The May 2019 report by the Diligent Institute measured governance practices related to shareholder rights, board composition, independence and compensation.Ĭompanies with good governance, as identified by the top 20%, outpaced the S&P 500 index. The modern governance approach strongly supports board decision-making best practices. Today's leaders lack the tools to communicate, collaborate and share sensitive data securely. Modern Governance and Board Decision-Making Best Practices During times of major decisions, boards should have every opportunity to request and receive additional information so they can try to explore every possible alternative. Some decisions should come to the board because they touch on the company's core values. When many perspectives get added to a board discussion, it can open up new ideas and ways of understanding things. These are the types of situations that support the emphasis on composing a diverse board. The board's collective wisdom can prove to be invaluable. There are some other important reasons to take certain decisions to the board for input and consideration. As new issues arise, they force the board to review how they think about dividing areas for decisions.īoard Decision-Making Best Practices for Taking a Decision to the Board Major decisions include things like acquiring a new operation, divesting an underperforming division or entering a new market are all board decisions. Major decisions that will impact or change the future and those that may impact the strategic plan should be given to the board's attention. In most cases, the CEO will make these calls based on informal norms that they've established over time.Ĭertain types of issues may signal that it's time to involve the board. Communication between boards and executives are also very important during these times.
These are the times that it's a good idea to have some basic rules of thumb. Unfortunately, the nature of business is that unusual situations can and do arise unexpectedly that don't fit squarely into one area of responsibility or another. It's good to have formal practices and protocols in writing for everyday situations. A statement of formal delegation of authority lists the decisions that must be brought to the board for final resolution. In recent years, in the interest of transparency, some boards are making their decision-making structures available publicly. Typically, the policy for decisions that the board makes, as well as those that the management team makes, are confidential.
Boards can set up the division authority according to their liking. Among the many matters that boards must consider throughout the year include:īoards should have some sort of a system by which they can explicitly identify which decisions will typically be made by board directors and which decisions will be made by the management team. Your company's annual calendar is a good place to start when setting up the structure for a board's decision-making. Setting Up the Agenda Around the Annual Calendar Where boards aren't sure if they're ready to take a formal vote on something, they have the option of taking a straw poll. Board directors shouldn't be expected to vote on any issue before they're ready. A particular board meeting strategy that some boards use is to put major items for decision early on the agenda when the board is fresh and not weary after a long meeting.Įven where agenda items that require decisions appear early in the agenda, the board still requires ample time to ask questions, request additional information and get answers. The agenda should always indicate which agenda items require the board to make a decision. For other decisions, they just need to be informed. Setting Up the Right Structure for Decision-Making AuthorityĬertain decisions require boards to be the decision-makers. In addition to looking for human resources, boards can also rely on some formal processes and informal principles to improve the quality of their decision-making. Other board directors, certain investors and researchers on governance best practices are a few of the best resources for good board decision-making for their companies.
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While, in other types of industries and positions, managers and leaders have multiple opportunities to find mentors and examples of good leadership, boards have fewer options for how to improve their craft. When they can be assured that the leaders adhere to board decision-making best practices, they have greater confidence in the board. It's right and fair for shareholders and regulators to have some idea of what the board is doing however, they're not privy to everything. While many of the board's decisions are either visible or public, many of the decisions that boards make are confidential and never leave the boardroom. For better or worse, the decisions that boards make help to shape the company's future.
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