How to Ask the Tough Questions in the Boardroom | Tip #3 for Directors: Do Your Homework

Maureen Gershanik is a partner and a member of Fishman Haygood’s Business Section. She counsels boards of directors on corporate governance, securities law compliance, SEC reporting, executive employment matters, and executive compensation. In this biweekly series, she provides nine tips for directors as they navigate the boardroom. Click here to read Tip #2: Don’t Be a Lone Wolf.

Public company directors are under more pressure than ever to oversee enterprise risk, even risk from day-to-day operations, which is normally addressed by management. However, directors are largely removed from the action. Critical to the role of the director, then, is the ability to face and question management.

In our last tip, we talked about the importance of collegiality. What’s one way to ensure you remain on good terms with fellow board members? Do your homework ahead of time to avoid bogging down meetings. Read on for more on the importance of studying up.

Tip 3: Do Your Homework

Since the enactment of the Sarbanes-Oxley Act in 2002, boards have been called upon to be more actively involved in key company decision making, oversight and governance. As a result, boards receive more and more material to review in between meetings. It is critical that directors set aside enough time to read and study the information that management has provided, even if it sometimes seems overwhelming. By preparing in advance, and being active listeners during meetings, directors can identify questions that they may be able to ask outside the boardroom. This can avoid bogging down meetings and make questions asked in the boardroom more informed and targeted to significant concerns. For example, if a financial report contains terms or acronyms unique to the industry that are unfamiliar to a new director, she should feel free to e-mail the CFO before the meeting to ask for a glossary. She may be surprised that even tenured directors, who were reticent or embarrassed to ask the question, may not have a working knowledge of these terms either and will be pleased to receive the explanation. Directors should not hesitate to request that management provide reports on substantive areas about which a director wants information, allowing sufficient time for management to respond.

Next time, Gershanik explores understanding a board member’s “mandate.”