New Directors - Have you done your due diligence
Neha Shah-Founder, MentorMyBoard
09 Jan 2021
Are you a New Director who has joined a board of public limited/ listed company as Independent Director? Are you a Director who has joined the Board of a private limited company as a professional director/ executive director or even joined the Advisory Board of an organization or Corporate NGO?
Have you done your due diligence before joining the Board? No? Then, here is the blog you must read!
When You join any Board in any capacity whether executive or non-executive, whether professional or independent position, you may have seen the Annual Report of the Company, you may have seen the website of the company and you may have seen the Profile of the Company. But does that provide you the correct information about the company? Those are the documents prepared by the company and speak what company wants you to read but not what you must read or know. So let’s understand how you can conduct your own due diligence before joining any Board and what are the sources of such crucial information?
1. First and foremost crucial document is Memorandum and Articles of Association which helps you understand key aspects of company’s area of operations, governance framework etc.
2. Regular and up-to-date financial statements of the Company as filed by the Company with Ministry of Corporate Affairs on its web portal www.mca.gov.in also can give you true and fair view of the financial position of the Company.
3. Social Media News, reviews and updates about the Company, its culture, mindset of top management is now easily accessible on single click for you now a days.
4. In case of Listed Companies, comparison of share price trends with index and peer group can give you fair idea about market capitalisation and size of the Company. Also Public Announcements made on the Stock Exchanges by the Company gives you fair idea about the recent corporate actions and stakeholders relationships. From the Shareholding patterns submitted with the stock exchanges, you can also check the movement of Promoters Shareholding, controlling stake of the Company, top Shareholders of the Company and so on.
5. All relevant policies and procedures such as code of conduct, CSR Policy, Vigil Mechanism, whistle blower policy, policy on preservation of documents, HR Policies etc.
6. Press Releases made by the Company for last 3 to 5 years
7. Further, now you can also view information about the CIBIL score of the Company, its promoters on the Government Portal. Also check on the name of the Company in the RBI Defaulters List, Vanishing Companies List published by MCA and so on. Links of important websites is shared at the end of this article.
8. Even Job Web Portals like Glassdoor etc. will provide you information about the Employee Satisfaction levels and Positive/ Negative Experiences of Employees who leave the organizations.
There are various other regulators who provide information for due diligence on companies whether they are defaulting, their identity is genuine, their compliance system is updated, their returns filings are on time, track record of promoters, genuineness of the registered office and so on.
Have you already joined the Board of any company either in Executive/ Non Executive/ independent/ Professional capacity or merely in Advisory capacity, then undertake due diligence based on following additional documents to which you may have access to as Directors / Advisor of the Company:
1. Strategy Documents, Business Plans of the Company which will give you idea and knowledge on the vision of the company and the promoters.
2. Minutes of Previous Years Meetings of Board as well as shareholders of the Company. Minutes are an important evidences in the Court of Law and specially become crucial in cases where fraudulent activities / siphoning of money etc. are undertaken by promoters
3. Details of any significant legal actions against the company, notices issued by Government/ Semi Government Departments for violations of some important legal provisions. This is most critical aspect to identify if any contingent liabilities on account of litigations, penalties may arise.
4. Management Succession plans prepared by the Company which will help you get hands on to the mind-set of promoters on stakeholders’ wealth creation, business succession and continuity plans.
5. Risk assessment measures and procedures of identification of high risk areas.
6. Quarterly Financial Results, budgets, and other financial ratios towards the performance of the company.
7. Board processes, Board practices prevailing in the Company will help you to understand how the information is provided to the Boards by the Management, level of disclosures, level of reporting structures to the Board.
I am sure, this broad checklist will help you get hands on information on importance of due diligence while joining any Board as Directors or Advisors and also how to keep yourself updated about the working, functioning of the Companies. In case, you feel, you need help or assistance on due diligence for yourself to protect you from unforeseen liabilities, MentorMyBoard can help you conduct Liability Audit, Due Diligence with our expert team members who conduct in-depth analysis of the company and help you with the simple and easy to understand reports for better and informed decisions. Our team can be reached on firstname.lastname@example.org for further help and assistance.
Your Suggestions, queries and feedbacks are most welcome.