Guidelines and Attributes for Effective Independent Board Leadership
We believe effective independent board leadership is a key component of good corporate governance and long-term value creation. Our guidance below is based on discussions we have had with over 100 independent chairs and/ or lead independent directors from multiple jurisdictions over the past two years. In addition to the functions and responsibilities for independent board leaders, we identify the governance structures that can enhance their effectiveness as well as the skills and expertise necessary for effective, independent oversight of management.
Attributes of Effective Independent Board Leadership
- A skilled independent leader of the board
- Effective board processes
- Rich mix of board skills and experiences, including deep industry expertise
- Clear delineation of roles/accountability between board and management
Governance Structures That Enhance Effectiveness:
- Robust Selection Process: In our experience, very few portfolio companies have institutionalized the process for selecting an independent chair or a lead independent director. We encourage companies and boards to adopt a framework that specifies relevant skills and characteristics.
- The Position Should Be Sufficiently Tenured: A reasonable tenure allows an individual time to develop in the role and build good working relations with management and other stakeholders. We believe a minimum of three years is required, with the prospect of additional terms based on performance.
- Performance Evaluation of the Board Leader: Independent board members should evaluate the effectiveness of the board leader on a regular basis. Further, the job description should also be periodically reviewed and updated to evolve with market and regulatory expectations.
- Planning for Succession: Given the importance of the role, boards should plan for an orderly succession of a director serving in the leadership position.
Effective Board Leaders Must:
- Be Good Communicators: Since the role requires facilitating discussions among board members, between directors and the CEO/management, and engaging with shareholders/stakeholders, strong communication skills are necessary.
- Have the Required Time Commitment: Given the key functions of the position, we estimate that the role requires a significant time commitment to execute responsibilities effectively. Based on our engagement sample, the time commitment can range from one day a month (about 100 hours a year) to 2 days a week (over 800 hours a year). On average, the time commitment is between 300–400 hours a year.
- Have Relevant Industry Expertise: Independent board leaders tend to act as sounding boards to CEOs. Relevant industry expertise enhances the effectiveness of the individual and reduces the risk of a “management knowledge- captured board."1
- Have Personal Effectiveness: This includes personal integrity and professional credibility; ability to earn the support of other directors and management; good problemsolving skills; sound judgment and leadership.