The proposal moves towards a more principles based approach to corporate governance. Boards ought to play an active role in setting the firms risk appetite and advising management on the implementation of strategy. It clarifies that while senior management is responsible for implementing the strategy, the board should play an active advisory role. Separation of the CEO and Chair is a crucial part of good corporate governance.
Overview of the Council’s Comments:
It is the position of CFA Institute that company boards should consist of a majority of independent directors, who are more likely to consider the best interests of shareowners first, and among other things, mitigate conflicts. The council supports a hybrid approach to determining board member independence that relies on both rules and principles. For example, the council supports the application of the bright-line independence tests (a rules based test) but also generally supports the principle of board diversity (more women on boards, more diverse educational backgrounds etc).