Having served on multiple company boards throughout my career and continuing to do so, I’ve found it to be a rewarding experience. It’s a great way to network, and with the right match, you can leverage your expertise and experience to contribute to a company’s growth. Serving on a board can be both enjoyable and fulfilling.
However, not all board experiences are the same. You should avoid certain risks before committing–even if the CEO or board chair is your friend.
So, before you agree to join that board, take the time to conduct some due diligence in the following six areas.
1. Directors and Officers Insurance
The first step in your due diligence is to ask whether the company has directors’ and officers’ insurance. Insurance is critical because if anyone sues the company after you join a board, this insurance will help cover any legal or attorney costs you might accrue as a board member. Without D&O insurance, a lawsuit might attempt to “pierce the corporate veil,” as it’s known, and try to come after your assets and wealth–whether you did anything or not. If you and your fellow board members exercise good judgment and are loyal to your duty, you’ll hopefully never face such a situation. But if the company doesn’t have D&O insurance to protect you, joining the board is probably not worth the risk.
2. Pending lawsuits
You’ll want to ask if the company is facing any pending lawsuits before agreeing to join its board. If you enter the board being sued, you will likely be pulled into the situation to comment somehow–and nobody likes to be part of a lawsuit.
I speak from experience. I joined a company without asking this question. And now, I will likely get involved in an extensive and painful legal process. That’s shame on me–but you can learn from my mistakes.
3. Strategic Plan
Often, we get recruited as board members because we have the experience and skills the company is looking for help with. But we might not know anything specific about the company itself. That’s why it’s critical to understand the company’s strategic plan before committing to joining the board. You want to ensure that the company is headed in a direction you know and think you can contribute to. If you learn that the company does something you don’t understand or are conflicted over its direction, you might want to think twice about joining its board.
4. Board Obligations
We all have busy lives. And while you might enjoy the challenge and camaraderie of joining a board, you should first understand what is expected. That includes asking about the schedule of meetings–how often and when–and how much time is required. Some board meetings now happen virtually, but some companies ask their board members to travel and attend in person. Understanding how you will be compensated as a board member would be best. Suppose you recognize that the schedule of meetings or time commitment conflicts in any way with your lifestyle or your service on other boards. In that case, you should consider whether the opportunity makes sense.
5. Pending Sale
While it might be challenging to learn, primarily if the company is publicly traded, knowing whether it is about to be sold is helpful. Any company going through a sale might mean that your term as a board member might be a short assignment and not what you’re looking for. On the other hand, if the company wants to recruit you to the board because you have relevant experience, like in mergers and acquisitions, you might enjoy the experience. The key is understanding how long of a commitment you make by joining the board. If the company is on the market, it is likely to be a short tenure.
6. Corporate Governance Documents
While reviewing any articles or operating agreements, the company has created can be tedious to help govern how the board operates, it can be worth your time to ensure you aren’t wasting your valuable time. For example, you might be surprised to learn that the company’s founder has a “golden share,” which means that no matter what anyone else votes, they get the final say on every decision. Again, it’s just another step in your due diligence before committing to join the board.
Look Before You Leap
I speak from experience when I say that serving on a board can be an exciting and rewarding experience. I’ve met new friends, learned new things, and got a sense of accomplishment from helping companies grow based on my advice. However, not all board experiences are the same, which is why you should make the time to do due diligence first. In other words, before jumping in the water, ensure it’s not filled with sharks, piranhas, and alligators first.