Beyond Fiduciary Duties

You have or have had an exemplary career. You have studied corporate governance and perhaps have even become NACD Directorship Certified™. You have a clear understanding of your fiduciary duties—duty of care and duty of loyalty, including the duties of good faith, oversight, and disclosure. You believe you have a concrete understanding of the role of the board and your role as a director. 

Most likely, you have focused primarily, if not exclusively, on the requirements and leading governance practices of public companies. While the governance practices of some privately-owned companies are almost indistinguishable from their public company counterparts, generally, these tend to be firms that are larger and more mature in their business cycle. For the rest, one needs to appreciate the nuances attributable to private company board service.

Private company ownership structures include angel funded, venture capital funded, private equity owned, family owned, and employee owned. They range from start-ups, early stage, growth, and beyond. For each of these structures and stages, are you clear as to shareholders’ and management’s expectations with respect to what they perceive as your duties? 

Of course, you will diligently exercise your fiduciary duties, oversee strategy, and the selection of the CEO, while also sharing your insights and best business judgment. And yet, are you aware of, prepared for, and willing to be involved with the following, if asked?

• Introduce potential investors; assist with refining investment pitches; introduce financing sources; or even become an investor.

• Identify and introduce potential partners, suppliers, service providers, and customers;  participate in sales calls.

• Identify and recruit top talent for key positions; provide subject matter expertise if limited resources preclude hiring consultants.

• Roll up your sleeves and commit significant time to regularly address progress towards or changes needed to execute the value creation plan.

• Consider the emotional dynamics of family relationships and legacy while addressing business issues in the boardroom.

While by no means an all-inclusive list, these examples are intended to provide a glimpse into shareholders’ and management’s possible expectations. Are you able to identify the ownership structure and stage of development where these requests might be made? Are you comfortable viewing the blurred lines between fulfilling fiduciary duties and running the company while exercising the required care to ensure they are not crossed?

How do you approach private company board service with your eyes wide open? Clarity matters. It is imperative to establish a mutual understanding of expectations between you, management, and the shareholders. 

Start by asking whether the company has a job description for independent directors, and if so, request a copy. Anticipate that it might not be robust enough to fully inform you of expectations. Moreover, many companies have not prepared a job description. 

So, ask questions and then ask more questions. Some will be mundane, and others will hold greater weight. Avail yourself of the many resources with sample questions. While you want to be respectful of everyone’s time, if there is any reluctance on the part of management or the shareholders to fully respond to your questions, view that as a lens into the likely culture in the boardroom and the decision-making process. 

Being selected to join a private company board should not be akin to speed dating; instead, think of it more like a courtship. A company may be thrilled that someone of your caliber would entertain serving on its board and offer the position prematurely, while another may believe its process is highly efficient. Take the time necessary to ensure your role is clearly defined. Understand how the developmental stages of both the company and the management team may modify your role in the future. Consider these factors in addition to the standard criteria one would evaluate in determining whether a particular board position is a good fit. 

Expectations that differ or are unclear create avoidable frustration and friction among the parties, whereas with aligned expectations, serving on the right private company board for you can be an extremely gratifying experience. 

Pamela Packard is an experienced private company board director currently serving on the board of Gray & Company, Inc. She also serves as President of the NACD New York Chapter and is an NACD Board Leadership Fellow.