Serving on a Board of Directors - Public Company

[Zuma]

About 3 years ago I retired early from my corporate management job at megacorp. For the past year, I've been doing some work for my old employer on a part-time contract basis. This has included some interaction with some of their key customers.

I received a call the other day from the Corporate Secretary asking me to consider serving on the Board of one of these companies. They are expanding their BoD and looking for greater diversity. Its a paid position, with travel four times/yr to the corporate office for Board meetings, plus whatever committee work may be involved. My boss at megacorp has no objections, and DH is good with it. I've never served on any kind of Board, but have read the most recent 10K of the company and generally researched what's involved in taking on Board work.

I thought I would tap into the collective experience here to see if anyone can share any words of wisdom about considering such as offer. Any insight would be appreciated!

 

[MBAustin]

I've only served on a nonprofit board, but I think the general rule is to understand your fiduciary responsibilities as a board member and to be comfortable with the company and its management. It sounds like you've done some due diligence and have some familiarity with the company. Personally, if I hadn't already met or at least talked with the CEO and board chair I think I would put that on my list to do before agreeing to serve. Sounds like an interesting opportunity - if you do it, I think others here would appreciate hearing about your experience.

 

[Scuba]

I think one thing to consider is the workload. Some positions seem to be very easy while others require a lot of work, particularly if the company experiences a crisis of any kind. Still, I think I’d try it under the circumstances you described.

 

[OldShooter]

Boards are like people; they have personalities. At one extreme, the effective company owner picks and wants a board that simply rubber stamps whatever he/she wants to do. Their function is decorative. From that point "upwards" the board becomes more and more involved in guiding the business.

The CEO and the board chair are least likely to help you understand the personality. I would ask to talk to the two people most recently added to the board, ideally over a meal and not just via telecon.

There is nothing wrong with being a rubber stamp if it pays well, but you may find it frustrating.

If you are to be a token "diversity" member for decoration that could also be very frustrating. If that's who you are, you know far more about those frustrations than most here could possibly provide.

 

[Keim]

Like others, my experience is via nonprofit boards.

I concur with all comments above.

Adding: Be sure they are adequately insured, and double sure there is some sort of Officers and Directors Errors and Omissions policy in place.

 

[harllee]

You might want to check your Umbrella Policy. I am on a Non Profit Board with some liability exposure. I checked with my Umbrella and I am covered for my Director work and I increased my umbrella coverage from 1 million to 2 million. I also echo what has been said--check to make sure the corporation has sufficient Officers and Directors coverage as well as general liability.

 

[NC 57]

Usually corporations carry D&O insurance on board members. However, you may wish to carry a personal policy as well or ask the company whose board you are serving on to pay the cost of an individual D&O policy. The issue is personal liability -- sometimes lawsuits filed against the corporation also name the directors and key executives. If the company owns and is paying the liability (D&O) policy, the attorneys will work in the interest of the company, not the individual directors.

For example in a lawsuit where you and other directors have personally been sued for $10 million each, you might be able to separately negotiate a personal settlement for $500,000. If you are tied to the company, and the company refuses to settle and decides to go to trial, you will be at risk for $10 million. Suppose the company's D&O policy limit is $5 million for each board member. You will be at risk for $5 million out of pocket. Likely if you had a personal D&O policy with a $5 million value, the insurance company carrying your policy would gladly settle for $500,000 thereby eliminating its, and your risk of a higher judgement in court.

I would definitely do research to determine if the company is in a litigious industry or produced products or services potentially attracting litigation. For example a medical equipment company that makes pacemakers or a company that makes child car seats. Look at judgements against companies in the industry and determine if D&O insurance can be purchased with high enough benefits to effectively protect you against personal bankruptcy if the company and its directors are sued. Consider how much personal financial risk you are willing to take for the experience of serving on a board.

 

[Zuma]

Thank you all for the thoughtful advice. You've given me some items to include in my next discussion with the company execs.

 

[marko]

As a few have said, I'd want to know the personal liability profile of who you're working for.

Of late, CEO's, BoD's and others have become the boogeymen of certain industries; you never know who's going to have an issue. You also likely don't want people out front of your house holding up signs. For that reason I've dropped my BoD's except for one, which, private and family owned has no real exposure.

 

[Totoro]

Good advice given above.

In addition: be aware you might get heavily involved in some circumstances. This might include sworn testimony, having to travel to courts and headquarters intensively, helping in selecting new senior management etc ..

The committee work: be sure to check which ones you will be involved in. If you are the only guy with an auditing/finance background for example, you'll sort of be expected to end up in the audit committee most likely.

You might want to ask if there are coaches/training programmes available.

And last but not least: once you have a position like this, chances are reasonably high you'll get invited for more. You'll be more visible too, which increases your chances for being actively targeted by all sorts of folks. Including attempts to defraud you and the company.

 

[AtlasShrugged]

I am on the board of a public company. I suggest you consider three factors:

1) The ethical profile of the CEO, CFO, and board members.

2) How the Bylaws indemnify D&Os and whether the company has liquid assets to back the indemnification.

3) The company’s D&O policy. Ask the general counsel to explain it to you.

Personal umbrella policies do not insure against D&O risk.

Good luck.