Succession and Due Diligence
Over the years, I’ve worked hard to try and let nothing surprise me. Still, a few things always slip by. Where I am most often surprised is in the ways that boards and directors dance around or ignore “due diligence.” I’m still fascinated to watch (and hear through others) how often boards fail to conduct reasonable or even minimal background reviews on the individuals they bring onto their boards. In addition, that same intrigue extends to why so many director candidates don’t check out the other members they’re being asked to serve with.
Granted, board succession practices have not truly advanced much. Many corporate boards, be they public or private, still believe the best source for new directors is to start with their members’ networks first. This ignores the logic that the more you exhaust such networks, the smaller and less fruitful they become. Others still use “the links” or other social outlets as the best way to identify prospects, particularly those who could be “collegial and cooperative” in the boardroom. Directors have often told me they’ve seen or made selections on the basis of a relatively short casual discussion.
When the thought of diversity comes into play here, the approaches they take can also be somewhat. . . odd, considering that these are experienced, distinguished professionals. I’ll share a one example: the Nom/Gov Committee Chairman of a significant public company was dining with a group of about 30 other professionals – maybe five of whom were “diverse” relative to the rest of the group. At one point, he walked from table to table with a marker pen and his business card flipped over asking if anyone knew any women who could possibly serve on an industrial company’s board (withholding his company and specific industry to protect their reputation). Note, the typical business card is a rather small serface on which to take detailed notes – especially with a marker. He also shared that his board was coming down to the wire on getting this done for the company, too.
When when it comes to doing your “due diligence” on those candidates you do find appealing, you might find it helpful to learn why they serve on a board or would want to serve on yours. How they answer can be a confirmation, a revelation, a learning opportunity, or even a deal breaker. We’ve heard such comments as: “I have a lot of extra time,” . . . “It would be a great opportunity for me professionally,”. . . “I’d like to add to my personal vacation travel fund so that such expenses don’t come out of my retirement savings,”. . . “I like being on boards”. . . or . . .”I want my next board to be with an $ XX billion company” (which in this case was significantly larger than the he was on, and the one being discussed).
On the flip side, before joining a board, find out why the other directors are there. What drew them to service? What makes them stay? What is their next personal or professional objective? What do they like best in serving here? And so forth. From the prospective director’s point of view, understanding this lays the groundwork for assessing some of the professional and personal risks in serving on that board. From the board’s perspective, understanding the answers to such questions, and others, gives a better picture of why and more importantly, how the new candidate will serve.
Board service is a long-term commitment that can present very positive or negative outcomes for a company. Knowing what you’re getting into, or with whom, on both sides, is important to you, your colleagues, the company, management and stakeholders served. The complexity of conducting thorough due diligence is much more detailed than what’s just been outlined, but it illustrates how important the process is, on both sides. Doing so helps everyone involved build a clearerer picture on who is and who will be, an exceptional addition to the board. In moving forward on your next board decision, we wish you a positive and productive time together – director, board, company and stakeholders.