Now you’re a director

Dear Mary, I read your article a month ago about being on a board, and after careful consideration, I have agreed to be on a company’s board of directors. What do I need to do now?

Corporate directors’ fiduciary responsibilities include due care, diligence and prudence. Fulfilling your obligations as a director begins with getting a clear understanding of company policies and the board’s rights and obligations.

Directors must function as a team, not as individuals. But having said that, it’s also very important to bring your individual views to the table. Directors’ disagreements can be healthy for the company, so long as the directors’ conflict is well founded. As my husband always says, there are three sides to every argument — your side, their side, and the truth.

If you read my column last month, you have probably already investigated the nature of the business. If you haven’t had a chance yet, now is the time to study the character of the business, the industry in which the company functions, and the company’s operations and business strategies.

It is well within your right to ask the management of the company to provide you with a monthly update on new business standards and trends within the industry. For example, you may ask for copies of the industry or trade publications that explain new legal and business developments, especially if those updates involve director and officer liability.

And as long as you’re asking for documents, ask the management to provide you with a “board packet,” which should include a copy of the articles of incorporation, bylaws, financial statements, and reports to shareholders. It’s also beneficial to have any documents that involve board procedures, organization and schedules.

Ask for and review copies of employment contracts, as well as the employee benefit plan, if one exists. Take a look at product brochures, and/or documents that describe the company’s business, facilities, markets and technologies.

Many companies have policies concerning such things as ethical conduct, conflicts of interest, and legal compliance. Read through these policies, as well as the company’s business plan and any strategic summaries that have been drafted.

Depending on the size of your board, you may want to meet individually with the other directors and with the management of the company. The point of meeting with directors is to find out what their views are on the company and management. This is also a good time to find out how much time it will really take to serve as a director.

Meeting with management personnel will help you learn about the challenges facing the company and its future. Ask about how the company performs in comparison with competitors, and ask for an honest self-assessment of the team, which you should compare against performance reviews.

If you can, try to meet with the company’s legal counsel to find out if there are any major legal problems facing the company. Inquire about your rights, obligations and limitations as a director of the company.

Mary Luros is a business law attorney with Hudson & Luros, LLP, in Napa, and can be reached at mary@hudsonluros.com or 418-5118. The information provided here is not intended as legal advice, nor does it form an attorney-client relationship with the author. The author makes no representations as to the reliability or accuracy of the above information. In a perfect world we wouldn’t need disclaimers — or attorneys.