Bringing out the best in your Board

In the summer of 2016, the CEOs of some of the world’s largest publicly traded companies met at JP Morgan’s headquarters in Manhattan to hash out corporate governance principles for a new era. Warren Buffet joined the heads of Fidelity, Vanguard, General Motors, and General Electric among others. Discussions centered around one shared conclusion: good corporate governance was good for business.

This important meeting set the tone for ongoing discussions of best practices in corporate boards relevant to not only major publicly traded companies, but nonprofits and smaller private companies.

The rise of Environmental Social Governance (ESG) in the last decade only solidifies the importance to companies of assembling strong boards, putting in place responsibilities and benchmarks, and reporting on their practices. Companies with effective boards see financial prosperity, minimize risk, and grow their businesses.
So what are the industry agreed upon best practices for corporate boards? And what questions can a company ask themselves as they select their boards or audit its effectiveness?

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We are grateful to Future Energy Partner for helping us though the ISO certification process. The implementation of ISO standards is what differentiates as a company from our competitors and demonstrates our commitment to Occupational Health and Safety Management.

Goitom Araya
CEO, General Construction and Trading Company
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Composition and structure

Independence: successful corporate boards are ones that maintain independence from the day-to-day operations of the company, and whose members are separate from the “C-Suite” or executives.

  • Are your board members able to provide unbiased oversight and management of the company’s leadership?

  • Does your board meet independently from the CEO and other executives? How often?
  • How do your board members hold executives accountable?

Expertise: Warren Buffet has famously stated the most important job of a board is to select CEOs who possess integrity and long-term devotion to the company. Traditionally, board members have come from industry leaders with proven track records in running successful businesses. In recent years, companies have found increasing benefits with selecting board members with executive experience in adjacent industries.

  • Is your board competent, knowledgeable, and experienced in your industry?
  • Are there a good mix of insiders and outsiders on your board?
  • Have you vetted board members for potential conflicts of interest?

Diversity:  the most successful boards are often comprised of individuals with different backgrounds, experiences, and expertise. This extends beyond considering gender or race, although certainly major corporations are increasingly interested in diversity, equity, and inclusion initiatives — and having a diverse board can strength a company’s ESG profile.

  • Does the composition of your board reflect the membership of the company?
  • Has your company made an effort to recruit women, people of colour, or other traditionally marginalized groups?
Responsibilities

Leadership and strategy: two of the most important responsibilities of a corporate board is to provide ethical leadership and to develop a long-term strategy for the company.

  • Are your board members interested in the long-term development of your company?
  • Do the values of your board members align with that of the company and its stakeholders?
  • How will your board implement ESG initiatives in the short-term and long-term?

Transparency and disclosure: successful boards must provide accurate and timely information to stakeholders, including a disclosure of the company’s finances.

  • What systems are in place to mandate reporting?
  • How and how often does your board communicate to stakeholders?
  • Does your board comply with local laws and regulations? What is the process for reporting on your company’s compliance?
  • What systems are in place to ensure up-to-date and accurate information is provided to the board?

Shareholder engagement and communication: a constructive, fluid dialogue between boards and their shareholders is a hallmark of a healthy, successful company.

Risk management: finally, a company’s ability to manage risk is one of the biggest indicators of their long-term success.

  • What processes are in place for your board to identify, assess, and mitigate risk?
  • How does your board communicate with your shareholders?
  • What venues are available to shareholders keen to express concerns?
  • How will the board consider shareholder input in decision-making?

Constructing a strong, healthy corporate board according to industry-established best practices pays dividends in a company’s long term success and economic prosperity. It can also be time-intensive and overwhelming. An external audit led by seasoned executives with experience in corporate governance can expedite the process and ensure your efforts bear fruit. Alternatively, you may consider contacting Future Energy Partners for specialised assistance.