Boards of directors and company boards play a central role in today’s disruptive business world. They shape the company’s future through their management and control function in various areas. So, what are the best practices of effective board management?
Organization of an effective board management
We all live in a new reality. Changes are happening very quickly, new technologies are emerging, and the level of uncertainty is increasing every day. Planning horizons are shrinking, and strategies written for 20 years ahead are losing relevance. The methods of competition that existed before ceased to work. What made companies successful in the past no longer guarantees them success in the future. In such a turbulent environment, the future of companies will increasingly depend on the decisions made by boards of directors, their ability to catch trends, notice changes in the external environment on time, assess risks and see opportunities. The tasks of the modern board of directors are formulated much more broadly than in previous years. Shareholders, investors, and stakeholders expect the board of directors to create added value for the company and ensure its long-term sustainable development. Such expectations, in turn, are a big challenge for the boards themselves, forcing them to think about their performance and ways to improve it.
The top 5 practices of effective board management
Here are 5 best practices to improve the effectiveness of the board management:
- Ensure the diversity of the composition of the board of directors
The diversity of the professional composition of the board of directors has a positive impact on the activities of the corporation. Various sources explain this phenomenon by the ability of a diversified board of directors to provide more effective risk management in the separation of ownership (shareholders) on the one hand and control (corporate management) on the other. In addition, by bringing different perspectives to the board of directors, a more diverse board of directors contributes to the increasing participation of the corporation in the implementation of social responsibility programs.
- Integrate long-term value across the entire value chain
Stakeholders are placing more stringent and diverse demands on businesses than ever. Boards of directors have an excellent opportunity to improve corporate governance, taking into account the commitments made to stakeholders, make a socially significant goal an integral part of their business strategy, and ensure an appropriate level of accountability. Organizations must demonstrate transparency by continuously evaluating their performance and reporting progress.
- Make business risk management and transformation planning a top priority
One of the most severe obstacles to the successful work of the board of directors is the inefficient allocation of time between issues under consideration. In addition, transformational and other long-term strategic initiatives are often relegated to the background. Today, boards of directors are too focused on tackling important but immediate tasks such as financial reporting, traditional risk management, and compliance.
- Ensure secure collaboration and communication
Board members and assessors should be able to communicate and interact openly. It is necessary to ensure the collective interest of all board of directors members to aim them at active participation in the evaluation process, openness, and sincerity. Board members must be confident that the information they provide will remain confidential and thus be able to speak their minds openly.
- Balanced composition
Traditionally, boards of directors have demanded qualifications, experience, and skills in strategy, audit, finance, human capital management, risk management, and corporate governance. The skills and knowledge of individual board members are not important in themselves. The more balanced in the composition of the board of directors is, the more successfully it will cope with its tasks.