Smart Questions: How to Vet a Board Member
Here's what to ask to get the right person to join your board.
- What will it take for my company to grow from $10 million to $100 million?
Insert your own sales figures, but the point is to find out how much a candidate knows about building a business and how he'd take yours to the next level. His ideas may be different from yours, which is fine. Good directors challenge your thinking and help you hone your strategy.
- Why do you want to be on my board?
A retired CEO might enjoy mentoring up-and-comers. Other candidates may see it as a chance to expand their networks or as a smart career move. All of these answers are legit. Take a pass if someone only talks about how much money he stands to make. "Upside shouldn't be one of the top reasons," says Clark Waterfall, managing director at BSG Team Ventures, an executive search firm in Boston.
- Are you on any other boards?
Be wary of candidates who collect board seats like candy. Conscientious directors seldom sit on more than three or four boards at a time.
- How do you expect to be paid?
Directors generally spend at least 25 to 30 hours a year participating in meetings, phone calls, and committee work. In return, according to Waterfall, a private company with less than $25 million in revenue typically offers .15 percent to 1 percent of equity, meeting fees ranging from $750 to $1,250, plus travel expenses. Tack on an annual stipend of about $2,500 to $25,000 if your business does more than $25 million a year.
- Do you require D&O insurance?
Directors and officers insurance protects corporate officers and board directors if a business gets sued, and you'll have a hard time luring A-list candidates without it. A D&O policy for a small company runs about $10,000 to $50,000 a year, says Waterfall, so if you're not willing to pay for it, tell a candidate up front. It could be a deal breaker, especially for individuals with high net worth.
- Are you willing to be evaluated every year?
Your board members should be reviewed like everyone else in the company. A candidate who plans to take his role seriously won't have a problem with it. For early-stage companies, Waterfall suggests that outside directors serve a one-year term at first, then be reelected, perhaps for a longer term, if the board is working well together.