Taylor Simonton //April 10, 2014//
You have just been asked to join a public company board. How do you make sure you are not joining the next Enron or a board rife with dysfunction a la Hewlett-Packard?
I spoke with Doug Wright, corporate, securities and M&A partner at the Faegre Baker Daniels law firm, following a recent Colorado Chapter of the National Association of Corporate Directors (NACD) program, where he was a presenter. We discussed what a director or candidate can do to protect themselves from major liabilities and lawsuits often associated with boards of directors. Doug advises director candidates to perform their own “reverse diligence”. If you are a serious candidate, the company’s Nominating & Governance Committee has already performed due diligence on you. Now you should do the same on the company. Doug recommends the following:
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Assuming as a director candidate, you see just “green flags” and decide to accept the board position, what can directors do to protect themselves from liabilities? Doug advises there are several protections:
Having served on six corporate boards, I agree with Doug’s advice on “reverse diligence” and ongoing liability protections. These are all important; however, you may not have the time or opportunity to perform all of your desired diligence. When that occurs, go with your instincts based on your overall experience and after receiving all available information. My experience is that you will know when potential problems exist. If the situation does not feel right, seriously think about waiting for the next board opportunity and offer a diplomatic excuse for declining. If you join the company’s board of directors and the liability protections described above are not in place, work within the company’s governance and board processes to obtain them for all directors.