Due diligence checklist for a board of directors
An outgoing board director often leaves big shoes to fill, even when boards have planned and prepared well in their succession planning. A board director's main duties are strategic planning and oversight. A multitude of other duties fall under the umbrella of planning and oversight.
Overall, the primary job of board directors is to lead the company to prosperity. In giving due diligence to their board duties, board directors guide the company well. In doing so, they also protect the interests of the shareholders and stakeholders, as well as ensuring good corporate governance, upholding corporate social responsibility, and demonstrating integrity and ethical behavior. The board director role requires due diligence in all of these areas and should be evident in every action and decision board directors make.
Due Diligence Checklist
The following is a checklist of activities that require due diligence of every board director:
Fully Understand the Board Director's Role
The board director's role is more of a work in progress than a list of responsibilities. Beginning with the orientation process, boards should exercise due diligence with respect to fully understanding their role and the expectations that their fellow board directors and the shareholders have for them.
Diligent board directors know their weaknesses and proactively request opportunities for further training and education when they need it. Along the same lines, board directors should comply with best practices to perform an annual self-assessment to identify areas in which they can improve their board performance.
In all matters, board directors should ensure that they're fulfilling their fiduciary duties to act and make decisions with the necessary skill and care that such important decision-making requires. They must place the company's, and the shareholders', interests above their own and ensure that the company is continually in compliance with all laws and regulations.
Board directors must accept collective board decisions as their own, even when they vote against such decisions. When giving a public account, board directors shouldn't speak on behalf of the board unless the board has given them the express authority to do so. Board directors should review the company bylaws to ensure that they meet the expectations outlined there, including the expectations to hire and set compensation for the CEO and to monitor the CEO's performance. Board directors also need to fulfill their duties to serve on committees and to participate fully in committees and on the board.
Get Acquainted With the Corporate Mission, Vision, Values and Culture
All corporate goals and objectives lead toward the corporate mission, vision and values. Culture is a major issue for board directors to understand and embrace, as culture typically starts at the very top of the organization and board directors need to reflect the corporate culture from the beginning of their duties until the end.
All actions and decisions that board directors make should align well with the organization's mission, vision and values, and they should refer to these concepts and incorporate them into the strategic planning process.
Play an Active Role in Strategic Planning
Boards typically participate in SWOT planning, which stands for strengths, weaknesses, opportunities and threats. Identifying these concepts aids board directors in the strategic planning process. In addition, board directors should keep the company's short- and long-term plans in sight continually.
Due diligence in the area of strategic planning requires board directors to ask challenging questions, to dig deep on issues and to be willing to add their own insights and perspectives. The leadership component of being a board director requires them to do more than merely accept the status quo.
Conduct Financial Oversight Diligently
Overseeing operations and financial reporting is a regular board director duty. Board directors are responsible for developing criteria for monitoring and overseeing all areas of the company.
This duty requires them to be diligent about reviewing financial reports and analyzing trends and outlooks. Board directors who bring some other area of expertise than finance to the board should be proactive about asking questions for clarification and seeking out additional training on understanding financial reports, if necessary. Part of financial oversight requires board directors to ensure that the company has adequate cash flow and financial resources for the short and long term.
Whether or not a board director serves on the audit committee, it's important to ensure that the company keeps an accurate accounting program and that the company has adequate internal controls and fraud prevention controls. Due diligence in the financial arena requires board directors to ensure that the board fills out and submits all required regulatory and legal forms.
Overseeing Risk Management Strategies
While boards may have dedicated risk management programs and risk managers, they still need to oversee the risk management strategies and protocols. Board directors do due diligence when they're educated about the biggest potential risks and understand how the company is protecting them. Boards may have a peer with technology and cyber risk expertise on the board who keeps the board updated about cybersecurity risks and trends, but it doesn't relieve the other directors of their responsibilities for overseeing risks.
Upholding Good Governance Standards
Due diligence incorporates the responsibility of board directors to adhere to good governance standards. Governance refers to the system of rules, practices and processes board directors use to guide and oversee the company. Governance standards include balancing the interests of the stakeholders, shareholders, managers, employees, vendors, the government and the community. Exercising due diligence in the board role extends to overseeing the company's objectives to fruition. Exercising due diligence within the board director's role encompasses all aspects of the company, including monitoring internal controls, solidifying risk management protocols, measuring employee performances, and making realistic and strong strategic plans.
In conclusion, due diligence in board directorship applies to a whole host of board duties and responsibilities ' which is essentially everything they do and say. The importance of diligence in board director duties prompted Diligent Corporation to design and develop an entire suite of software solutions that check off virtually every board duty in one way or another. The collection of software products comprises Governance Cloud, which includes:
- Board portal software
- Diligent Messenger for secure board communications
- Voting and resolution tools
- Entity management software
- D&O Questionnaires
- D&O Self-assessments
- Minutes software
As an industry leader, Diligent Corporation continues to develop the most advanced governance software solutions for today's board directors and those who will serve in the future.
