Best practice for a lender would be to sit as a board observer. There is no substitute for being in the room to see and hear how management presents the business, how the board/investors respond and how the group thinks about the issues at hand.
There is also no substitute, when a company is young, for managing with a small, focused board. Sometimes having fewer people in the room can lead to more frank, and efficient, discussions.
For this reason I have come to the view that board observer rights are best suited to two cases.
The first case is more mature companies. Larger companies have larger boards and more process driven board meetings. It is easier to fit an observer into the room without changing the dynamic much.
The second case is companies that aren’t working out. If a company is heading in the direction of not being able to satisfy all of its stakeholders everybody has to pitch in to get to the best outcome. I have found that most boards are receptive to having an observer at this point. Having other stakeholders at the table can help get a plan agreed to and working more quickly.
At CLP we typically don’t ask for observer status. There will be times when we will but only when we think our being there can be helpful.