In accordance with Section 180 of the Corporations Act (2001), ‘A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise’. Section 180 also includes the Business Judgment Rule, whereby to demonstrate that a director has exercised due care and diligence, a director should be able to demonstrate that they acted in good faith, made the judgment in good faith for a proper purpose, did not have a material personal interest in the judgment, informed themselves about the subject matter of the judgment to the extent they reasonably believed to be appropriate, and rationally believed the judgment to be in the best interests of the corporation.
This article focuses on asking questions as a director. Asking questions allows us to inform ourselves about the subject matter at hand, and to satisfy ourselves that the judgment is in the organisation’s best interests, thus satisfying two of the requirements of the Business Judgment Rule. While we will hopefully never have to provide evidence of this in a court of law, asking questions helps us as directors to better understand the matter we are considering and to make a well informed rational decision in the best interest of the organisation.
Questions have many different purposes:
1) Establish facts
Ask questions in an impartial way, to ensure everyone has the same information. Make sure you have read the minutes and any other data provided first. Where possible, separate facts from interpretation of the facts.
2) Clarify or check your understanding
If you are new to the board, it is often better to do this before meetings or during breaks. However, if you have been on the board a while and there is something you do not understand, chances are that others will not understand it either.
3) Deepen your understanding
Provided the topic is an appropriate one for the board (and not an operational matter), then it is right to probe deeply before strategic decisions are taken. Asking questions constructively, rather than picking holes in the data provided, is more likely to elicit a constructive response.
4) Challenge assumptions
We all take certain things for granted. Boards are (or should be) made up of people with diverse opinions. What seems self-evident to one person may not be obvious to another. Asking questions that bring tacit assumptions to the surface helps the board to resolve differences. For example, asking what risk means to the organisation can help develop a shared understanding of risk and how to manage it.
5) Reframe the issue
Because directors come with different perspectives, they can ask questions that reframe an issue and provide a way forward. You can also invite other board members with specific expertise to give their opinion on a particular item. New members may initially need encouragement to speak up. Any director, not only the Chair, can provide this encouragement.
6) Generate ideas
Whether we are looking for ideas for fundraising or thinking about the future, asking questions opens up discussion and allow multiple perspectives or opportunities to emerge. Some of the best ideas arise from a combination of initial thoughts. It is therefore important to create an environment where people feel comfortable putting forward ideas and where negative responses are withheld even if an idea seems far-fetched. The filtering of ideas happens at a later stage.
7) Make choices
Once ideas have been generated, questions can be used to choose between options. This includes determining whether some criteria should carry a heavier weighting in the evaluation, e.g. ranking employee health and safety higher than the aesthetics of a project. Ideally all criteria will be met but agreeing which criteria are most important helps reach consensus.
8) Ask about the board’s values and how it is addressing its mission
This is not something that would happen at every board meeting but periodically, such as after a self-review or at a strategic planning session, it is useful to revisit the fundamentals. This may include asking how the board adds value, whether the board has the knowledge and skills it needs and whether there is a succession plan to ensure the organisation is sustainable.
9) Visualise the future
Asking questions helps people think more deeply about the future. Questions for planning days include: “What will this organisation look like in 20 years’ time?” or “What will our community look like in 30 years’ time?” or “How will technology impact our organisation in the next 10 years?”
10) Challenge poor or unethical performance
If situations arise where you have satisfied yourself about the facts and that there is a serious issue to address, consider first raising your questions with the Chair to determine how best to raise the issue with the whole Board.
Regardless of the purpose, the way we ask our questions matters. Consider the difference between asking ‘How are we going to explore new opportunities?’ which allows for a broad ranging discussion with asking ‘Are we going to merge with not-for-profit X?’ which narrows the focus. Framing the question as ‘We wouldn’t be mad enough to merge with not-for-profit X, would we?’ will get a different response again. Asking a CEO why something happens a certain way can make the CEO defensive. An alternative which can lead to directors better understanding the issue can be to ask how something happens.
Even when we use the same words, altering our tone of voice also elicits different responses and affects our relationship with other board members and the executive. For example, a director might say: ‘Isn’t this a great opportunity?’ and might mean it at face value, in other words, they really do think it is a great opportunity. Or they might be being sarcastic and mean the opposite. If their voice rises at the end of the statement, they might really mean it as a question asking for reassurance or further information about the opportunity. We need to be aware not only of our tone of voice but also that of others.
Questions are not only useful for obtaining information and challenging perceptions, they also allow us to develop our relationship with other board members and with the executive of the organisation. Using the time before a board meeting, during a break or when the board has a social event, to ask about another member’s interests helps to establish common ground and creates goodwill, which is useful when disagreements arise or difficult decisions need to be taken.
Questions are powerful and help you fulfil your responsibilities as a director. Listen to the questions your fellow directors ask. Extend your repertoire of questions to include questions you find most effective so that you make the best use of the valuable time the board spends together.