Final answer:
An effective and independent board benefits from diverse expertise, clear roles, access to information, and protection from executive influence, while challenges include executive overreach and shareholder apathy in board nominations.
Step-by-step explanation:
An effective and independent board is essential for the proper governance and success of a company. Some key factors that promote such a board include clearly defined roles and responsibilities, a diversity of expertise and backgrounds among the board members, and the availability of sufficient information to make informed decisions. An independent board is one where members are not influenced by the firm's executives and make decisions that align with the interests of the shareholders. Insulating the board from executive influence, having established terms for board members that allow continuity and stability (as evidenced in organizations like the Federal Reserve), and ensuring the nomination process for board members is transparent and open to shareholder influence can all contribute to independence and effectiveness.
On the other hand, non-factors or challenges to board independence and effectiveness may include the presence of too much influence from top executives in board selection, a lack of interest or incentive among shareholders to nominate board candidates, and imperfect information that hinders a board's decision-making capabilities. Ensuring that the board has access to full and accurate information and creating mechanisms where shareholders can meaningfully participate in the nomination process can help to mitigate these challenges.