DEVELOPING GUIDELINES FOR INDEPENDENT AND COMPETENT DIRECTORS USING WHAT WE HAVE LEARNED FROM RESEARCH AND COMPANY EXAMPLES

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Abstract

These guidelines are developed for independent and competent Board Directors: Directors must have no material relationships with the company over the past year. Directors should have business savvy, a shareholder orientation, and a genuine interest in the company. Pay for performance, not presence, and use a mix of short and long-term performance measures for Directors’ compensation. Evaluate Directors’ performance over a three year period, using both stock price and accounting performance. Use claw-back provisions for Board members’ compensation if the firm does poorly, compared to its peers over this period. There should be a mix of skills for Board members, such as industry knowledge, experience, and expertise in financial accounting, risk management, and cyber security. There should be term and age limits for Board members. There should be women on Boards.

Keywords: Board Directors, Pay for Performance, Compensation, Risk Management

How to cite this paper: Grove, H., & Clouse, M. (2015). Developing guidelines for independent and competent directors using what we have learned from research and company examples [Special issue]. Corporate Ownership & Control, 12(4), 826-837. https://doi.org/10.22495/cocv12i4csp3