Interviewing for a board seat seems like a dream come true for many. It may feel like the capstone of a career marked by regular progression and success. However, this dream can turn out to be a nightmare as not all companies, and hence boards, are unflawed. Our image of the utopian boardroom is just that, an image. Most boards, like the people that comprise them are imperfect. Companies face challenges and risks that are complex beyond the scope of this article. As such, before becoming too enamored it is important to do the diligence and ask the right questions. Here are some suggestions:
Vision, Strategy, Plans
Is there a well-thought-out strategic planning process including consideration of risks and the ability to execute the strategy?
How often is strategy discussed?
How is the changing external environment is (e.g. economic, competitive, and political) integrated into strategic priorities?
What is the succession planning process? Is there a bench in case something happens to the CEO?
Some of the questions above need to be asked outright and some can be inferred. The answers to these questions will provide insight into how strategic the company is and how proactive. Board directors, the CEO and even some senior executives should be able to clearly articulate the answers.
Products, Markets and Market Share
Before assuming any board role, you need to understand the products or services the company offers. Beyond this, you must understand the product pipeline, the process for developing new products or services and what is in development.
All of the above is of course somewhat irrelevant unless the market and market dynamics and demands are taken into consideration. You need to delve into the details. Market share is important and whether or not it has been growing and if not, why not. Competition and/or peers are an important consideration as well. Does your potential board and the company it serves have a clear understanding of the existing market, new markets and are they peering around the corner to try to anticipate the future?
The importance of understanding the risks that the company faces cannot be overstated. The good news is that some of this information is covered in the company proxy (for public companies). However it is crucial to grasp the company’s methods for identifying various risks. You should also ask how risk is handled at the board level. Is there a risk committee or perhaps a risk expert on the board?
Reputational risk is also important to understand. Today there is heightened risk everywhere and you need to know how management and the board thinks about these issues.
Financials and Legalities
As a potential board director you need to be aware of the financial strength-or lack thereof. In addition to reports to the board and audit committee as well as public information, take a hard look at operating cash flow against ongoing requirements. Are sales growing, flat or declining – what about bottom line – profitability – what do expenses look like?
Many potential directors these days meet with not only all members of the Audit Committee but the company Chief Financial Officer as well.
Review pending or threatened litigation and investigations. Look at product recalls and if the company is doing business internationally, try to understand foreign legal threats.
“You need to know what type of board you are joining. Do the directors contribute to the dialogue and debates? What is their relationship with the CEO and the other members of the executive team? Pay close attention how the questions are answered and also what is not said.”
The Board Itself
The questions here may be hard to ask but the answers are no less important and must be understood.
Is the board a working board or is it more ceremonial?
Are the directors valued for independent thinking or do they serve at the behest of the CEO?
You need to know what type of board you are joining. Do the directors contribute to the dialogue and debates? What is their relationship with the CEO and the other members of the executive team? Pay close attention how the questions are answered and also what is not said.
How do disagreements get resolved?
Are there even disagreements at all? At first blush one might assume minimal opposition to be a good thing. However this can mean that opinions are suppressed and discussion constrained. This is not the recipe for a successful board of directors.
The above represents a mere fragment of all of what should be inquired about in the board interview process, but it is a start. One must keep in mind that there are no perfect companies and no perfect boards. It is thereby necessary to understand the situation you are considering and make an evaluation with eyes wide open.