Being asked to serve on a board may seem like the ultimate compliment. It shows a certain level of achievement and recognition that your skills are valued outside of your own organization. Directors also meet interesting people, expand their network, and grapple with stimulating issues. Independent public company directors are also often well paid.
Yet board service may not be for everyone. It takes a lot of time to both secure a board position and serve. It is important to answer the question: Why do you want to serve on a board?
There is no shame in ultimately deciding to postpone or not pursue board service. This chapter focuses on the reasons to serve on a board. It also covers the risks of board service as well as important questions to self-evaluate whether board service is right for you.
Board opportunities may be powerful. They may add value to your resume, boost your experience, provide opportunities to grow, allow you to work on challenging problems, let you set corporate strategy, help you raise a public profile, provide opportunities to influence others, empower you to make important decisions, and many more.
There are several reasons why more and more professionals are considering board of director opportunities. The benefits of serving on a board of directors can hardly be ignored by anyone who is aspiring to take their career to the next level. Some of these benefits include the following:
- Intellectual challenge
Intellectual stimulation is the primary motivation for many professionals who choose to join a corporate board. Strategic planning, navigating mergers and acquisitions, planning for chief executive officer (CEO) succession, and many other milestone events are learning-rich opportunities, regardless of whether you have been involved with them before.
- Gain more expertise and experience
As a director you may learn to handle complex issues from different point of view and under different circumstances. You will also gain more industry experience and obtain a wider perspective.
- Grow your network
In addition to new knowledge, experience, and expertise, your network will likely grow substantially. You will get a chance to build a network with fellow directors, investors, partners, industry thought leaders, CEOs, competitors, vendors, and many others.
- Develop your career
Serving on a board will also give you an opportunity to be in a strategy role without being consumed by daily execution realities and challenges. This will provide you with more time to develop your career from a different, more strategic angle.
- Additional income stream
Serving as a director, especially at a large public or private company, may offer substantial compensation. Although there is a lot of variance in compensation depending on experience, industry, company size, and many other factors, total compensation often has both cash and equity components and may be substantial. If involved in a startup, you could see incredible compensation if successful, or serve for several years for zero reward.
- Be a leader
Serving on a board may increase your leadership abilities. In fact, you may find that other opportunities come to you because of serving as a director. For example, you may get other board opportunities, interesting job and consulting offers, and opportunities to speak. You can also be an industry thought leader and enjoy an increased public profile.
- Understand board governance
Serving on a board will most certainly increase your corporate governance knowledge and help you to become more fluent in navigating the boardroom, C suite, and various other important relationships. Just like most things in life, comfortably navigating a boardroom comes with time and experience.
There are, of course, numerous other benefits of board service. Ultimately, corporate board service is a gratifying experience that many professionals find rewarding and lucrative. It is worth considering, preparing for, and obtaining!
How to Prepare for Board Service?
When filling a director position, most companies look for someone who has a lot to offer in terms of leadership qualities and experiences. Yet serving on a board itself also provides an opportunity for professionals to further develop leadership skills and take them to the next level.
The board needs performance, not just promises. Directors need an open mind, curiosity, and integrity. They need problem-solving and crisis management skills, as well as the ability to readily adjust with changing circumstances. They also need motivation, especially newer members, to bring out the best in others.
Therefore, it is very important for a director to realize that leadership opportunities are not all about running the company. Leadership in the boardroom is also about setting a direction for executives and senior managers who in turn can guide employees.
To grow as a leader and be well positioned for board opportunities, it is helpful to develop the following key skills as soon as possible:
- Get used to regular involvement
Boards are looking for someone who is regularly involved, has had hands-on operational experiences, and is committed to attending every meeting in person. In fact, regular meeting attendance is considered a mark of excellence by most directors and required by the U.S. Securities and Exchange Commission.
- Build board skills
Understand what a board does, how their role differs from executives, and how to create efficient consensus among senior professionals from different backgrounds. These and many other skills should be developed throughout one’s career.
- Build a wide and deep network
Many directors bring the value of having a substantial network. Therefore, it is worth developing your network throughout your career. Once you get on your first board position, continue building your network further to help your company and create other board opportunities for yourself. In fact, one of the best rewards of joining a board is having better networking opportunities. These increased networking opportunities allow you to get connected with people who will contribute positively toward your development.
- Proactively build your reputation
Prospective directors who have spent a lifetime of building a positive and strong professional reputation in certain industries are an asset to any board. Make sure that you proactively build your reputation and credibility over time. People will begin to see you as an expert and authority in your field of discipline, which will bring you new opportunities.
- Strengthen your skills, experiences, and expertise
Of course, substantive skills, experiences, and expertise are valuable to companies looking for prospective directors. It is important to build these qualities throughout your career. This enables you to become an expert and provides you with opportunities for growth, including board service.
Cultural Awareness on a Board: What Is It, Why Is It Important, and How to Leverage It?
As globalization has become the new normal, the corporate world has also seen an increase in cross-border recruitment, transactions, sales, exchanges, partnerships, and much more. Many companies are intentionally looking for directors who can represent global opinions and problem-solve in the increasingly competitive corporate world.
Many academics and business analysts have given their own definitions of “cultural awareness.” Fundamentally, cultural awareness is the foundation of communication. It involves the ability to standing back from ourselves and become aware of our cultural values, beliefs, and perceptions. It may include one’s ability to recognize cultural, behavioral, historical, and philosophical differences.
What Skills to Develop
- Have knowledge and self-awareness not only about your own cultural background but also other cultures around the world.
- Be open to the thoughts and beliefs of others and practice a non-biased approach when tackling various business issues.
- Be open to communication where the flow of ideas is not restricted and barricaded by cultural differences. Communication is the key to cultural awareness.
- Be adaptive to all kinds of situations, including those that are unfamiliar.
How to Leverage Cultural Awareness Skills to Get on a Board
- Be social
Socialize with the team. In some cultures, ensuring that everyone gets to know each other well before they start to work together is prioritized. When a new member is introduced to an organization, there is often a welcome party, which is the best time socialize and get to know each other before beginning serious work.
- Know about local business practices and how they may differ from others
Every culture has its own set of values. It is important to know them and practice them. This shows that you are not only here to do business but that you are adapting to the work tradition. Examples can include practices related to business cards, greetings, and meals.
- Settle on common grounds
It is not possible for everyone to have the same approach to all business practices. No two countries have the same working conditions. At times, you will have to understand the economic background and tactics of other parties to effectively tackle issues. It is important to have a repertoire that allows you to emphasize common ground rather than being rigid and firm on issues.
What Are the Major Questions to Ask before Joining a Board?
To assess your board readiness, consider asking yourself a series of questions before you begin your board journey. What follows are some questions that will help you self-assess your board readiness.
- Why do I want to become a director?
What compelled you to want to serve on boards generally and this company or organization specifically? What is the reason that you are a good fit here? Try to narrow down why you want to serve for this specific organization. Why do you want to associate your reputation with it? What value will you bring to the company or organization? For the relationship to be sustainable, the beliefs and values of the company and organization must echo your own, and the association must be mutually beneficial.
- How passionate am I about this organization or company?
A quality organization needs and deserves passionate directors who genuinely contribute to the company’s objectives and inner workings. A board is not for those who simply take up space. Ask yourself how passionate you are about the organization’s vision, mission, and objectives. Never take a director position just to look good or add some perceived value to your portfolio. If your heart and your mind are not in it, it will not be beneficial. Serving on a board is a big commitment and time investment that you should take seriously.
- Am I aligned with the company’s vision, mission statement, and core values?
The privilege of serving on the board is to raise your voice to make a positive difference. Your role as a director is to guide the company and its leadership to stay on track and thrive. You can only do so when you are aligned with the company’s mission statement, vision, and core values. Ensure that you have an in-depth understanding each of these facets. Gather valuable input from all levels of the company, including other directors and the leadership.
- Do I understand and embrace the organization’s history?
Once you serve on a company’s board, it is now your business. You need to understand what the company has gone through in the past as well as the current landscape and direction. Research recent staff changes, and compare forecasts to reality. Audit statement history, projections, timelines, previous performances, public records, and word-of-mouth news are all important things to know about. The company’s past may be the looking glass into its present and future, so take advantage of it.
- Are there any negative issues with the company? If so, have I concluded that I can be effective? Are we really a good fit? Is this a good board for me?
Insist on honesty and transparency from the start. You can never serve a company optimally if some points are left unchecked or in the shadows. Ask tough questions and make sure you get intelligent and timely responses. Create an expectation that you will ask and address the tough questions. This is the time and place to be transparent and act with integrity. Finally, select board opportunities where you will have the opportunity to prove your value and where your skills and personality are a good match. Do not pick a board because it seems “prestigious.” Very few things are more disappointing in board service than a poor fit between the director and a company, the director and the existing board, or the director and the management.
- Do I respect the CEO, the management, and the board?
If you do not have respect for this leadership team going into a board role, it is unwise to take this board seat. The only exception might be that the board already knows that it is replacing the CEO and you will have the opportunity to determine the new leader.
What Are the Risks That Come with Serving on a Board?
Before joining a board, it may be a good idea to pause and consider how you can mitigate any potential risks. What follows are some questions you should ask yourself to assess the risk profile of a board service opportunity and your risk tolerance. It is worth considering these questions both before you join a corporate board of directors and periodically after you join.
- Does the company have comprehensive directors and officers liability insurance (D&O) coverage? Does the indemnification agreement protect you?
Every company needs comprehensive directors and D&O. Ask what the insurance policy covers and to what extent. It may also be a good idea to work with a professional to get you comfortable with the policy and the indemnification agreement.
- What are the risks of joining the company or organization?
If the stock price sinks, the directors can be sued—this is normal and completely expected. In fact, public company directors should be comfortable with this reality. It is the responsibility of the board to maintain financial strategies, and manage sales and marketing plans. Directors can be questioned about the process of their decision making at any time. Therefore, a director should understand corporate governance, perform their duties diligently, engage in a good decision-making process, continually educate themselves about the risks of their business, and work closely with legal and other professionals.
- Will joining the company increase my reputational risk? If so, to what extent? Should I still join? If so, how will I mitigate these risks?
Bad board actions or decisions may affect the reputations of its directors, even if you were not involved in the decision or it predates you. If you are part of the board, people may have reasons to question your credibility and judgment.
Your insurance will not cover reputational risk if you are serving on a board. And the damage to your reputation can be very costly and often irreversible. For example, it may affect your ability to serve on other boards. Only your due diligence may reduce the chances of your reputational risk.
Reputational risk is not at all new for companies. However, in today’s digital age, news of the risks spreads faster than ever, reaches everywhere, and can be impossible to delete or contain. The reputational damage that a director suffers may be severe and long-lasting.
Therefore, it is important to understand and learn as much as you can about the company—where it has been, where it is, and where it is going—before you join as a director. Consider learning as much as you can about the company’s current board, its executives, its founders, its investors, other stakeholders, and its history.
- Is there a criminal risk associated with joining the company?
The chances of criminal risks are very rare for the board of directors, especially in the United States. You will find this kind of rare incidents only in the most egregious fraud cases. Of course, your due diligence about the company and its stakeholders may help you identify the main criminal-risk red flags. After you join the board, consider staying alert and keep your eyes open. Evaluating risks is what good directors do regularly.
- Is there a financial risk associated with joining a board?
The financial risk of serving on a board in the United States is low, if you follow established corporate governance rules along with any company-specific rules. Thus, understanding the company’s charter, bylaws, other corporate documents, and corporate governance is important.
It is also important to understand how you are compensated. For example, what percentage of your compensation may be in equity that you are expected to not sell while still serving as a director? Are there explicit restrictions on what you can sell and when?
- Is there a cross-border risk associated with joining a board?
In the United States, this risk is also generally low. Moreover, D&O should cover cross-border risks. Of course, you may want to look more closely at the enforceability and the language of the policy.