Governing the post restructured company: how to form a 'sweat the details' board.

• Author: Weber, Jon
• Position: POST RESTRUCTURED COMPANIES

There are unique challenges when governing companies post restructuring, as newly appointed directors--often unfamiliar with the business and unacquainted with one another--meet for the first time to reverse the fortunes of a troubled business. Usually selected on the basis of familiarity with the restructuring community, these board members may lack operating experience, industry knowledge or relationships critical to addressing the root causes that brought about the company's distress.

Rather than rely on financial advisors or lawyers to look after governance after the restructuring process, investors should take the helm to seat a board that will both sweat the details and bring much needed competencies. Such investors should:

* ensure that board members are properly qualified and aligned with the interests of investors,

* establish high standards for director engagement and accountability,

* establish processes that allow boards to have a significant positive impact on business,

* protect the board's independence and prevent conflicts of interest and

* make sure the board remains accountable to shareholders.

To build the post-restructured company board, investors should balance industrial and functional qualifications against a track record of representing investors in similar situations and circumstance. Preferably one or more director designees should bring experience as a private equity investor with prior success in improving operationally challenged investments.

For candidates who predominantly offer skills that can be readily obtained from professional service providers (e.g., lawyers, bankers or consultants), investors should consider whether such services can more efficiently be obtained a la carte or whether a service provider-orientation is compatible with the governance role.

Board size and composition

Boards consisting of more than seven members tend to be cumbersome, more readily swayed by management and generally less effective at encouraging deep engagement by individual board members. Conversely, smaller boards require less internal coordination and can afford to effectively compensate highly qualified candidates, while keeping overall board costs under control. Accordingly, investors may be better served through a compact, highly compensated board of five to seven members.

If the post-restructured company board exceeds nine members, investors may wish to form an executive committee or other governing body within the...