Topmark Advisors LLC

The Director Perspective

FORTUNE 500 - $4.6 Billion - $443 Billion
The widest range with nearly 100X the smallest to the biggest
7 meeting average - enormous board support
FORTUNE 1000 - $1.7 Billion - $4.6 Billion
6 meeting average and some support
$50 Million - $1.7 Billion
4 meeting average at the low end, thinly traded
Start Ups - pre-public, 0/$5 Million - $50 Million
4 meetings per annum and no support

The public image and the financial strength of the company
Assumed to be solid in large companies with openly covered and available information
Well-founded / well-engineered turnarounds are okay
A true mess requires a different Board candidate - such as a company under siege.
The other Board Directors
Proxy and biography review
Checking on them through sources - six degrees of separation
Probe how they have worked together in the past
Who is the Lead Director or the Non-Executive Chairman and what is his or her style?
Who are the professional advisors?
Who is the accounting firm?
Who is the outside law firm?
The big four accounting firms and well known law firms are akin to a Good Housekeeping Seal of Approval
Review public material including annual reports, K’s, Q’s, proxies and analyst reports - who are the large shareholders
A general overall sense of integrity is critical
Ask tough questions to ascertain and gain comfort with overall competency and integrity of the senior management team and the existing Board Directors - may include meetings with the accounting firm or the law firm

Some Directors are agnostic about the business and feel that they can learn it pretty quickly. (People immersed in the same field or business may not foster change and could be conflicted.)
Some look for a business that they are not in, but adjacent to their business to broaden their expertise and perspective and to contribute effectively.
Nature of business should fit the Director’s areas of expertise.
Can you contribute and can you maximize the benefit of the Board contribution to the company including shareholders and senior management?

Number of meetings and meeting schedule.
Geographic location / administrative location.
Fit and comfort - talk to several senior operating officers (CEO, COO, CFO, GC) to ascertain comfort level with senior management. This requires more effort and time with troubled companies and small, less well-known companies.
It fits 8 - 10 vital individual criteria.
Feel for the Chief Executive Officer and relationship working with him/her.
Fit with the other Board members including competency, integrity and attitude?
Can everyone on the Board successfully contribute to the company’s success? If the business is not on track, can they contribute to putting the business on track?
Most important: the company situation.
Where is the company in its evolution? Change, what is the company going through? Investigate the issues.
In the end after solid due diligence, it must be an attractive opportunity and be interesting and feel right.

Is the Audit Committee strong, able and does it have the highest integrity?
Is the Compensation Committee well distanced from the Chief Executive Officer?
Talk to the Chairman, the Chief Executive Officer and the Chief Operating Officer.
Are there pending suits and issues?
One must rely on the competency of the leadership, management and employees as well as the Board.

Large company - assume it is good
Company with solid Directors - assume it is good
Smaller companies - this is an important criteria and can be an issue
The issue is aggregate dollar coverage and what is the insurance company willing to pay for?
For Director comfort, it is essential that the coverage be large enough to cover whatever legal defense might be necessary if the Board is operating responsibly by an insurer that has a solid history and reputation.

Increased scrutiny
Potential personal risk and exposure
A reduced capacity to serve on Boards with increased time requirements to be truly engaged, involved and prepared
4-5 Boards for a “Professional Director”/10 years ago 10
2 Boards for an active executive/10 years ago 5-6
Compensation must be attractive to neutralize any issues

The basis for the information presented is:

What we hear from candidates in the course of our board composition analysis assignments as well as our assignments to recruit Board Directors
Contacting public company Directors to poll them and caucus on what are their hot buttons today as they look at and evaluate Board opportunities for a wide range of companies

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