🔒Tips for evaluating an offer to join a board

Congratulations, you have just been asked to join a board of directors. If you have never been a board member before, the chances are that you are in for an interesting and rewarding experience. If you aren’t totally familiar with the organization — perhaps you only know that someone you respect is a part of the organization — don’t let that lack of detailed understanding stand in your way of exploring further.

Fortunately, depending on its mission, the organization’s size and whether or not it is publicly traded, much of the key information about the company may be readily available online.

There are some key issues you might want to address before you say “yes.”

1. How established is the organization? Is it new or one with a proven track record? Is it a for-profit organization? If so, how well do you understand its products and its business proposition or purpose? Do you know any members of management and their reputations? Where will the initial and ongoing funding come from? It is vital that you understand how it makes money in order to help evaluate its viability? What are the key drivers of cash flow and profitability?

In order to understand the financials you will need the current balance sheet, income statements, retained earnings, statements of cash flows and the latest audit report. And, by the way, the footnotes are important.

2. Ask for a copy of the organization’s business plan. Does it also have a longer-term strategic plan? What is the vision of the company? Flowing from the organization’s mission are the organization’s key objectives and strategies used to reach those objectives. Does the business plan clearly outline the connections between the organization’s mission, goals and the bottom line?

3. Is it a stock corporation or not-for-profit? With a stock corporation, are you required to purchase any of the organization’s stock or make any other financial contribution as a pre-condition to joining or remaining on the board?

If it is a not-for-profit organization, these same questions are still pertinent. What is your expected “donation” each year or does the organization have the common philosophy of “either give or get” a certain dollar amount of contributions?

4. What type of new board member orientation program is offered by the organization? Many organizations ignore this important first step for new members and leave them to fend for themselves and absorb the organizational culture. It also inhibits new members from contributing fully because they don’t really understand what is going on with particular issues and may be too embarrassed to ask or, in the worst case, become disillusioned with the organization and resign as a result.

5. What insurance programs are in place to protect the organization — and you — in the event of a mistake such as a product liability issue? Don’t make the assumption that you are always free from potential liability if your organization is a nonprofit. While many state laws provide an exemption from liability for nonprofit board members who are volunteers, federal laws may not. Does the organization you are considering have liability coverage for directors and officers? Even with that coverage the details are important. Things can happen to cut down the available coverage. For example, is there any provision for “side A” coverage that helps to insure the director will get paid in the event the organization’s coverage limits are somehow exceeded? Don’t make the assumption that the existence of a directors-and-officers policy provides total coverage. The organization’s financial officer should explain the coverages and how they protect you.

You should consider these questions before you decide to move forward with your commitment. I hope you will decide to say “yes.”

Ward Graffam was the founding chairman of the Maine International Trade Center and was chairman and CEO of UNUM UK. He has served on numerous boards. He can be reached at wgraffam@aol.com