Discuss any five governance practices that support director independence from management.

Question

What will be an ideal response?

Answer 1

The student may discuss any five of the following.

1. Majority of independent directors: At a minimum, a majority of the board consists of directors who are independent. Boards should strive to obtain board composition of a substantial majority of independent directors.
2. Independent executive session: Independent directors meet periodically (at least once a year) alone in an executive session, without the CEO. The independent board chair or lead (or presiding) independent director should preside over this meeting.
3. Independent director definition: Each company should disclose in its annual proxy statement the definition of "independence" relied upon by its board.
4. Independent board chairperson: The board should be chaired by an independent director. The CEO and chair roles should only be combined in very limited circumstances; in these situations, the board should provide a written statement in the proxy materials discussing why the combined role is in the best interest of shareowners, and it should name a lead independent director to fulfill duties that are consistent with those provided in other company material.
5. Examine separate chair/CEO positions: When selecting a new chief executive officer, boards should reexamine the traditional combination of the "chief executive" and "chair" positions.
6. Board role of retiring CEO: Generally, a company's retiring CEO should not continue to serve as a director on the board and at the very least be prohibited from sitting on any of the board committees.
7. Board access to management: The board should have a process in place by which all directors can have access to senior management.
8. Independent board committees: Committees who perform the audit, director nomination, and executive compensation functions should consist entirely of independent directors.
9. Board oversight: The full board is responsible for the oversight function on behalf of shareowners. Should the board decide to have other committees (e.g., an executive committee) in addition to those required by law, the duties and membership of such committees should be fully disclosed.
10. Board resources: The board, through its committees, should have access to adequate resources to provide independent counsel advice or other tools that allow the board to effectively perform its duties on behalf of shareowners.