Insights

Questions to ask before joining a board

May 21, 2013

Management Liability/D&O

Joining a board can provide many opportunities, but it’s a commitment that shouldn’t be taken lightly. Aside from obvious concerns like time constraints and a sullied professional reputation if things don’t go well, you also need to acknowledge other aspects of the decision. Failing to come prepared and ask the right questions in advance can make joining a board a risky decision. The potential for litigation, some of which may result in personal liability, makes it essential to know what you’re getting into before making a choice on whether or not to bring your talents to a board.

Because acting as a board member can be a difficult task, it’s important to know what challenges you will face if you commit to the position. This can help to not only mitigate the risk of potential litigation and personal involvement, but also ensure your experience serving the company is a pleasant one.

Question the collaboration between management and the board
You don’t want to offer your services to a company only to find relationships between board members and management teams are strained or operating processes are not efficient and fail to contribute to success. Because you want to ensure management teams and board members collaborate to ensure everything functions smoothly, it’s important to question how operations typically run. Ask questions that will give insight as to how the CEO and board members interact, as well as how far in advance you’ll be given materials essential for meetings. Asking about how ethics concerns, whistleblower complaints and internal controls are handled can also prove to be beneficial and alleviate any concerns you may have.

Ask about the board itself
No two company boards are exactly the same, and it’s important to know how a board is currently operating before joining. Question the size of the board, as well as the skills represented by different members and the level of commitment they appear to show. Don’t neglect to ask about the future, as succession plans and ideas on how to handle purchase offers can drastically alter your thoughts on accepting a position, as well as enhance the level of risk you face.

Determine what risk mitigation strategies are in place
One of the most important factors to take into consideration before joining a board is how you’ll be protected. Get clear answers on whether the company’s charter will exculpate directors from liability where possible, and what indemnification arrangements are available to protect independent board members. While asking about a D&O insurance policy is essential, you shouldn’t stop there when addressing potential risk. Have an expert review the D&O coverage to ensure you’ll be protected in the event of a lawsuit.

The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: phuskins@woodruffsawyer.com.

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn