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August 1, 2012

The other day I blogged about how important it is for corporate board members to speak up and ask questions during board meetings.  As a follow-up to that post I want to emphasize why it’s important for directors to extend their engagement of management beyond the boardroom.  Directors must, at all times, act in the best interests of the corporation and with an appropriate level of care. In laymen’s terms, this means attending committee meetings, reviewing reports and materials that have been distributed by management, and at times pressing management.

I want to spend a moment to clarify something on that last point — there have been instances where fellow directors have told me that they have an issue or concern that they want to bring to the attention of management at the next board meeting.  When I ask why they don’t just pick up the phone and call management now, I am often met with a statement that they don’t want to “bother them.”  This is a critical mistake that directors make in terms of corporate governance that can have disastrous consequences.  First and foremost, it is the duty of directors to bother management if there is an issue that needs attention.  Assuming that an issue can wait to the next board meeting is not always accurate. There is the possibility that by the time the next board meeting rolls around, the issue will have reached a point such that an appropriate course of correction is futile. Furthermore, it is likely that other directors want to raise the same issue but also have the inclination to not want to bother management.

It is wrong for directors to assume that they are bothering management. In fact, some would argue that bothering management falls within a board of directors’ responsibilities.  Certainly there are times when a director can cross the line in the relationship and interfere with the duties of management, but I like to think those instances are few and far between.  I was recently contacted via email by one of the directors for BoardProspects.  He had received our quarterly financials from our CFO and he had a few follow-up questions regarding how the financials compared with our budget to date for the year.  I can tell you that in my “management hat,” I was pleased to receive the inquiry from this director.  First, it demonstrated to me that our directors are looking out for the best interests of the corporation by taking the time to review what admittedly can be a tedious but important set of documents. Second, it showed me that the system of checks and balances that plays out in the relationship between a board and management does exist with our company.

Directors need understand that the scope of their fiduciary duties is not limited to the half-dozen board meetings they attend during the course of a year – even if it is at the risk of “bothering” management.

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