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Directors Governance Center

March 1, 2016

Joining a Public Company Board? A Roadmap for Evaluating the Opportunity

We have recently published an article in Bloomberg BNA titled Joining a Public Company Board? A Roadmap for Evaluating the Opportunity. The article discusses the issues a prospective director may wish to consider in deciding whether to join a public company board of directors. The article offers a roadmap to making the decision by providing a series of topics and issues to consider as well as specific questions to guide the decision. The following is a brief overview of the issues that we discuss in the article:

I. Company and Industry Background . Understanding the company and its industry are important first steps in determining whether you will be a good fit for a particular companys board. In order to make a fully-informed decision, you should consider the following key questions and issues.**The Companys Strategy, Performance and Recent Developments* . How a company is performing and its strategies (growth, financial, operating, etc.) can dictate the type of director that it will need moving forward. A good place to begin your research is with the companys public filings, where much valuable information can be found. Questions that get to the heart of the companys strategies, such as how the company develops and executes its strategies, may be best learned through discussions with current directors and management.

**The CEO, Senior Management and Management Succession* . Because the boards primary duty is to oversee management, it is essential that you understand the relationship between the CEO, other members of senior management and the board. When thinking about this topic, be sure to consider both the strengths and depth of the senior management team and where the company stands in succession planning.

**Investor/Stakeholder Relations* . With the demand for increased shareholder engagement in recent years, it is important that you consider the companys policies and practices on this topic as well as the makeup of the companys shareholders. Who the companys investors are can play a significant role in dictating how they interact with the board, as well as the boards ability to function effectively.

**The Companys Risk Management Program* . Since the financial crisis of 2007/2008, public company boards have taken a more active role in overseeing risk management. As such, determining how the company identifies, evaluates and manages risk on an ongoing basis, and understanding how the board oversees these processes, is important in evaluating the companys financial, regulatory and legal health.

II. The Effectiveness of the Board of Directors . In the article, we discuss a multitude of factors that play a role in determining the effectiveness of the board of directors. Among these are board independence, the relationship between the board and management, the boards access to information, leadership within the board of directors, and the boards collective skills and expertise.

Since the early 2000s, public company boards have generally been required to have a majority of independent directors. However, it is important to delve deeper to consider the effectiveness of any particular boards independent directors. Maintaining appropriate leadership roles within a board, e.g. a lead independent director, and utilizing tools like executive sessions can be important in ensuring that the board as a whole, and in particular the independent directors, are functioning effectively. Furthermore, identifying the boards access to and use of information can be telling as to the boards effectiveness. The relationships between individual directors as well as the boards relationship with management can play a role in determining how well the board functions. Finally, considering the collective skills and expertise of the current board and identifying the role you believe you could play, as well as the one the other directors may hope for you to play, can be crucial in determining whether you will be a good fit with a particular companys board.

III. Protection of Directors . As a director of a public company, you will face the risk of personal liability. For this reason, it will be important for you to understand the companys indemnity and exculpation policies. Most states allow corporations to exculpate directors from monetary liability associated with breaches of their duty of care (subject to limitations). Furthermore, many companies provide for additional indemnification of directors through standalone agreements. Finally, director and officer insurance can be vital not only for providing a safety net if the companys assets are insufficient to protect its directors, but also for covering potential director losses when the company is not permitted to cover such losses.

IV. Board Compensation . Finally, you will want to review the compensation arrangements that the company provides for members of the board. Compensation arrangements will vary from company to company, and it is important to ensure that you find the compensation at the company you are considering acceptable.

To see the full article with the specific questions that a prospective director may wish to consider in making this decision, click here.