Board of Directors-- accept/decline?

An ins. co. doing bus in multiple states has asked me to accept a position on its board of directors. In a vacuum, with full disclosure to the employer, and compliance with the coe, etc… I assume that accepting is a sound choice to build experience and relationships. Any feedback? Now the hard part. The former president of the ins. co. recently resigned his position in response to a pending personal legal matter (which could yet prove to be business related). The new president was an existing board member who has 30 years exp. as an owner of a similar co. in another state. I sat in on a recent audit com meeting, met the new pres., and later had a lengthy discussion w/ him regarding the transition and future of the co. His objectives clearly indicate a bold effort to clean house and restructure the co. Any reservations? Is this an opportunity to participate in a possible turnaround or a recipe for headache with potential negative consequences?

It’s both of those things, but overall you should be happy to accept. You can always resign if it turns out to be a mess.

I agree with joey that it will likely be both a headache and an opportunity to take part in heading a turn around. If I was in your shoes, I would be excited about the opp but would definitely speak with my attorney about what potential liabilities I may face (b/c I really don’t know much about the legal liability of BoD’s).

Sweet. I am planning to accept pending a discussion with our compliance dept. As always, valuable feedback and much appreciated.

A member of the BoD you should be covered by the company’s directors and officers liability insurance coverage. I would be surprsied if they didn’t have it. Who would serve on a BoD if you were financially liable for your decisions?

sluiscar, congrats on the offer. Now comes the hard part. I have been director of listed public co’s and unlisted co’s - but mostly as a founder or VC funder, etc - so I always have intimate knowledge of the business, accounts, people, etc. Joining a board as outside director of a company you don’t have intimate knowledge of is is a huge responsibility. Simply resigning if things go wrong is not a practical option - it can trigger all sorts of things - shareholder reaction, regulator enquiries, debt covenant breaches, etc, and it doesn’t remove liablity for things that went wrong while you were on. You must do your due diligence BEFORE you say yes. Personally I do the same sort of due diligence as if I were buying the business - because potentially it’s your personal assets on the line… eg. - Talk independently to each director, talk to the auditor, CFO, 2IC, legal counsel. (before you start, outline your proposed due diligence with the chairman & CEO and get their OK - how they react t this will speak volumes in itself) - check background history of chairman, CEO, CFO past businesses, problems, etc - check carrying value of all major assets, - check clauses of all debt facilities and other contracts - eg long term premises leases, guarantees, etc - pull apart the accounts - especially cash flows and understand every significant component - look at the major accounting policies - ie recognition of income (eg in the insurance game - how/when premium income is recognized or whether future years’ premiums are accelerated, claims provisions policies, capitalising of marketing costs like mailing lists, re-insurance arrangements, etc) - get hold of the business plan and budget - pull it apart and question the reasonableness of all major assumptions - eg does it simply extrapolate boom-time sales growth into the future or does it allow for recessions, etc - ask for employment contracts of CEO & key staff - etc, etc. It reality it’s just like a due diligence process for a VC funding or a business purchase. The Chairman/CEO may think it’s overkill, but if you approach it professionally it should give them comfort. eg tell them you are interested in it becoming a productive long term relationship so it’s best to get a good understanding of the business up front so you can be as productive as possible. One thing I have found is that boards/chairmen often appoint directors for the purpose of buying their expertise in a particular area - but this is not the way to look at it. If they want to buy expertise they can do it by paying you as a consultant. Becoming a director is a whole different thing. Directors fees are not compensation for your time or expertise - they should be paying you consulting fees or that. Directors fees are really compensation for your personal liability if things go wrong. In certain circumstances (eg trading whilst insolvent, etc) you can have virtually unlimited personal liability - often not covered by D&O insurance (depends on your objective level of knowledge - check the policy wording), so you must get some up-side. Directors fees are not enough - you need to make sure you are getting some upside as well (eg options, stock, etc). anyway - just some thoughts. 99% chance of all being OK, but you want to make sure up front that you’re not in that other 1%… cheers

^ That was a great answer. Thanks for that perspective n&n.

N&N’s list was great, but here are my 2 cents having worked for a corporate secretary and a BOD of a Fortune 500 company. How indenpendent is the board? Corporate governance statandards. How do they compare to best practices. Look at GovernanceMetrics International (GMI), a corporate governance research and ratings agency. They rate public companies on corporate governance standards. You can look to these companies for best practices. Audit committee charter and check list. In fact, the charters and check list for all of the committees. Review minutes from all prior meetings. Are they following the internal procedures? Compliance with SOX, especially 404 --even if not a public company this should be done. It would help to read SOX to become familiar with the Act then seek the outside interpertation and how the Co has adpoted it. Discussion with lead audit partners on concerns. Code of Business Conduct. How independent is the Board? How many are internal and how many are external? Once your initial DD is done, being on a board can be very lucrative considering the time spent. Plus it is the kind of experience that will create more opportunities. N&N is 110% right…you’ll need to look at the D&O insurance and any indeminifications provided by the company incase something blows up.

JoeyDVivre Wrote: ------------------------------------------------------- > ^ That was a great answer. Thanks for that > perspective n&n. Wow, ditto that. Thank you all again for the valuable insight and direction. I owe you a beer and a steak. **thread printed and serving as “to do” list**