Joining the board of Directors for a business or a nonprofit can be a great way to raise your professional profile. However, while being asked to be a director for an organization you admire may be equal parts exciting and flattering, it is not a decision that should be made without careful consideration.
In my previous article, I discussed the many questions potential directors should ask themselves before joining a board. Once these questions have been answered, it is essential for would-be directors to conduct thorough due-diligence by taking into account the legal, financial and business standing of the organization in question. Although some of these questions may be uncomfortable to ask, they are important to pose before attaching your name and reputation to any professional institution. Think of this as a reverse job interview – you want to make sure that the institution is truly worthy of your time, energy and endorsement before you agree to represent them in any capacity.
Becoming a board member means being a public-facing representative of that organization. Consequently, you will want to be sure that the company has its legal ducks in a row.
First and foremost, it is important to ask the organization to provide you with its bylaws and minutes from meetings over the past two years, and take the time to review these before accepting any role. Failure to do so may mean being blind-sided by unbeknownst financial and time commitments. If they don’t have updated bylaws or they don’t keep minutes, ask them why.
Litigation may be a normal fact of life in business, but as a prospective board member, it is essential to investigate any past and pending legal issues facing the corporation. While board members are unlikely to be held accountable for things that occurred before they became a director, it is still prudent to have a clear lay of the land from a legal perspective.
The organization should provide Directors and Officers Insurance, designed to protect board members from legal issues that occur during their tenure. Have an attorney review their workman’s comp, liability, indemnification and conflict of interest policies before you accept a board position, as this could save you from significant legal headaches in the future.
Having a clear idea of the financial landscape of the organization is judicious due-diligence and makes smart business sense. Would-be directors are well advised to get a full picture of an organization’s financial situation prior to accepting any role. Ask the organization to provide you with its recent financials including the current annual budget, Form 990s, as well as a financial outlook for the short, medium and long-term. Can the organization survive financially during the tenure of your directorship and beyond?
Learn where the majority of their revenue is sourced, whether they have a diversified stream of funding, and whether they have a contingency plan in place in case their biggest revenue bases dry up (many do not). If the financial picture of the organization is unclear, proceed with caution.
Business Development Considerations
Prospective directors should also acquire a clear picture of how the organization currently operates. If the day-to-day business dealings are disorganized or unethical, it will reflect negatively on you.
Ask the organization to provide you with a copy of their employee handbook and business plans, and review these thoroughly for any red flags. For example, an organization that claims to support women’s rights, but provides no maternity leave for female employees may not be actively practicing the philosophy it preaches. Make sure company procedures and policies match up to the organization’s overall mission statement.
Before accepting a role on a company’s board, ask for a tour of the organization’s facilities, even if just a small office. This will give you an opportunity to meet and talk with staff members and get a sense of how the business really operates. Finally, you should take some time to read anonymous employee ratings and do online research for mentions of the organization in the news. How are they perceived by the public? Does that perception match up with your other observations? If there is consistent press of poor business practices, or if their employee ratings are very low, this is most likely not a company to attach your name to.
Becoming a board member can be a satisfying experience. However, as with any new position, it is important to first ensure you are the right person for the job, and that the organization is the right fit for you. By taking the time to explore these considerations upfront, it will provide the organization with a more informed director who is better equipped to handle its opportunities and challenges.