New Director Onboarding: A Roadmap for Boards

A solid new director onboarding plan means new directors will be able to contribute to the board more quickly. My colleague Lenin Lopez provides a roadmap for optimizing your new director’s onboarding experience. –Priya Huskins

Public company boards face an ever-increasing list of topics that fall under their oversight responsibilities. As the list gets longer, so too does the breadth of skills and backgrounds that boards view as important when identifying and appointing new directors. Spencer Stuart’s "2022 S&P 500 New Director Snapshot" showed that board refreshment continued to be a key area of focus in 2021 for S&P 500 companies and more specifically, that many of these new directors were first-time directors.

Whether your board is looking to appoint a seasoned or first-time director, any new director must be given the tools necessary to engage and contribute at the first board meeting they participate in, as well as the ongoing support to be as effective as possible. This is especially important in the case of a first-time director who may still need to learn the ropes.

What follows are a few good practices for boards to consider when onboarding new directors. It is also a good list of things to request for someone considering taking on a new director role. If you are considering taking on a new director role, take a look at our article that walks through questions you should ask before joining a public company board.

1. Assign a Board Mentor

For many new directors, the ability to effectively engage and contribute will be dependent on how quickly they can gain insight into the board’s approach to decision making, as well as individual director communication styles, skill sets, and idiosyncrasies. There is only so much research a new director can do by reading publicly available information. Further, virtual board meetings aren't ideal for learning. Cue in a board mentor.

A board mentor, preferably one of the board’s more senior directors, can help the new director gain an understanding of the items noted above and perhaps more importantly, can be the equivalent of a phone-a-friend. That is, if a new director has a particular question regarding the board, management, history regarding company matters subject to board review, etc., they can reach out to their board mentor. Ideally, the board mentor that is assigned to the new director could also help by assessing the new director’s performance during the board meetings and providing feedback after the fact.

2. Arrange Meetings with the General Counsel and/or Outside Securities Counsel

There are several guardrails that directors need to be mindful of in carrying out their responsibilities. They can range from those imposed by state corporate laws, federal securities laws, regulatory agencies, company-specific guidelines/policies, and conditions of past settlements. This can be a minefield for the unwary, which is why it is important to have your new director meet with your general counsel and/or your outside securities counsel.

These meetings could be structured to occur over the course of a few months. An approach worth considering is to open these meetings to other directors for educational/refresher purposes. Some of the topics to consider having your general counsel cover with the new director in advance of the new director’s first board meeting or early on in their term include director fiduciary duties, confidentiality, conflicts of interest, Regulation FD, insider trading, corporate governance guidelines, board communications, D&O insurance, and indemnification agreements.

Concerning D&O insurance and indemnification agreements, new directors should understand how the company’s D&O insurance interacts with individual director indemnification agreements. This is important given the potential personal liability that directors are exposed to. For new directors, even if pressure testing the company’s D&O insurance and your indemnification agreement wasn't a focus for you before getting on the board, it's still a good idea to understand what protections are in place to protect you from personal liability for actions taken (or not) in your capacity as a director. For additional information regarding the importance of indemnification agreements, see this article from the D&O Notebook.

3. Provide an Overview of Company Strategy

Newly appointed directors should be brought up to speed on the company’s strategic priorities and goals, as well as significant opportunities and challenges. Ideally, this will occur before the new director’s first board meeting. This is a good opportunity for the Chief Executive Officer to walk through their vision for the company, as well as bring in key members of their senior management team to speak to strategy, as appropriate. If a separate meeting can’t be scheduled in advance of the first board meeting, consider at least sharing the most recent materials that speak to the company’s strategic priorities and goals.

4. Review Your Organizational Risks

As companies contend with increasingly complex corporate risks, so too are the oversight responsibilities placed before the board. While reviewing risk factors that the company publishes in its filings with the US Securities and Exchange Commission (SEC) is a start, it is wise to share the full scope of organizational risks with the new director, as well as the processes the company has in place to proactively manage risk.

5. Review Financial Statements and Earnings Materials

Along with sharing a set of the most recent financial statements, earnings presentation, and earnings release with the new director, companies should also offer them the option to have the Chief Financial Officer and members of their team walk through these materials.

This would also be a good opportunity to ask Investor Relations to present on the composition of the company’s shareholders, identify the company’s key stakeholders, and explain the approach to communicating the company’s results of operations and outlook on earnings calls with investors.

6. Schedule Meetings with Members of Senior Management and External Advisors

Meeting with members of senior management and external advisors is something that typically occurs over the course of a few months. One approach would be for the company to put together a list of topics that members of senior management could present on and let the new director choose which of those presentations are the most relevant for them. The list of presentations should be curated. For example, if the new director is being brought on to round out the board’s environmental, social, and governance (ESG) expertise, presentations offered to the new director should cover that.

External advisors are another group new directors should be given the opportunity to meet. For those new directors who will be sitting on a board committee, meetings with the respective committee’s external advisors would be advisable. For example, if the new director will be sitting on the compensation committee, the company could arrange for the new director to meet the committee’s compensation consultant.

7. Offer to Share Board and Committee Minutes

Companies may want to offer new directors the option of receiving a few sets of recent board and committee meeting minutes. Minutes are not typically the most intriguing of documents, but they can provide new directors with insights into how the board and its committees operate, a preview of the types of issues that the new director may hear in the future, and which members of management present on different issues.

When sharing documents like board and committee meeting minutes with directors, companies should do so via a secured board portal or by sending to the director’s personal email or company-issued email. For a discussion of some of the perils associated with emailing sensitive information to outside directors and ways to maximize confidentiality, see this article.

8. Share an Overview of Company Culture

Culture is a newer entry into the list of topics that boards are focused on. It is deserving of a specific mention in this list since regulators like the SEC, investors, and employees have become increasingly interested in company disclosure concerning topics like human capital, diversity, and climate. One need only look to Blackrock’s CEO letter to understand that the landscape is changing in terms of what some large institutional shareholders are focused on and expecting from public companies they invest in.

The recent theme has been a focus on companies trying to act on climate change, as well as working toward a more diverse and inclusive work environment, and that boards be involved in the oversight of these matters. One question posed in the Blackrock letter is, "How is your company’s culture adapting to this new world?" All of this is an addition to the other aspects of a company’s culture that were already in scope, like compliance.

While management is responsible for setting the tone, boards are increasingly expected to oversee and hold management accountable for how culture is aligned with the company’s purpose and strategy. For this reason, it may also be helpful for management to share a bit about the company’s culture. In preparing a presentation or compiling materials for the new director, a company should focus on answering the following questions: Beyond the organization’s core purpose, what are the company’s values in the way of customer engagement, employee engagement, philanthropic activities, and compliance?

If your company has a sustainability report or the equivalent, share that report to help the new director get attuned to the culture of the organization. This is another topic that would be valuable for a new director to hear about live from the company executive (or executives) who are involved in preparing that report and ensuring that the culture is understood and appreciated by the broader employee base, clients, suppliers, investors, and other third parties.

9. Offer Site Visits

While less common, if your company has multiple locations (e.g., regional offices, manufacturing, and laboratories), it may be worthwhile to offer your new director the option to visit one of these sites. For example, if your company is focused on medical devices, you could have the director visit a manufacturing site or sit in on an educational training that your team typically gives to health professionals. Another benefit associated with site visits is that it gives the folks on-site the opportunity to meet with and present to a member of the board. Based on my prior experience in helping arrange these types of visits, they are typically met with much fanfare and can be an employee morale boost.

10. Prepare an Orientation Binder

An orientation binder is an effective resource your company can prepare for a new director. Some companies may take the kitchen sink approach by including more than the director could ever want in the binder. This runs the risk of it becoming nothing more than a paperweight or a step stool. A preferable approach would be to include a few select items that can help the new director familiarize themselves with the company, board, management, general administrative guidance, and how to reach folks. Here are a few suggested items to include:

• Organization chart
• Board and management profiles
• Contact information for all board members, management, corporate secretary, and/or board liaison (if applicable)
• Corporate calendar with anticipated dates for earnings announcements, regulatory filings, annual meetings, as well as scheduled board and committee meetings
• Organizational documents (charter and bylaws)
• Corporate governance guidelines
• Committee charters
• Code of business conduct and ethics
• Insider trading policy
• Memorandum that summarizes select company policies or obligations that the director should be aware of. As an example, some companies send a memorandum to new directors that summarizes the key federal securities laws and related company policies that apply to directors.

Set New Directors Up for Success

A thoughtfully tailored director onboarding process is essential to ensuring that your new director is in the best position to engage and contribute at their first board meeting. This is especially important when you consider how much time and effort goes into identifying, vetting, and appointing a new director. That is, just because your new director has been appointed doesn’t mean it’s time to hit cruise control. A good onboarding process can be the difference between directors who are ready to hit the ground running and directors who are feeling their way around the first several board meetings until they feel comfortable and integrated.