In any realm, people don't often think much about board governance best practices until something goes wrong. It doesn't mean that things were going well before that. It just means that it's time to get back to basics and revise strategies, plans and policies according to what works and what is right.
The corporate world is fraught with laws and regulations, but those rules don't cover every potential issue. That's where corporations need to rely on the industry and each other to form best practices for industry standards that serve all corporations well. Board governance best practices offer the guidance that assists boards as they navigate a challenging and volatile environment.
Governance is the process of strategic leadership over an organization, which incorporates guidance, policy development, strategic planning, oversight, performance and accountability.
Board Director Recruitment
A prominent way for boards to do their collective best pertains to board refreshment. As the economic climate has changed, the composition of boards has needed to change with it. Best practices for boards are requiring many boards to take a fresh look at their nominating and recruitment procedures.
A good first step is to develop recruitment packets with honest information about the organization. The establishment of Nominating and Governance committees is becoming the norm. Board director nominees should be approached with clear expectations for their time and talents. Board recruiters should vet candidates for their skills and abilities and review any potential conflicts of interest. It's best if board nominees have a clear job description for their board position before they accept the nomination.
In years past, it was a natural progression for senior executives to move to the board of directors upon retirement. After the financial crisis, it became clear to shareholders and regulatory authorities that this wasn't the best approach for overseeing corporations.
The financial crisis of 2008 vastly changed best practices for corporations as they pertained to board composition. Shareholders realized that the process made it difficult for all board directors to be truly independent.
As a result, there's been a move in board governance best practices to recruit a board of directors that is partially, if not wholly, independent. As the focus of board governance best practices have moved toward board composition, best practices have evolved to refocus on other important qualities of boards, including diversity of gender, age, ethnicity, race, religion, perspectives and skills.
Board directors put their best foot forward when they are well prepared for their first board meeting. Best practices support corporations having a formalized process for board director orientation. Orientations can be formal or informal. Information should include the history of the organization, key accomplishments, and a review of the board's organizational policies and procedures. New board directors should be aware of their legal and fiduciary responsibilities and receive a copy of their board director duties and responsibilities. It's helpful for new board directors to receive the most recent copies of financial statements, meeting minutes and the annual strategic plan.
Board Director Roles and Responsibilities
Best practices are clear about the difference in the roles between board directors and managers. It's crucial for all board directors to be clear on those differences so that they don't micromanage the CEO and other staff.
Board directors should be clear on their duties and the role of any committees on which they serve. Boards should form committees that serve the goals and objectives of the strategic plan. Commonly, boards form audit, nominating, compensation and corporate governance committees. They may form special and ad hoc committees to fill the need for specific goals or projects.
Board governance best practices require boards to be accountable for their actions. All board directors should know the industry and the market for their corporation. Most board directors come to the boardroom with their own specific sets of skills and abilities. It's impossible for board directors to know everything. Best practices for board development mean that boards should embrace the spirit that board development is a continual work in progress. This is the key to having individual board directors around the table who continually challenge the organization's thinking.
Since there is no authority above the board, it's important for boards to evaluate themselves. It's difficult for board directors to be entirely objective when evaluating themselves, so best practices suggest different types of self-evaluation. Boards may evaluate the whole board, individual directors or both. Board evaluations should cover the following areas, at a minimum:
1. Governance and oversight
2. Knowledge of financial policies and procedures
3. Input for budget
4. Enhancing internal controls
5. Strategic planning
6. Board dynamics
7. Relationship with management
Boards may use questionnaires, interviews or some combination of methods to arrive at the most valuable information. Third-party facilitators provide the most objective process for attaining useful results.
Emphasize Integrity and Ethical Dealing
The issues of integrity and ethical dealing should be among the primary things that board recruiters look for when identifying candidates for the board. Best practices for corporate governance require boards to create and cultivate a culture that holds honesty, integrity and ethical dealings in the highest regard. Boards should carefully write three important policies to support integrity and ethical dealing ' a conflict of interest policy, a code of business conduct and a whistle-blower policy.
How a Board Portal Supports All Aspects of Best Practices for Corporate Governance
Best practices for boards are in a constant state of evolution, much like the environment in which boards work. Keeping up with the times means that boards will need to rely more on software solutions, like a board portal system by Diligent, to help them manage all of the moving pieces successfully and masterfully.
Boards make many important decisions at every meeting, many of which are confidential or sensitive in nature. Diligent also offers Governance Cloud, a suite of governance tools that offers the high level of security that supports best practices by keeping their board business inside the boardroom.
A board portal is a single solution for best practices for board processes, such as analyzing the composition of boards and recruiting and orienting new board directors. Diligent Boards provides a secure platform for board communication, collaboration, board development and board evaluations.
Board management software solutions are the best, most streamlined and most efficient way for boards to tackle the changes and challenges that make their work so exciting.