CalSTRS puts forward a set of best practices.

• Position: GOVERNANCE GUIDELINES

What makes a good board of directors? It is a question often posed to investors, stakeholders, and sometimes directors themselves. It is vital that boards of directors are structured to ensure there is proper oversight of company management, strategy, and risk.

1. Independent Leadership

   CalSTRS believes that independent leadership is best when companies have an independent chair that is separate from the Chief Executive Officer (CEO). The roles of Chair and CEO have fundamentally different and often conflicting responsibilities, whereby the Chair serves as leader for the board to provide independent oversight of management and the CEO serves as leader of the Company. We believe any leadership structure that does not include an independent Chair does not provide for the appropriate balance of powers in the boardroom.

2. Diversity

   Diversity of thought and experience are crucial for constructive dialogue inside the boardroom. Boards should embrace diversity in the broadest sense, considering gender, age, culture, and ethnicity, while also having a sufficient mix of relevant skills and industry experience. A diverse range of perspectives and expertise will make the board most effective.

3. Board Refreshment/Succession Plan

   The board should have a process to assess the evolving needs of the company and a mechanism to ensure there is periodic board refreshment. While tenure and age limits can force board turnover, it doesn't ensure that there is a regular evaluation of the company's current and long-term business needs. Boards should establish and disclose the process used to evaluate board composition and director performance, including a periodic third-party evaluation. Along with board refreshment, the board should be transparent about its recruitment process and disclose a board succession plan that addresses future company and board needs.

4. Board Tenure

   Varying director tenures are also important to board composition. Just as new ideas are an integral contribution inside the boardroom, so is the experience that being a director brings to the board. Companies need directors that have been through multiple business and market cycles and that understand the company's operations, customers and shareholders. An effective board should have short- and long-tenured directors to ensure that fresh perspectives are provided and that experience, continuity, and stability exist...