Companies & Industries

How to Decide on a Board Seat Offer


Before you sit in that boardroom chair, do your homework, then compare it with company-issued info and what comes out of talks with VIPs

Ten years ago, a board seat was often viewed as an honorific appointment and was accepted without hesitation. Today, prospective directors are doing much more due diligence, and rightly so. If your phone rings with an offer to join the board of Company X, what do you need to do to make that decision?

Preliminary Research

Find out as much about the company as you can. This begins with basic research of publicly available materials. Start with the company's Web site, Hoover's profiles, and company financial and stock performance information. Trawl the Internet for company news items from the past year and order analysts' reports for the past 24 months.

Do some preliminary research from your own network of contacts. Do you know any former board members or company executives? If the chief executive came from another company, do you know anyone who might have known him/her in that context? Suppliers and major customers may also have useful insights; consider whether you know anyone who might be able to give you these perspectives.

Latest Company Proxy

The latest company proxy provides particularly useful information, including biographies of board members and company executives. Check out their backgrounds and length of service: How do your skills complement those of people already on the board? Will you be the first director to join in years or have board seats been turning over at an alarming rate? The Directors' Compensation section of the proxy outlines what board members are paid. While few directors accept a board seat for the money, it's only fair to know how your time will be valued.

Determine how long the CEO has been at the helm. Is he/she new to the corner office or approaching retirement? If new, is the former CEO still serving on the board? The Executive Compensation section is always worth a read and warrants consideration in light of financial performance. The Stock Ownership section outlines whether the company is widely held or has major ownership interests—and indicates the level of stockholdings that other directors have in the company. Don't forget Related Party Transactions; this section can highlight potential conflicts of interest that may be "red flags."

Company Information Package

Most companies provide an information package to prospective directors. Specifically request that analysts' reports and recent company news be included in what they send you. This is a test: From your own research you'll know if they send you the "bad" reports and press clippings as well as the favorable ones, giving some indication of how transparent this company tends to be with its directors.

Ask for the board agendas and packages for the last two board meetings. Expect surprise when you make this request; it is somewhat atypical and you may be asked to sign a nondisclosure agreement, which is typically straightforward and easy to do. What this allows you to gauge is whether the board information packages sent out prior to the meetings provide directors with what you'd need to intelligently discuss the agenda items. It's always a good idea to ask for packages from two different meetings in case one is woefully weak or exceptionally good.

Interviews

As the Nominating/Governance Committee now quarterbacks director recruitment, you will typically meet with members of this committee as part of the interview process. If the board has a Lead Director, make sure he/she is included in these interviews as he/she is the leader of the independent directors and often sets the tone of board dynamics. Some questions to ask: What do they see as the strengths of the board? What components of your background/experience would make a significant addition to the board's current composition? What contribution do they hope you can make to the board? What do they see as the strengths of the CEO? What about the CEO's weaknesses or limitations&mash;(this is a critical question as you are gauging whether the board sees the CEO realistically or is somewhat mesmerized and unlikely to challenge when appropriate). What do they see as the greatest challenge facing the company?

The single most important factor in a decision to join a board nearly always comes down to one thing, however: the CEO. Absent special circumstances, nearly all directors base their decision about joining a board on whether they feel that the CEO is someone they like, respect, and want to help out by serving on his/her board. As such, your meeting with the CEO will be a pivotal step in helping you decide whether or not to become a director of this company.

Always meet the CEO face to face (not on the phone) and make sure to focus at least some of your questions on two areas: corporate strategy and board relationship. The research you've done prior to the interviews should help you formulate some terrific questions on the strategy front.

When you ask these questions, determine if the CEO is providing a balanced perspective on both the challenges and opportunities facing the company—or does the discussion tend to be all upside and no downside? On the board front, try some of these: Where does the CEO see the board as particularly effective? How does the board add value for him/her? Where could the board be more effective than it is today? If the CEO is approaching retirement, ask about succession planning. The CEO's answers to all of these questions will yield some important insights in terms of how he/she wants to work with the board.

No amount of homework or insightful interview questions can surface every prospective problem. Hopefully these can help you to get a better feel for the board, the company, and its management before deciding whether to take a seat in the boardroom.

Beverly Behan is the managing director of the Board Effectiveness Practice of the Hay Group and co-author of Building Better Boards: A Blueprint for Effective Governance. She writes “The Boardroom” for BusinessWeek.com/Managing/.

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