Edited by Demetris Nicolaou, CFA
Member of the Board
The CFA Society of
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Investors should determine whether board members have the qualifications the company needs for the challenges it faces.
Board members who have appropriate experience and expertise relevant to the company’s business are best able to evaluate what is in the best interests of shareowners. Depending on the nature of the business, this may require specialized expertise by at least some board members.
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Implications for Investors. Investors should assess whether individual board members have the knowledge and experience that is required to advise management in light of the particularities of that company, its businesses, and the competitive environment. Board members who lack the skills, knowledge and expertise to conduct a meaningful review of the company’s activities are more likely to defer to management when making decisions. Such reliance on management not only threatens the duty to consider shareowner interests first, but also could threaten the company’s overall performance if board members are not capable of in-depth evaluations of the issues affecting the company’s business.
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Other Things to Consider. Among the factors investors should consider when analyzing board members’ qualifications are whether the board members:
• are able to make informed decisions about the company’s future.
• are able to act with care and competence as a result of relevant expertise or understanding of:
• the principal technologies, products or services offered in the company’s business,
• financial operations,
• legal matters,
• accounting,
• auditing,
• strategic planning, and
• the risks the company assumes as part of its business operations.
• have made public statements that can provide an indication of their ethical perspectives.
• have had legal or regulatory problems as a result of working for, or serving on, the board of another company.
• have experience serving on other boards, particularly with companies known for having good corporate governance practices.
• serve on a number of boards for other companies, constraining the time needed to serve effectively.
• regularly attend board and committee meetings.
• have committed to the needs of shareowners, for example by making significant investments in the company or by avoiding situations or businesses that could create a conflict of interest with his or her position as a board member.
• have the background, expertise, and knowledge in specific subjects needed by the board.
• have served individually on the board for more than 10 years. Such long-term participation may enhance the individual board member’s knowledge of the company, but it also may cause the board member to develop an accommodating relationship with management that could impair his/her willingness to act in the best interests of shareowners.
Investors should also review:
• disclosures made by the company about the number of board and committee meetings held during the past year, and individual board member attendance records.
• whether the board and its committees performed a self-assessment and, if available, any information relating to this assessment. This review will help investors determine whether the board has the competence and
• whether the board voluntarily or under the requirement of a governance code provides adequate training for board members on their roles and responsibilities.
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Where to find information about the qualifications of board members:
Many listed companies post the names and qualifications of board members on their websites.
Companies also typically provide information about their board members in the annual report to shareowners and, where applicable, in their annual proxy statements.
In many countries, companies report on the number of board and board committee meetings, as well as attendance by individual board members, in their annual reports, on their websites, or, where applicable, in their annual corporate governance reports and proxy statements.
Some corporate governance codes in jurisdictions such as
The European Union has adopted a European Commission recommendation that the board of listed companies annually discuss their internal organizations, their procedures and the extent to which their self-assessments have led to material changes.
In the
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The CFA Society of
