Three tips for effective due diligence for prospective board members
When exploring a potential directorship position, it’s important to remember that these positions are very different to a typical job one might accept. Information flow, fiduciary duties and potential liabilities of a directorship can mean a misalignment between the risk and reward profile of the role. It can also make it challenging to step down post-appointment. And it makes sense to reserve one's time and energy for roles where you can grow and add value. As such, the approach one takes pre-appointment is critical.
Here are three tips that may help make the due diligence process more effective.
- Have a framework
It might be tempting to limit one’s due diligence to a limited number of sources such as conversations prior to or during the interview process, knowledge obtained via the company’s website, insights gleaned through a headhunter, recent news articles or known particulars (ie. a company’s reputation). Equally, one can be overwhelmed by the potential mountain of data points available.
A good way to anchor yourself is put a framework in place for the type of information that you believe you need to be able to make a holistic, objective decision. You may wish to group information into broad categories before creating sub-categories. An example might be board dynamics and underneath this, voting patterns. Then, make note of the methods you will take to learn more about these subtopics such as verbal conversations or by reviewing private or publicly available documentation.
- Zoom in on key areas
Our observation is that people looking to undertake a directorship position are relatively time poor and that many people seem to underestimate the amount of time it takes to carry out due diligence. This could mean that doing all of the work by yourself might not be feasible. The returns may also not be greater than if you were to focus the bulk of your time on specific areas of interest. We recommend that after putting together a framework, you highlight the areas that you believe need prioritization and drill down.
For example, part of the due diligence process includes understanding your own strengths and weaknesses. Areas that are outside of or on the edge of your comfort zone may be ones that you may wish to explore in more detail. Alternatively, some information you have gathered may be throwing up red flags. Or, you may have a particular interest in being a force for change in relation to specific topics once you are appointed and it’s important to explore whether this change has the potential to be realized. There can be several iterations of key priorities while the due diligence process is underway. Allow it evolve and carefully consider the findings.
- Speak to former board members
Prior board members can be incredibly rich sources of information which can accelerate or enhance the conclusions of your due diligence work. They can help pinpoint topics that you should focus on, they may alleviate concerns that you have, they may provide brand new insights or they may have the missing pieces to a puzzle that you are trying to solve / a situation that doesn’t quite make sense to you as an outsider.
You may or may not already know some prior board members of a particular organization that you are interested in. Approach the individuals that you know to have an open and honest conversation about their experience. However, do not limit yourself to known entities. You should also speak to people that you do not know. You can target these individuals by filtering criteria such as the period during which they sat on the board, their historical voting pattern, their areas of expertise or their length of time on the board. And you can reach out to them through mutual connections or by cold calling means such as organisations that they are currently involved with that provide their contact information, LinkedIn or mutual membership directories that permit these types of connections.