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Shearman & Sterling LLP 21 | Evolving Notions of Board Effectiveness Insights BOARD EFFECTIVENESS – TRADITIONAL APPROACHES Maximizing board effectiveness has been an ongoing and somewhat elusive corporate governance objective for U.S. corporate boards, executives and stockholders. While the board's role in governance is well understood, the performance and outcomes of individual boards in terms of oversight, strategic input, advice to management and maximizing shareholder value, among other functions, are subject to significant variability depending on overall board effectiveness. The effectiveness of the board can mean the difference between serving as merely a required oversight function or serving as a valuable strategic and competitive asset. Achieving a high level of board effectiveness relies on the successful implementation of several key imperatives, including board leadership and composition, operational and deliberative processes, board culture and dynamics and performance evaluation and improvement. Some of the traditional cornerstones of these board effectiveness imperatives are highlighted below. • Board Leadership and Composition • The board consists of directors with the right skills and experiences to effectively carry out its duties • The board effectively manages its workflow and uses committees in an efficient manner • The board uses governance guidelines, committee charters and other policies to delineate responsibilities for oversight and approval among the board, committees and management • The board has a leader (lead independent director or independent chair) that can act as a key intermediary with company management, influence board agendas and build consensus among board members • Operational and Deliberative Processes • Board members receive the right information sufficiently in advance of meetings to review carefully, come to meetings well prepared and focus on discussion of issues, rather than getting up to speed • Meeting schedules and agendas are determined well in advance, and directors have adequate input into agendas • Executive sessions are routine and documented • Board considers adequacy of the information supporting any decision and requests additional information when necessary • Board Culture and Dynamics • The boardroom is a safe space where respect and trust are mutual • All board members actively participate in discussion and express their views • Board members feel comfortable raising issues and challenging management and do so without hesitation • No cliques or factions on the board • Performance Evaluation and Improvement • Board and committee self-evaluations are conducted in a way that generates actionable feedback and identifies any shortcomings in board effectiveness and leadership • Board takes concrete actions in response to meaningful feedback from evaluations • Proxy disclosures support a culture of continuous improvement by describing specific actions taken Insights Evolving Notions of Board Effectiveness Richard Alsop 1 1 Special thanks to Karen Mann for her assistance with this article.