When to bring in an independent director, and when it is too late

Boards add independent directors for three reasons: because an exchange or an investor requires it, because a vacancy has appeared, or because something is going wrong. The third reason produces the most valuable appointments and the most badly timed ones.

The signs that the moment has arrived

A board should be looking for a director with restructuring, capital markets or compliance experience when any of the following is true, and ideally before all of them are.

Management's reports have started to arrive late, or to change format between meetings. The audit committee has received a letter from the auditor it needed counsel to interpret. A covenant is within one bad quarter of being breached. The company has begun a process, a raise, a listing or a sale, and no director has been through one from the company's side. The CEO has become the only person on the board who understands the capital structure.

None of these is a crisis. Each is a sign that the board's collective experience no longer matches the situation it is overseeing. The appointment made at this stage is a considered one. The candidate can be met, checked and onboarded in the ordinary way. The director arrives with time to read.

The signs that it has passed

The moment has passed when the appointment is being made to satisfy someone else. A lender who has asked for an independent voice on the board as a condition of forbearance. An activist who has nominated a slate. A regulator who has asked, in writing, who on the board has the relevant background. A special committee that needs a member who is demonstrably unconflicted, and has to be formed this week.

Appointments made under these conditions can still be good ones. They are rarely the board's choice, they are made in days rather than months, and the director arrives with no time to read and a room that has already divided. The cost of waiting is not that the board cannot find a director. It is that the board no longer chooses who it gets.

What the director should be able to do on day one

A director appointed into a difficult situation is useful in proportion to what they can do without a briefing. In practice that means five things.

Read a cash forecast and say which assumptions to test. Read a covenant package and say which ratio will break first. Read an auditor's letter and say what the audit committee should ask in reply. Sit across from a lender or a sponsor and be recognised as someone who has been on their side of the table. And tell the CEO, in private, that the board's confidence is conditional, and say on what.

A candidate who cannot do these things on the first day is a fine director for a different board. The board in a hard stretch does not have the year it takes to grow into the role.

The question to ask in the first meeting

Boards interviewing a candidate for this kind of seat tend to ask about experience in the abstract. The more useful question is specific: describe the last time you told a management team something they did not want to hear, and what happened afterwards. The answer tells the board whether the candidate has done the job, and whether they can do it in this room.

The best time to ask it is a year before the board needs the answer.