How to Ask the Tough Questions in the Boardroom | Tip #1 for Directors: Understand the Board Dynamic

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.

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. Egregious failures of upper management to react to red flags have put boards on the hot seat and generated bad press that has jeopardized corporate reputations.

Witness the 2015 listeria outbreak at Blue Bell Creameries, which sickened consumers of the company’s ice cream and caused three deaths. Although the C-suite was allegedly aware of numerous warning signs before the company was in full-blown crisis, management never raised the alarm in the boardroom. In a 2019 decision that captured the attention of corporate directors across the country, the Delaware Supreme Court refused to dismiss a shareholder lawsuit against Blue Bell’s directors, finding adequate the lawsuit’s claims that the board had absolutely no system for monitoring food safety—in a company whose only product was ice cream. The decision was followed by several similar Delaware holdings, including one allowing a lawsuit against the board of a pharmaceutical company for allegedly ignoring red flags that a clinical trial for a key drug was failing, and another permitting claims to proceed against the directors of Boeing after two fatal plane crashes for not properly overseeing aircraft safety.

Directors can only exercise their fiduciary duties if they have adequate information. But directors are removed from the action. Their job is to oversee management from the lofty perch of the boardroom with a 50,000-foot view, not stand in the trenches. Critical to the role of the director, then, is the ability to face and question management. An effective question-and-answer process in the boardroom is an art form, and actions that a director takes outside the boardroom may be just as important as how he asks the question.

My first tip?

Tip 1: Understand the Board Dynamic

A new director should try to grasp quickly how a board is run. Is the board chair (whether she is an independent director or the CEO) a dominant, or even domineering force? Are there other powerful or influential personalities around the table who suck the air out of the room? An effective questioner should be aware of the dynamics of the group and formulate questions considering those sensitivities.  It can be helpful to consult privately with the longer tenured directors or the lead independent director about whether certain issues (for example, salary increases for the named executive officers in a year of lackluster performance) should be probed with delicacy. Similarly, veteran directors can help newcomers understand whom to consult for answers to legitimate questions without stepping on toes or appearing to threaten the manager responsible for the subject matter.

Next time, Gershanik explores the power of collegiality.