10 Tips for Director Conduct in the Boardroom: The Year in Governance

This is the eighth installment in the Year in Governance Series from the In-House Subcommittee of the ABA Business Law Section’s Corporate Governance Committee. Each month, the series will share key tips on a different corporate governance topic. To get involved in the Corporate Governance Committee, please visit the committee’s webpage.

A message from Kathy Jaffari: “As Chair of the Corporate Governance Committee, I would like to extend my sincere appreciation to the authors for this publication. The Corporate Governance Committee has ongoing opportunities for writing and volunteering with various projects, whether it’s an article you want to publish or a CLE that you want to present. Our Committee is dedicated to helping you promote informative resources for corporate governance practitioners. You may contact me at [email protected] to get involved.”

Corporate directors play an essential role in the success of a company. Because they meet only periodically, it is important that directors and the board of directors as a whole conduct themselves in a manner that best serves the company and makes each meeting impactful. The “soft skills” demonstrated by directors can have a critical impact on the functioning of the board.

1. Be prepared. To meet their duty of care, directors need to show up at meetings and be fully prepared to discuss the topics on the agenda. If a meeting is in person, they should attend in person absent extenuating circumstances. Before the meeting, they must carefully read (not just skim) the pre-meeting materials and give thoughtful consideration to what decisions need to be made, what questions need to be addressed, or what additional information they may need to understand each topic.
2. Be curious. Directors need to read the materials and listen to presentations and discussion with an open mind. They should apply critical judgment to what is presented—management will emphasize what they want directors to take away, but management’s perspective might be limited. The value of directors is that they bring outside perspectives, enabling them to ask questions and challenge management’s assumptions. A director’s value is often demonstrated by the quality of their questions.
3. Noses in, fingers out. The role of board members is to oversee the company; it is not to roll up their sleeves and operate the company or make tactical decisions. Directors must hold themselves and one another accountable for keeping the dialogue at the right level, lest the line between management and the board become blurred.
4. Grow in the role. Directors are often nominated for their particular experience or expertise. But directors are responsible for oversight of the entire enterprise, not just their areas of expertise. By the same token, directors should not simply defer to the “expert” on the board; rather, all directors should inform themselves on matters for consideration, ask questions to seek understanding, and apply their own judgment. This way, decisions made by the board have the benefit of the full board’s wisdom and perspective.
5. Stay on task. Time is the most precious nonrenewable resource for a board. Directors must avoid discussion detours that don’t advance the meeting’s goals. Directors should seek clarity of objectives (e.g., whether an agenda item is informational or for decision) and be aware of the entirety of the agenda so that a particular item does not consume undue time or attention. An effective chair or lead director will facilitate appropriate allocation of time during a meeting by making sure all necessary items are addressed and that discussions stay on point.
6. Show courtesy and respect. A board needs to work as a team. Particularly when the company faces challenges, it is critical that directors be laser-focused on addressing those problems and not distracted by interpersonal conflict. Remember that each person was nominated for their expertise and experience. All directors should aim to foster an environment that enables each director to bring that value to the table, building trust and camaraderie. While doing so, they should keep in mind that courtesy and respect do not mean blind deference or keeping quiet when a point needs to be challenged.
7. Keep it in the boardroom. Directors must honor the confidentiality of what is shared with the board—both the materials and the discussion of topics. Recognize that investors, activists, and the media are always keen for more information that they can use to their advantage, and they might use various tactics to try to pry confidential information from directors. A leak erodes trust among directors and can seriously impair the effectiveness of the board. To minimize risk, any notes taken should be destroyed so that minutes are the only record of the meeting. Exercise caution when considering the use of recording devices or artificial intelligence for minutes or summaries, as these can be leak vectors.
8. Identify and manage conflicts. To meet their fiduciary duty of loyalty, directors must not act in conflict with the interests of the company. Directors should be mindful of their investments and the activities of their other associations and proactively bring to the attention of the company any issues that might present a conflict of interest. Doing this allows the director and the company to take precautionary measures such as raising awareness, recusing the director if needed, and documenting the action taken in minutes.
9. Challenge constructively. Directors should focus on discussing the matters at hand without emotion, and with an objective of resolving issues, not just criticizing. When a director disagrees with the direction taken, the disagreement should be addressed constructively (and recorded in the minutes if appropriate) and in a way that serves the best interests of the company. If it is appropriate for a director to resign because of a disagreement, the director and the board should seek to agree on a manner of disclosure that best serves the interests of the company.
10. Design board operations for success. Directors have responsibilities beyond their particular areas of expertise. To unlock the full value of directors, they should be encouraged and enabled to rotate committees and to attend any committee meetings. It is a good practice to assign mentors or “board buddies” to new directors so that they are comfortable participating as quickly as possible. The chair or lead director should establish channels for individual directors to raise concerns in a way that is not disruptive and does not create a problematic trail of evidence.

The views expressed in this article are solely those of the authors and not their respective employers, firms or clients.