The board is key to good corporate governance

An effective board of directors, properly constituted, is the linchpin of good corporate governance. Boards are responsible for managerial performance in meeting the stated objectives of the corporation, compliance with applicable laws and regulations, and protection of shareholder rights.

How the board is constituted

• The board should be composed of qualified individuals of integrity with a diversity of experience. At a minimum, qualified means a good working knowledge of corporate finance.
  
• Each board member should be able to devote sufficient time to his/her duties and responsibilities
  
• Boards should be composed of a substantial number of independent directors. Boards should disclose to their shareholders and stakeholders their criteria for independence.
  
• Board committees on compensation, audit, and nominating should consist only of independent directors. Executive sessions of the board should also be comprised only of independent directors.
  
• For family-owned business, outside directors are essential to "ask the hard questions" of family owners, where the relationship between the business and the family may be blurred.
  

Board responsibilities include:

• Approve a core philosophy and mission
  
• Monitor and evaluate corporate performance
  
• Monitor and evaluate corporate strategy
  
• Review and approve material transactions not in the course of ordinary business
  
• Determine executive compensation
  
• Evaluate senior management performance
  
• Manage Executive Director/CEO succession
  
• Maintain legal and ethical practices
  
• Communicate with shareholders
  
• Evaluate board performance
  

Useful links

Robert F. Felton et al., "Putting a Value on Board Governance"McKinsey Quarterly, 1996

The National Association of Corporate Directors