ESG) concerns by investors requires them to be more flexible than they were in the past.