Should You Join the Board of Directors of a Cannabis Company?

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Should You Join the Board of Directors of a Cannabis Company?

We lawyers are asked to sit on boards quite often. At this law firm, these requests are sometimes made by clients and I think we always turned them down, but not for the reasons you might think.

In many cases, a lawyer sitting on the board of directors of a company he represents runs the risk of being exposed to a conflict of interest. This is especially true when it comes to equity remuneration. In other cases, the founders of a new company will not fully appreciate the role of a board of directors and its importance in oversight and governance. Or the expectations just don’t match. Overall, I’ve found that there are more reasons to say “no” than “yes” to requests to join boards. And I say this as someone who has directed a couple of them.

This post covers some important considerations for someone considering joining a board of directors of a cannabis company. It was written for lawyers, but most of these thoughts apply to almost everyone.

insurance

I may not start all right, but only slightly. One of the first questions I usually ask when invited to join a board of directors is what insurance is there? What I am looking for is a generally written policy for directors and officers (D&O) with reasonable policy restrictions. (Yes, you can get one of these as a cannabis company.) Ultimately, I wouldn’t be sitting on a board without insurance.

D&O insurance protects individuals from personal loss if sued in connection with their role as director or officer of an organization. In general, US corporate law exists at the state level. In general, it gives directors and officers a great deal of discretion in the conduct of their business. However, this does not mean that a director cannot be sued at all. And cannabis companies tend to be pretty good at giving people reasons to complain – even the big ones.

Articles of Association, Articles of Association, etc.

Big question: how much control does the board actually have under the statutes? I’ve seen bylaws designed in such a way that directors don’t have enough say in how the company runs – sometimes negligently and sometimes deliberately. A board candidate should ensure that the board is not a token body with no real governance. that the board is not forced to bless any nonsense because officers or shareholders all have the keys. It can be tempting for a founder to charter a weak or “blank check” board. As a director, you’re just wasting your time giving cover to someone in this situation. Additionally, you may feel that your time is very valuable and you want to add value everywhere.

compensation

Company documentation also comes into play on the payment side. Many companies will create incentives to join their boards of directors with shares (often restricted shares). Larger companies may also offer cash or cash plus stocks. Whatever it is, you should make sure everything is properly structured and papered – in addition to assessing whether the stock has real value (if any) and the tax implications it may have. In my opinion, some form of compensation is appropriate when the company is for profit. If the company is not for profit, it’s a different story.

How is the board dynamic?

Assuming you like the cannabis company and its goals enough to join, you want to understand the dynamics within the board for yourself. Most bodies have a “chairman” or other director who can hold meetings and to some extent monopolize governance. That can be good or bad, depending on who is sitting in that seat. (This is often a rotating position.) But when the board is not working, or when the board regularly bumps into the executive team, or when the board keeps going out for lunch, when the board keeps poor records, or when the board has records of dismal performance, or when the board is irrevocably filled with founders and founders … do not join the board!

How much time do we talk?

Some boards are basically full time jobs. Others can only be a few hours a week. In other cases, a board member has almost no duties and is only hired on the basis of his name. For example, when I was on the board of a well-known arts organization, a famous Hollywood director agreed to join our board. Since he had won many prizes and awards and we wanted to trade in his name, we agreed to relax the conditions of participation. The point here is that there may be room for negotiation and flexibility. In fact, you may even come across boards that treat certain members exceptionally (if the statutes permit).

Sometimes joining a standing or ad hoc committee is also a good place to start. Larger boards have these structures; This can be a great introduction to the full board service or just a one-time tour.

Why do they want you (Really)

Many companies will hire attorneys as board members for free or inexpensive legal advice. This can put the lawyer in an awkward position. Attorney directors must ensure that any legal advice they provide remains privileged. If the lawyer is asked for legal advice, she should also make it clear that the meeting in question has been convened for that purpose only (and that no business advice is given). The attorney must also be vigilant for pitfalls where the interests of her law firm may be favored over the corporate client. Sometimes this dynamic is very difficult to control.

For other professionals, the analysis may be similar if a company is tracking them for trading services. For example, an accountant can be identified as a de facto CFO from the chairmanship of her director. or an HR professional can be found to help manage the staff. If your goal is to provide general company advice rather than doing a specific “job” for the company, it is important to communicate this beforehand.

After all, as a board member, you should understand and appreciate that a company that does not directly use your expertise will want to continue using your Rolodex. This means that in addition to the cannabis company that is interested in you, you should believe in the cannabis company. In my view, this means not just supporting the company enough to make some introductions: you should be comfortable and even judged in that role. At this point, being on the board is fun.