5 Key Points You Should Consider Before Joining the Board of Directors

What You Should Consider Before Joining the Board of Directors

While serving on the board of directors for a company or non-profit organization is certainly an honor, it is also a significant undertaking. Directors of the board must devote time and effort to the entity, as well as assume certain legal obligations. That’s why it is imperative to know what you are getting yourself into before accepting a position on the board.

Below are several key issues that all prospective board members should consider:

(1) Understand the organization you are joining

Your reputation can become tied to the organization you serve, so, it is important to find out about the organization’s culture and business or mission to determine if the position will be a good fit for you. Prospective board members should also investigate the entity’s current financial health. Types of documents, if available, that may be useful include the organization’s annual report, most recent audited financial statements, and long-term strategic plan. Directors may also want to research how the organization is viewed by its clients, employees and community.

(2) Expectations of a board member

Being on a board of directors can require significant time. Before joining a board, prospective board members should ask how often the board typically meets, how formal or informal are the meetings, how often emails or calls are set up in the interim, what level of detail of review is required? Many organizations will be able to provide a written description of board member responsibilities, as well as details about board committee functions and responsibilities.

(3) Fiduciary responsibilities

Board members are ultimately responsible as fiduciaries to the stakeholders in the organization they represent. Before joining a board of directors, you should familiarize yourself with the requirements you will have and what that entails.

(4) Tone at the top

A good working relationship between the board of directors and the chief executive officer is important for any successful organization. It is also important to determine whether the company and the board are committed to a culture of compliance. Both non-profits and business entities face increasing scrutiny from regulators, investors/donors, and the public. Failing to have the proper safeguards in place to address issues can lead to headaches for everyone, including board members. Public company boards, in particular, have a number of specific recent compliance issues to consider with respect to the Dodd-Frank Act, whistleblowers, and cyber security.

(5) Legal protections

To protect their legal interests, prospective board members should find out whether the organization has sufficient directors and officers liability coverage in the event of a lawsuit or other legal issue. The entity’s bylaws or corporate charter should also address how the organization will indemnify its board members for legal costs. It is also important that the entity has policies and procedures in place to prevent conflicts of interest between board members and the organization. In addition to reviewing any prior litigation, it is important to find out whether the board is currently facing any lawsuits or investigations by a governmental or regulatory authority.

The bottom-line is that prospective board members should conduct their own due diligence before agreeing to serve on a board of directors. The key is to understand the risks, rewards, and required commitments before you say yes.

Are you considering accepting a position on a board of directors? Would you like to discuss the matter further? If so, please contact me, Jeffrey Cassin, at 201-806-3364.