Before you say yes to a board invitation: 10 due diligence tactics.

• Author: Soder, Dee
• Position: DIRECTOR RECRUITMENT

You've met the other directors, asked smart questions, reviewed the financials, and ensured there's good D&O insurance. You can't wait to tell colleagues that you've been selected for a board seat. All seems good--and it probably is.

But even experienced directors sometimes encounter financial, ethical or other issues that lead them to quietly resign a short time after accepting a board position. Neither the board nor the director is apt to disclose the true reason for an abrupt departure. The director is wiser after the experience, but unclear if anything changes in the dynamics of the troubled situation.

This isn't as rare as one would expect. A couple of times a year we get asked for advice on how to gracefully depart, or hear a board prospect say, "Whew, that was close. I dodged a bullet." Surprisingly, even sophisticated directors are sometimes swayed by a company's reputation or the reputation of colleagues in management or those already on the board and fail to probe deeply enough. "It never felt quite right, but it wasn't until the first board meeting that I knew why," declared one nationally recognized board director. "I should have trusted my gut," another stated.

Anecdotal evidence points to an increase in incidents of abbreviated tenures--due to more first-time directors, increase in time constraints, conflicting interests and other factors. Of course, if you are the one encountering a significant problem, you don't care much about the trend or what's happened to others.

The old saying that you can't do too much diligence is truer than ever today. Good D&O insurance can protect you against a financial loss, but the potential damage to your reputation and lost time (and sleep) can be even worse. Just ask anyone who's waited, hoping things will improve, and resigned after the issues became truly problematic.

The wise candidate will investigate thoroughly, identifying and closely scrutinizing potential problems before accepting a board position. Always kick the tires. If a finalist, this includes touring plants, asking very specific questions about operations, talking to employees (if possible) and management. Skepticism is a virtue, especially when one recognizes that those most apt to know the problems are lawyers, consultants and fellow directors who are precluded by profession or confidentiality agreements from disclosing significant problems.

We interviewed numerous directors to develop and refine a due diligence checklist. We...