Boards of directors hold significant responsibility for achieving company objectives and creating long-term value, always safeguarding shareholders’ interests. Among their main tasks are ensuring the execution of business strategy, protecting the company’s finances, maintaining relationships with stakeholders, and overseeing that policies and protocols are followed to meet goals while upholding corporate best practices.
On the other hand, various factors such as climate change, technological disruption, talent retention, promoting equity, and others are challenging boards. Therefore, the composition of the board is critical.
In this context, it is essential to have a qualified board to make objective strategic decisions with a long-term perspective, aligned with global trends that are setting the standard for corporate governance. Thus, composition and effectiveness are fundamental today, and there is a clear difference between companies that take their board structure seriously, as they have embedded the importance of strong governance at the heart of their business—not only to comply with demands or trends but because they understand the value of responding more effectively to the needs of the environment.
When evaluating board composition, the following elements should be considered:
1. Size:
The number of members impacts the effectiveness of coordination and decision-making. A smaller board allows for easier, faster, and more direct communication but may lack diverse perspectives, while a larger board will have more varied viewpoints but can be harder to manage and less efficient. It is recommended to have an odd number to support efficient voting.
2. Expertise and Specific Skills:
Boards should have a mix of professionals with industry knowledge, competencies, and experience, but they must also have specific skills to address challenges in areas like new technologies, sustainability, organizational culture, or cybersecurity.
3. Diversity:
Promoting and valuing diversity is a relevant trend when forming comprehensive boards with different profiles, where both individual value and group complementarity matter. Having diverse perspectives leads to more thorough analysis for informed decision-making, opening doors to new opportunities and overcoming potential biases.
Diversity includes factors such as gender, nationality, age, disability, ethnicity, or sexual identity, which will create spaces for reflection and bring a fresh perspective.
4. Independence:
To ensure the integrity of decisions and the company’s objectives, it is vital to have independent directors—people who do not have a material relationship with the company, are not part of the executive team, and are not involved in the day-to-day operations. This will minimize conflicts of interest, prioritizing the company’s well-being and guaranteeing objective governance.
5. Tenure:
Directors should serve the company for an appropriate period, ensuring their impartial contribution to board discussions and decision-making. The trends of the past are not the same as today’s, and directors must stay up-to-date to address new challenges. Therefore, the role should have limits to allow for the rotation of perspectives, including skills and knowledge relevant to emerging needs.
6. Ethical Values:
In addition to expertise, knowledge, experience, skills, and a broad understanding of the external environment, a board must uphold a minimum standard of values by including directors who promote and exemplify ethics, integrity, responsibility, and sound judgment.
HOW TO ENSURE EFFECTIVE BOARD COMPOSITION?
Companies should not settle for having an appropriate board that meets current requirements and trends. It is essential to measure its effectiveness and conduct regular performance reviews, both collectively and individually for each board member.
These evaluations will review the results against the strategic plan, assess the level of compliance of the directors, check if they are acting according to expectations, and determine if leadership is being promoted. The goal is that the dynamics and decision-making processes are efficient, productive, and future-oriented, ensuring stakeholder trust, particularly from shareholders.
Evaluations are not necessarily about pointing fingers at those who do not align with company objectives or are not fulfilling their duties as board members. Instead, the purpose is to identify potential risks, weaknesses, or gaps and manage them effectively.
Moreover, if evaluations show poor performance, there should be no fear of removing ineffective directors or those not adding the required value. The role they hold in the company today is more important than ever. It is not just about reputation; it is about commitment and respect for sustainability and the environment.
To provide a broader perspective, it is recommended to consider the executive opinion of managers who deal daily with decisions made by the board and its committees.
Additionally, evaluations should ideally be carried out by an independent third party who can review management from an external, objective viewpoint, free of any conflict of interest. While many companies prefer to conduct self-assessments annually, it is recommended that these also be complemented by external evaluations to support objectivity.
Conclusion:
Governance is essential for companies because it focuses not only on economic success but also on the path to achieving it. A board with an effective composition will support the company’s actions in response to the various changes occurring in the world.
