Posted: March 31, 2010
Before you join the board—ask these six questions
Here's how you'll know if it's a good fitTracy E. Houston
Suppose you are asked to serve on a board of directors. What should you ask about and give thoughtful consideration before agreeing to serve?
When considering an opportunity to serve on a company board your role is no longer one of honorary duty or mere business formality. You' re to roll up your sleeves and work: your raison d'être. That said, how do you know this is a position that will be a good fit for you?
Does the board follow, accompany or lead the senior management in setting strategic direction? Strategic planning is one of you main contributions as a board member. Ask for descriptions about how directors affect strategic planning. Discover what the current key issues are and how you might strengthen the debate around them. It is important to your role to have optimal access to leading industry indicators and to data about employee and customer satisfaction. Ask when and how often this information is given to directors.
Key Point: Discover where the CEO really relies on the board for input and how your skill level will support senior management and enhance board conversation.
Shareholders/investors relations are important to understand. Relationships with shareholders vary but increasingly are important due to the disruptive factor they can purpose when dissatisfied. Discover how well the company knows its shareholders. Ask when and how the shareholder/investors are "in the room" with decision makers at the senior level and the board. Ask what where the key factors that attracted the shareholders and how those factors are aligned with the current strategy.
Key Point: Interview a few investors of your choice along with a few that are recommended about the company.
Risk Temperament of the Board
Random risk is present for all business. Expanding knowledge around non-random risk or areas where knowledge can be created can provide competitive advantage. The level at which efforts have been made to learn about non-random risk can reveal the risk temperament of the board. Ask if precedent or avoiding conflict keep the board from deeper conversation about some risk. Boards can lean more into risk avoidance than risk management.
Key Point: Determine your level of risk tolerance and see how it will fit with those you will work with in senior management and the board.
The nature and intensity of the performance-management culture will shape many of the board conversations. It is important to understand the degree to which the board divulges down into strategic building blocks. This focus leads the board to identify critical initiatives and to decide which key performance indicators to monitor.
Key Point: Discover what skills the board needs for the best intervention to occur in areas that need strengthening.
Ability to Change
In this age of turbulence the ability to be flexible and agile contributes greatly to a company's success. Once you understand the strategy of the company discover how the interconnection of systems with staff, values and skill base affect the performance measures of the current strategy. Ask if the senior management team has maximized their ability to coordinate inner activities and structures of the organization with the current strategy.
Key Point: The more this company is mired in "the way we have always done it" the greater risk of failure for the company and you as a director.
Compensation and Time Commitment
Compensation for board service is typically in the form of equity or cash. Have a frank conversation about what the company is willing to offer you in exchange for your service. Determine ahead how much time you will be expected to spend at board meetings, whether you will be expected to attend them in person, and how much preparatory time each meeting will take. In addition, be sure to ask about whether the company has directors and officers insurance, whether the policy is comprehensive enough and whether you will be indemnified by the company for liability related to ordinary business related activities. If you are unfamiliar with these issues, contact a knowledgeable person who can help explain the issues or do some research.
Key point: Establish your compensation and commitment agreement in writing. Be sure you have adequate coverage to protect you against liability.
Arlen Meyers, co-founder, president and chief medical officer of Colorado based MedVoy, recommends that new board members be sure they have the ability to provide oversight on critical success factors, have current content expertise and connectedness within the industry. He uses this critirea for choosing his board members as well as any board he may sit on.
Choosing to serve on the board of directors of a company, whether it be an early or late stage company, or a public, private or not-for-profit, is an important decision, The rewards are potentially great, but, particularly in the present environment, so are the hazards and risks. Before accepting a board seat, do your homework, be sure you trust your potential partners, and continue to learn so that you can provide competitive advantage.
Tracy E. Houston, M.A. president of Board Resource Services, is a board advisory consultant and executive coach headquartered in the Denver area. She conducts board evaluations and assists boards with a variety of issues that increase effectiveness. She can be reached at email@example.com or http://www.eboardmember.com
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