Private Company Director

5 Questions for a board interview

Two experts in director interviews -- from opposite sides of the table.

From the interviewee:

jim mchugh
Jim McHugh CEO, McHugh & Company, Inc., and director, Southworth International Group, Inc., and Kennebec Technologies Inc.

In preparing for an interview for a board of director position with a private company, I would have many questions for shareholders and management.

My assumption is that either before or after the initial round of interviews, I would have access to a collection of "due diligence" materials about the company including

(but not limited to) current and historical financial performance, products, customers, competition, the industry and corporate legal matters. In addition, I would want to understand the board mechanics — frequency of meetings, expected time commitment, D&O insurance and compensation.

Here are the five key questions I would ask during my interview.

  1. What is the company’s long-term strategy? Describe the company’s business model. What I would try to understand is if the person interviewing me clearly articulates the strategy. Is there a strategy? Is there alignment about the company’s future direction? Do the owners really understand the components and nuances of the company’s business model?
  2. What is the long-term strategy of the shareholders regarding the company? Are the shareholders ‘in it’ for the long term or is there a short-term horizon with the intent to sell at some point? Is the company getting prepared for a change of control event? Is there alignment amongst the shareholders about their ownership in the company?
  3. Can you describe the board: history, type, expectations, goals, role/responsibilities? How has the board evolved over time? Is the board being formed, changed, or simply adding a new or replacement person? How do the shareholders and management use the board? Is it a strategic board or more of an audit/perfunctory board?
  4. Can you provide some board background? What are board members' connections to the company and/or the shareholders? Who are the other board members and what roles have they served over time? Are they truly fiduciary/independent?
  5. Can you provide insights into key members of the management team? Describe their roles, history with company, and their strengths and weaknesses. How do the shareholders view the current senior team? Are there any management changes anticipated in the short term? What are the thoughts around succession planning?

From the interviewer:

Dale E. Jones President and CEO, Diversified Search

There is a fallacy that serving on a private company board is somehow easier than serving on a public one.

After all, public company boards are subjected to intense scrutiny about their bottom line and answer to a disparate collection of stakeholders; activist shareholders are now common and regularly upending corporate leadership.

Private company board members face none of these issues.

But serving on a private company board brings its own unique challenges and requirements. The conditions and terms of private company board service differ, depending on the private company type and its strategic vision. A family business board may be more concerned with long-term sustainability; venture-capital (VC) or private-equity-backed (PE) company boards prioritize a possible acquisition, potential IPOs, and ROI. They also generally have shorter time frames to produce results.

Here are five questions I use to get to the heart of a potential director.

  1. Why do you think you are a good fit for this board? It’s critical that any potential board member understands the commitment they are being asked to make: Not only the fiduciary duties associated with being a director — duty of loyalty, care, good faith — but also the expectations and general responsibilities of a director. Often, private company boards can serve as a training ground for rookie directors who lack board experience and don’t have a clear idea of what they are going to be asked to do. Dive deep into a candidate’s current or prior board experience (you want someone with at least some board experience; the nonprofit sector often offers candidates), and ask what experience they have acting in other fiduciary capacities. Knowledge of the general field in which the company operates is key. It’s critical to identify any knowledge gaps, so they can be addressed later in a director onboarding program.
  2. Do you have any conflicts of interest? Divided loyalties is the hidden landmine that can result in drama (at best) or legal ramifications (at worst) down the road. An unearthed conflict of interest can quickly steer a company off its strategic course and distract the board. Certain circumstances, especially in VC or PE-backed companies, can be exceptionally complicated when investor representatives serve on boards in which their firm invests. It’s critical that candidates be transparent about current relationships and past affiliations — and that you ask about them.
  3. Are you prepared for the time commitment? You used to be able to miss board meetings — or two, or three. Not anymore. Private company board members are expected to attend every meeting, so check your candidate’s calendar and other responsibilities. According to the 2016-2017 NACD Private Company Governance Survey, the average private company director spends a whopping 172.5 hours, annually, on board-related matters. That’s more than four full-time weeks every year. In the hyper-connected business world of today, much of the communication between board members and executives at private companies is “off the cuff ”; directors need to have expectations laid out that they should expect more frequent informal points of contact, and they’ll be expected to respond in a timely manner.
  4. Do you understand the culture of this organization? Private companies often have a deep-rooted, and unique, boardroom culture that stems from multi-generational family ownership or a founder-led company. There is a right way to make points, ask questions, raise issues. Exemplary board candidates will do their due diligence and familiarize themselves with a company’s history, culture and operations. That being said, candidates should be comfortable and ready to reconcile differing opinions and mediate potential conflicts between family board members or major stakeholders. Companies should inquire about a candidate’s ability to handle conflict and their willingness to voice unpopular viewpoints in a convincing yet respectable manner. They should also question the candidate’s personality, work style, leadership style, and values. Importantly, companies should determine whether the values of the candidate align with that of the company.
  5. Can you spy — and manage — disruption? In their early stages, private company boards are often filled with like-minded individuals — family, friends, and business acquaintances — which can unfortunately lead to group-think, decision-biases, and strategic ineptitude. In their search, private companies should seek out candidates that have unique experiences and diverse perspectives that not only inspire but inject new ideas, conversations, and innovative thinking to the boardroom. Companies should ask the candidate what upcoming trends or industry-specific disruptions they believe are on the horizon, how these may affect the company, and how he/she can turn these threats into what they are: an opportunity.

Directors Record