It’s essential for directors to consider whether the board has the full team and resources necessary to effectively and credibly carry out its oversight responsibilities. Lipton et al. recommended that consideration needs to be given to the following issues and questions:
- Does the board have a sufficient number of members to staff the requisite standing and special committees and to meet expectations of investors and other stakeholders with respect to diversity and ability to effectively engage with stakeholders? Institutional investors have expectations regarding director age, diversity and periodic refreshment that need to be understood and respected and the CSR and corporate sustainability pronouncements from the board will not be seen as credible unless board composition demonstrates a commitment to diversity and stakeholder representation.
- Does the board include directors who have knowledge of, and experience with, the company’s businesses? While there has been a substantial wave toward including “independent” directors on boards in recent years, and this remains good advice, boards should consider adding more than one director who is not “independent” when and if that person can provide the outside directors with insight into the day-to-day operations of the business. Given that the CEO is already a member of the board, other inside directors, typically drawn from the senior executive team, must have the experience, reputation and confidence to provide views that may differ from those offered by the CEO.
- Are all of the directors able to devote sufficient time to preparing for and attending board and committee meetings? Being an effective director requires a substantial commitment of time and physical and mental resources and each director must be able to fully participate and engage in the difficult debates that continuously occur at full board meeting and during committee meetings. Boards can no longer afford to have ceremonial directors appointed for public relations purposes, particularly when the institutional investors and other stakeholders are closely monitoring reports on director attendance and participation. Also important to consider is the time expected of each director to participate in stakeholder engagement and relationship building and education and training (see below).
- Does the board have processes in place to ensure that directors receive all of the data, presented in a clear and objective manner, which is critical for them to be able to make sound decisions on strategy, compensation and capital allocation? Directors cannot rely solely on reports prepared by the CEO to make their decisions as fiduciaries for investors and other stakeholders, but must instead ensure that objective data is collected and analyzed through the company’s internal controls and made available to directors well in advance of meetings. Data requirements should be sorted out in advance between directors and management when discussing and adopting key performance indicators for each CSR initiative and program.
- Does the board have procedures in place to ensure that directors receive continuous training and education on the rapidly expanding list of topics that will appear on the board’s agenda? Directors should ensure that they are provided with regular tutorials by internal and external experts as part of expanded director education and the curriculum must cover each of the key topics that must be addressed from a CSR and corporate sustainability perspective including issues such as climate change and supply chain management and processes such as stakeholder engagement and disclosure/reporting.
This article is adapted from material in Sustainability and Corporate Governance: A Handbook for Sustainable Entrepreneurs, which is prepared and distributed by the Sustainable Entrepreneurship Project and can be downloaded here.
Alan Gutterman is the Founding Director of the Sustainable Entrepreneurship Project, which engages in and promotes research, education and training activities relating to entrepreneurial ventures launched with the aspiration to create sustainable enterprises that achieve significant growth in scale and value creation through the development of innovative products or services which form the basis for a successful international business. Visit the Project’s Library of Resources for Sustainable Entrepreneurs to download handbooks, guides, articles and other materials relating to sustainable entrepreneurship and keep up with the Project’s activities by following Alan on LinkedIn, Twitter and Facebook.