The most effective boards have highly knowledgeable directors, the information they need to make decisions and, most important, the power to act.
Powerful forces are redefining the roles and activities of corporate boards — among them are the volume of M&As, the focus by institutional investors on the role of governance in underperforming and failing companies and the accelerating rate of turnover among CEOs that is placing enormous pressure on boards to take a more active role in succession planning. These forces are only likely to increase in strength over the next few years.
In response, corporate boards in the United States have been experimenting with new governance initiatives. Several have become widespread practices among the largest U.S.companies. Many boards are now composed primarily of outside directors and have a profile that is more representative of society as a whole; they operate according to written guidelines, meet regularly in executive sessions without inside directors, and conduct formal appraisals of the CEO. But have these changes resulted in more-effective boards?
Indeed, as measured by comparative financial data, our research shows that some of them have, and new ideas still largely in the proposal stage may lead to further progress. Looking ahead, greater concern for multiple stakeholders may some day have a major impact on board practices and structure (and thus effectiveness).