It’s not easy being a good corporate directors these days. In my previous blog, I pointed out that there are three essential qualifications – or tests – that all directors must meet if they are to properly do their job as “governors” of their organizations and their Senior Managers. I call them the 3C’s of great governance: Competence, Curiosity and Courage. The last blog focused on the first “C” – Competence. Today’s discusses the second “C” – Curiosity.
1. As the ultimate overseer of their organization’s activities, one of the board’s most important functions is to review and evaluate the quality of the decisions and recommendations brought to them for approval by the CEO. Such decisions/recommendations should generally only be the REALLY BIG ONES which are typically referred to as the “strategic” or “major capital spending” decisions. In contrast, the “operating”, “tactical” or “day-to-day” decisions and activities are usually left totally up to management. After all, that’s what they’re paid to do.
So how should a group of directors go about determining which of the recommendations put forward by management are the ones they should approve – or not. The way to do this is by performing their #1 behaviour…..that is, by asking questions. The goal of their inquisitiveness is a simple one: to determine the quality and soundness of management’s thinking and to gain reasonable assurance that what management is proposing is actually plausible…..that it really “makes sense” in the current circumstances in which the organization finds itself.
Interestingly, in the past, boards have been criticized for being asleep at the switch, and for not providing sufficient diligent (i.e., “careful”) oversight of management’s activities by probing management’s recommendations and proposals. Even more amazing, however, is that when quizzed about this, long serving and experienced directors have actually confessed privately to me that their reasons for this is that they did not know what questions to ask….moreover, and that they were afraid of asking a dumb question.
To counteract this fear, the Canadian Institute of Chartered Accountants has produced a series of monographs under the banner “20 Questions Should Ask”. Each monograph provides a list of 20 questions related to an area where directors need to give diligent oversight – e.g., strategy, risk, crisis, internal audit, etc. I have written the one on the role of the Board in STRATEGY. See: http://corporatemissionsinc.com/20_questions_directors_should_ask_about_strategy
But even without the help of the monographs, let me say for the record: where board oversight is concerned, there is no such thing as a dumb question, except one…which is, the question for which the answer was in your board pre-reading package. That’s THE dumb question for sure because it shows everyone in the boardroom that you did not diligently prepare for the meeting. Other than that, all questions from directors are fair game. And if you really do diligently prepare by reading all of the advance material, it should be IMPOSSIBLE for you to NOT have some questions about what management has written – even if it’s simply to seek clarification about some of the terms and phrases contained in the documents. So at your next board meeting, LET THE QUESTIONS BEGIN….hopefully they will confirm the wisdom of management’s recommendations or maybe even save the company from disaster!
I’ll talk about the last “Cs” in a future blog. Stay tuned.