A position on the Board of Directors of a company is very high on the wishlist of many persons.
Though joining a Board can bring rewards and opportunities, it can also come with many risks. We outline some of the key questions that all Directors, especially Independent Directors, should ask while evaluating a Board that they have been invited or sounded out to join.
Many Directors, new and experienced, decide to join a Board without sufficiently reflecting on the possible risks in terms of personal financial liability and the possibility of reputational damage, and without properly checking details about the company, sector, and promoters/ key persons involved. It is not uncommon to hear some Directors say that if they had known what they were letting themselves in for, they might have had second thoughts on joining some of the Boards that they were on or continue to be associated with.
To be requested to join a Board can be flattering, but it is wise not to let personal satisfaction override common sense in evaluating the offer.
Some commonsensical, yet most important, questions to be asked are –
- What is the background of the company?
- What is the nature of business?
- Who are the promoters and/or Chairperson of the company?
- What reputation does the company, and its key persons enjoy?
- Who are the other Board members?
- Who are the key managerial personnel?
- How did the company perform in recent years?
- Who are the company’s major shareholders? How long have they held their respective stakes in the company?
- Are there any major legal cases against or by the company? What, if any, will be the impact of these on the reputation of the organization, and in turn the Board its members?
- What are the company’s corporate governance philosophy and processes?
- How is the work culture of the company?
- Is there anything in the annual report that needs to be checked?
- How does my background fit with the company?
- Do my skills complement the skillsets on the existing board?
- What is the expected workload or time commitment? Can I spare that much time?
- What are the liabilities and what is the D&O insurance coverage?
- How are directors compensated?
Joining a board is a privilege. However, it comes with its quota of risks. If the fit is right, joining a good Board will be rewarding for the director and the company.