What factors improve the effectiveness of a board of directors?

Explanation

Factors that improve the effectiveness of a board of directors are:

CEO and chairman: To improve effectiveness of corporate governance, the position of the CEO and chairman of the board should be held by two different individuals.
Outside directors: To improve the BOD's effectiveness, the board of directors should comprise some experts outside the company who have enough time to take part in the decision making and bring some special expertise to the firm for value addition.
Size of the board: The size of the board should not be exceptionally large. It has been observed that when the size of the board is exceptionally large, the individual participation by each member decreases. Therefore, to improve the effectiveness of the BOD, the size of the board should not be very large.
Compensation: The board of directors should not be adequately compensated. If the directors have a high compensation, the CEO also has the same. Therefore, the directors become lenient with the CEO and do not keep a check on his activities. Hence, the BOD should be adequately compensated. They should be paid according to the firm's performance.

Verified Answer

Factors that improve the effectiveness of board of directors are as follows:

The chairman of the board should not be the CEO of the company.
The board of directors should have outside directors also.
The size of the board should not be very huge.
The board members should be adequately compensated.