The Case For Reciprocal Due Diligence In Life Sciences Board Recruitment

By DeeDee DeMan

A publicly traded life sciences company considering a new director knows how to investigate. It will examine the candidate’s career, reputation, relationships, conflicts, financial interests, and judgment. References will be called. Past decisions will be discussed. The candidate’s ability to work with the existing board and management team will be considered carefully. Depending on the circumstances, the process may take months.

Yet when that same candidate evaluates the company, the standard of visibility can be lopsided. A prospective director may review public filings, learn the stated strategy, and meet a few board members and executives yielding only a surface-level view.

What can remain considerably harder to discover is how that board actually functions when the door closes. Where are its cultural fault lines? What happens when directors disagree with the CEO? Which disagreements have never been resolved? How candid is management when the news is bad? Does the board invite dissent or merely tolerate it? What expectations surround directors that will never appear in a committee charter? What history is the candidate inheriting?

After more than five decades working with life sciences boards and leadership teams, I believe we have the risk calculation backward. The company and the board are entitled to scrutinize a director candidate. But the candidate is equally entitled to scrutinize the company, the relationship between the board and the company, and the health of the board culture.

For public company directors, joining a board should be treated as reciprocal due diligence. That means companies and their boards must become much more comfortable being examined.

A Board Seat Is Not An Honorary Appointment

There was a time when being invited onto a prominent board could be treated, at least in some quarters, as another marker of professional achievement. The prestige of the company and the stature of the other directors carried considerable weight. That is a dangerous way to think about board seats today.

Directors inherit both responsibilities and exposure. They attach their reputations to decisions they did not necessarily participate in making and circumstances they may have had no role in creating. Once seated, however, they become responsible for governing what exists.

The question for a prospective director therefore cannot be limited to whether the company wants me. It has to include a much harder question. Do I want to assume responsibility for this company as it actually operates? Those are very different inquiries.

Public information can tell a candidate a great deal about finances, clinical programs, leadership changes, and disclosed risks. It cannot fully explain the behavioral life of a board.

I have always believed that you cannot have an unhealthy board and a healthy company. The two are inseparable. The board influences the expectations placed on management, the behavior that is rewarded, the questions that can be asked, and the degree of candor that survives when circumstances become difficult. That is why cultural diligence belongs beside financial, scientific, and governance diligence.

Culture Fit Requires Evidence

The phrase “culture fit” is used constantly in recruiting, often without sufficient clarity. Fit does not mean that everyone thinks alike. In fact, a board on which everybody sees the world the same way is likely to have problems of its own. What matters is whether people share enough fundamental ground around values, accountability, mission, and acceptable behavior to disagree productively.

That cannot be determined from biographies. A director may have been extraordinarily successful at another company and still be entirely wrong for this one. Past performance does not promise future success. I have seen that mistake made throughout my career. People become enamored with the resume, or the pedigree. A vulnerable belief is that because someone built a company, ran a successful program or participated in a major transaction, it follows that the same person will produce a similar success elsewhere. Reality is simply not that linear.

Every company has its own distinct environment. The personalities are different. The science is different. The financing pressures are different. The relationship between management and the board is different. The degree of maturity is different. Even the meaning of urgency can differ enormously between two companies. So, a resume tells you where someone has been. It does not tell you how that person will behave, and whether he or she can add the same degree of value within the particular realities of your organization.

The same principle applies in reverse. A distinguished company name tells a candidate very little about whether its board is truly in a place where that candidate can govern effectively. Candidates need and deserve evidence.

Ask What Happens When Things Go Wrong

Much of board recruitment occurs under conditions that are designed to show everyone at their best. That is understandable. It is also inadequate. Life sciences companies live with uncertainty. Clinical results disappoint. Regulators ask unexpected questions. Financing takes longer than anticipated. A development program once considered promising becomes difficult to defend. A CEO and board can reach fundamentally different conclusions about what should happen next.

The character of a board is easiest to understand in those moments. A prospective director should therefore ask questions about the company's history of disagreement. “Tell me about a consequential issue on which this board was divided. How was it handled? When has the board challenged management and what happened afterward? When did directors last change their minds because another director made a persuasive argument? Has a director left under difficult circumstances? What made the situation difficult? How does the CEO respond when the board pushes back?” This is not an effort to uncover flaws, but rather an essential step in evaluating how the board functions under pressure.

Candidates should speak with enough people to determine whether the answers are consistent. When accounts differ, the differences themselves can be informative.

The objective is not to find a board that has never experienced conflict. I would be suspicious of the premise. Serious people governing consequential businesses will disagree. The issue is what the organization does with disagreement.

Transparency Should Not Be One-Sided

Companies and boards sometimes resist this level of inquiry because certain discussions are sensitive. Of course they are. Board work is sensitive. There are legitimate limits to what can be shared with someone who has not yet joined a board, and confidentiality must be protected. While board members hold an important role, that does not justify turning the candidate’s diligence into a ceremonial exercise.

There is a substantial distance between disclosing privileged information and allowing a prospective director to understand the environment he or she is being asked to enter. Companies and boards can discuss how the board operates. They can explain how difficult decisions have been managed without revealing protected details. They can give candidates meaningful access to directors with different perspectives. They can be candid about expectations, unresolved tensions, and the challenges facing management.

What concerns me is a company that wants complete transparency from a candidate while becoming uncomfortable when the scrutiny is returned. That discomfort is information. A company seeking an accomplished independent director is asking that individual to place judgment, reputation, and time behind the enterprise. It should want a candidate thoughtful enough to investigate before agreeing.

If serious questions are treated as evidence that the candidate is difficult, the company may be selecting for compliance rather than judgment.

The Best Candidates Must Be Prepared To Walk Away

Reciprocal diligence has little value if a candidate has already decided to accept the seat. This is where accomplished executives can surprise me. People who would never make a major business decision without adequate information can become strangely deferential when offered a board appointment. Perhaps the company is prestigious. Perhaps friends or respected colleagues are already directors. Perhaps the candidate has wanted public board experience for years. None of those considerations changes the obligation to investigate. There should be circumstances under which a candidate walks away.

Evasive answers also matter. Inconsistent explanations of board dynamics matter. A pattern of unexplained director turnover matters. So does discovering that dissent is welcomed rhetorically, but punished behaviorally.

I would also pay close attention when the way a company describes itself does not square with what its people reveal in conversation. Over many years in life sciences, I have learned to listen carefully when presentation begins to substitute for disclosure. Energy and enthusiasm are perfectly appropriate. Authenticity matters more.

The strongest directors are capable of saying no to an attractive opportunity when they cannot get comfortable with what they are inheriting. Boards should respect them for it.

Start With The Patient And Work Backward

There is another reason this matters so much in life sciences. At the end of our decisions is a patient. That fact can become abstract inside the mechanics of financing, clinical development, regulatory strategy, investor expectations, and corporate governance. It should never become abstract to a board.

I began my career in science, and throughout my working life I have believed in starting with the patient and working backward. It is a guiding discipline because it clarifies what is at stake. A poor board appointment is rarely visible on the day the director joins. The consequences appear later. Perhaps the director and CEO cannot establish trust. Perhaps an important voice stops challenging consensus. Perhaps management learns that certain information is better softened before reaching the board. Perhaps directors spend valuable time managing interpersonal dysfunction when the company needs their full attention on a clinical, regulatory, or financial problem.

Eventually, governance reaches the operating company. And what happens inside the operating company can reach the patient. That is why reciprocal diligence should not be viewed as another procedural burden to add to board recruitment. Ultimately, it is a necessary standard for responsible director selection.

Companies should continue asking difficult questions of candidates. They should investigate judgment, character, conflicts, experience, and fit with considerable care. Candidates should return the favor. A company confident in the health of its governance should be prepared for that examination. A candidate entrusted with overseeing a life sciences company should insist upon it.

About The Author:

DeeDee DeMan is founder and CEO of Bench International, the global life sciences executive search and advisory firm she founded more than five decades ago. Throughout her career, she has advised public and private life sciences companies on the selection of board directors and C-suite leaders, with a particular focus on leadership, governance, and organizational fit. DeMan is Chairwoman of the Board of Mammogen, Inc. and a graduate of Drexel University’s Corporate Governance Program. She was the first life sciences executive recruiter named among PharmaVOICE’s Top 100 Most Inspiring Leaders and is a Hall of Fame inductee of the National Association of Women Business Owners.