Boards of directors have a great responsibility to achieve company objectives, create value in the long term and consistently prioritize shareholder interests. Some of their main tasks are to oversee and guide the business strategy; protect the company’s finances; take care of relationships with stakeholders; and supervise and enforce policies and protocols so that goals are met while upholding the highest corporate standards.
All the while, boards of directors are increasingly facing challenges related to climate change, technological disruption, talent retention and the promotion of fairness and inclusivity within the organization, among others. Hence, the composition of boards is crucial.
In this context, there must be a qualified and effective board of directors to make well-informed and long-term strategic decisions that align with global trends that are setting the standard in corporate governance.
From my experience as CEO of a company that measures the effectiveness of compliance programs and corporate governance practices in more than 150 companies, I have observed a clear difference in those companies that take the structure of their board seriously. These companies have incorporated the importance of having solid governance at the core of their business, not just to comply with requirements or trends, but also because they understand the value it represents in responding more effectively to the needs of the environment.
I strongly believe it is essential to promote diversity and specialized experience on corporate boards to make well-informed strategic decisions and maximize the value the board adds to the company. Therefore, the composition and evaluation of a board are aspects that should not be underestimated.
I recommend taking into account the following elements:
1. Size
The number of members contributes to the effectiveness of the coordination and decision-making process. A smaller board will allow for easier, faster and more direct communication but might lack diversity of perspectives. A larger board will have more varied points of view but will be more difficult to manage and might be less efficient. Regardless of its size, it’s key to determine a number that encourages dialogue and effective decision-making, ideally with an odd number for voting efficiency.
2. Expertise And Specific Skills
Boards require a diverse mix of professionals who bring industry knowledge, capabilities and experience, as well as specialized skills that help navigate today’s complex business landscape. Boards must be able to address issues such as new technologies, sustainability, organizational culture and cybersecurity.
3. Diversity
Promoting and valuing diversity as more than a trend is essential to forming well-rounded boards with different profiles, where both individual expertise and complementary perspectives are highly valued. Having different points of view can result in more complete analyses for making informed decisions, open the board to new opportunities, and free the board from possible biases.
Diversity includes factors such as gender, nationality, age, disability, ethnicity and sexual identity; this representation can open spaces for reflection and provide renewed perspectives.
4. Independence
To ensure the integrity of the company’s decisions and alignment with its objectives, it is vital to have independent board members. These are individuals who do not have a material relationship with the company, who are not part of executive management and are not involved in day-to-day operations. This can help minimize conflicts of interest and ensure the board prioritizes the company’s best interests and provides impartial and fair governance.
5. Tenure
Board members should serve the company for an appropriate period of time to ensure their impartial contribution to board discussions and decision-making. Trends are ever-changing, and board members must be up-to-date to face new challenges. Therefore, this position should come with tenure limits to encourage the rotation of members over time and bring in fresh perspectives, new skills and diverse experiences.
6. Ethical Values
In addition to expertise, knowledge, experience, skills and a broad view of the external scenario, a board must ensure strong ethical values among its members. Directors should embody and promote ethics, integrity, responsibility and sound judgment as essential standards.
How To Ensure An Effective Board Composition
Companies should not settle for an adequate board of directors that simply meets current demands and trends. It is fundamental that they measure its effectiveness and carry out periodic reviews of its performance, both as a whole and of each of its members individually.
These evaluations enable companies to assess alignment with the strategic plan, evaluate board members’ performance against expectations, and determine if the organizational structure meets its objectives. What is essential is that the dynamics and decision-making processes are efficient, productive, and oriented toward the future. This helps guarantee the trust of stakeholders and, especially, shareholders.
These evaluations should not necessarily seek to point the finger at those who do not conform to the company’s objectives or are not fulfilling the work that earned them a seat on the board; rather, evaluations should detect possible risks, weaknesses, or gaps to improve them.
On the other hand, if the evaluations show poor performance, there is no need to fear dismissing board members who are inefficient or not contributing the required value, since their role in the company today is more important than ever. It is not only about reputation; it’s also about demonstrating commitment and ensuring long-term sustainability.
To address a broader vision, a company should consider managers’ executive opinion, as they must deal on a day-to-day basis with the decisions made by the board and its committees.
Furthermore, the evaluations should ideally be carried out by an independent third party that reviews performance under an objective external view and without any type of conflict of interest. (Full disclosure: My company provides this type of service, as do others.) While many companies prefer to conduct self-assessments once a year, I recommend supplementing such assessments with those from external parties to reinforce objectivity.
Governance is essential for companies because it not only emphasizes economic success but also the path to reaching it. A board with an efficient composition is precisely the way to support the company’s actions in the face of a changing world.
By Susana Sierra
Published in Forbes
Image: GETTY
