How to Ask the Tough Questions in the Boardroom | Tip #4 for Directors: Understand Your “Mandate”
April 10, 2024
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 #3: Do Your Homework.
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 doing your homework. With that information, a board member is called upon to provide ethical, informed, and considered business judgment about overall company strategy. Read on for more on the importance of staying out of the weeds when advising management.
Tip 4: Understand Your “Mandate”
The board of directors’ role is to oversee and advise management. Managers manage the company’s day-to-day business. Directors are not supposed to make day-to-day operational decisions. In fact, most outside directors are not qualified to do so because most of them have no professional experience in the company’s industry. Directors are called upon, instead, to provide ethical, informed and considered business judgment about the Company’s overall strategy and strategic decisions. Directors should frame their questions in this macro context, rather than getting into the weeds of management’s ordinary course decision-making. For example, when considering management’s proposed marketing and advertising program, rather than questioning the specific allocation of the budget, a director might ask what the objectives of the campaign are, how the budget has been allocated to achieve those objectives and how the Board can measure the achievement of the objectives.
Next time, Gershanik explores maintaining an attitude of constructive criticism.
