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Research to Do Before Joining a Board While no amount of due diligence can avoid every problem, the more you do, the better you are likely to feel about your ultimate decision.Serving on a board of directors today means investing more time and effort in the board’s affairs than ever before. Consequently, before saying “yes” to a board invitation prospective directors are doing more due diligence than ever. What follows are some things you can do to get greater insights about any board that you are invited to serve on -- ideas that have been helpful to other directors in making board choices. Conversations with the CEO and Other Board Members The concept of an “interview” to join a board was unheard of in earlier days, when boards consisted of close friends of the CEO, who casually invited them to become a director. Today, most nominating and governance committees, which now lead board recruitment efforts, would never consider recommending a director candidate without having that candidate meet with the CEO, the lead director (if there is one), the chairs of the nominating and governance committees, and sometimes other board members as well. These discussions are an equally important, if not more important, part of your own due diligence in deciding whether or not to join this board. • Discussions with the Chief Executive Officer. Your conversation with the CEO will probably be pivotal to your decision. Most directors decide whether or not to join a board based on their impressions of corporate leadership. Your conversation will undoubtedly focus on the CEO’s vision for the company -- key strategic objectives and challenges. You will be gauging the CEO’s leadership style and your level of comfort with that style. Does the CEO appear to be open and honest in answering your questions? Or do the answers seem vague and dismissive? You may find it illuminating to ask the CEO directly how the board adds value for him or her. How has the board been helpful in the past? How has it been frustrating? How could the board be better than it is today? Answers to all these questions should provide you with excellent insight into the relationship between the CEO and the board -- and particular insight into how the CEO views contributions from board members. • Discussions with the Lead Director or Chair of the Governance Committee. This is your opportunity to gauge the working relationship between the board and management. Ask the lead director or committee chair: Where do they see management of the company as particularly effective? Where less effective? Weigh these responses carefully. Do they connote a constructive, objective relationship between the board and management? Or is there disharmony? Even more concerning, do the board members appear spellbound by management, such that they are unlikely to raise challenges or voice dissenting views where appropriate? As the nominating and governance committee is responsible for board composition, try to understand how your background is perceived to be a “fit.” Ask about past director recruitment based on what you saw in the proxy. If there has been considerable director turnover, what were the reasons? Is the company seeking to bring other new directors onto the board at this time besides yourself? One director we knew was invited to join a board that had not recruited new directors for many years. A review of the proxy showed that only one board member appeared truly independent of management -- even though the board was technically in compliance with NYSE independence rules. Notably, that director -- who was over 70 and about to retire -- did not serve on any of the board committees. The director being recruited wanted to know if he was just being invited to replace this individual or if, in fact, several new board members were being sought to enhance the independence of the board generally. When he learned that the intention was only to replace this single board seat, he turned down the invitation. • A Talk with the Last Director to Join the Board. Occasionally, it is helpful to speak with the last director who joined the board -- particularly if that person has served at least a few months or a year and now has a good “feel” for the board. Some of the questions you may wish to ask: What have you enjoyed most about joining this board? What have you enjoyed the least or been most disappointed by? You may also use this conversation as an opportunity to get a handle on the time commitment that was required to “get up to speed” on the board issues and the steps this director took -- through orientation or otherwise -- to learn about the company and its industry. Was this person simply handed a binder, or did he or she get to spend a day at the company meeting members of the executive team? How did the board handle committee assignments for the new director? A Matter of Homework In today’s environment, well-qualified director candidates can typically afford to be picky about board seats. If you decide to turn one down, there will probably be others. While no amount of homework can avoid every problem, the more you do, the better you are likely to feel about your ultimate decision -- and the greater your chances of enjoying the board you decide to join. A longer version of this article, with many additional recommendations for due diligence research before joining a board, appeared in the First Quarter 2005 issue of Directors & Boards. The article can be ordered from the Articles Archive section of the Directors & Boards web site. |
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| Beverly
Behan is a partner in the Corporate Governance Practice of Mercer Delta
Consulting, a firm that specializes in organizational change and
leadership (www.mercerdelta.com).
She works with boards of directors of primarily large and midsize
public companies in the United States and Canada on maximizing board
effectiveness through board and director assessment, effective CEO
succession planning and CEO evaluation, effective engagement of the
board in corporate strategy, and other corporate governance issues. She
can be contacted at beverly.behan@mercerdelta.com. Copyright © 2005 Directors & Boards, P.O. Box 41966 Philadelphia, PA 19101-1966. All rights reserved. Contact the webmaster. < Privacy Notice > |
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