The D&O questionnaires can be a laborious and drawn out process. Learn why they're important for boards in many industries, how they're utilized, and how to streamline the process.
Dreading your board’s annual D&O qustionnaire?
Traditionally a laborious and cumbersome task, directors and officers of many public and private boards of all types must fill out a D&O questionnaire each year to disclose all relevant business relationships and identify possible conflicts of interest.
Imagine trying to get each member of a 40-person board, including officers and principal shareholders, to answer a detailed, 40-page questionnaire in a timely fashion — especially if your board still uses a paper solution to distribute D&O questionnaires, rather than a digital solution to help streamline the process.
Switching to a digital software solution helps board administrators customize the D&O template, allows boards to answer the directors’ questionnaire at their convenience from their own mobile device, and makes it easier for your legal team to review the D&O questionnaire answers to ensure accuracy and reduce liability.
What is D&O?
D&O stands for directors and officers, who are the individuals that participate on the board at public corporations, financial institutions, and other board-led organizations including professional associations, non-profits, colleges and universities, and others.
Officers typically include the corporate secretary, board chair, and executives, while board directors typically comprise the rest of the board.
What is a D&O Questionnaire?
A company or organization issues this survey to its directors and officers each year to gather information about the background and experience, securities ownership, conflicts of interest, independence, compensation, and insider transactions for each director and officer serving on its board.
Information gleaned from D&O questionnaires allows the company or organization, and its counsel, to provide accurate disclosures required for regulatory or organizational compliance, as well as public disclosures of material information for shareholders.
Why are D&O Questionnaires Important?
Many boards of directors for any company or organization — from for-profit businesses and nonprofit organizations to health care networks, credit unions, and educational institutions — must complete annual D&O questionnaires and disclose any business dealings, investments, or other relationships that may be considered a conflict of interest.
For certain institutions like banks and credit unions, a D&O questionnaire also ensures financial reporting compliance with federal and state regulatory requirements, as well as industry-specific rules and regulations. In addition to identifying possible conflicts of interest, a D&O questionnaire can reveal insider deals or key family and business relationships between board members, employees, and the organization.
If found in violation of providing incomplete or inaccurate D&O questionnaires, a company or organization may risk incurring steep penalties, losing board directors, and damaging their reputation.
The Securities and Exchange Commission (SEC) can file civil actions against a company or organization, and even ask state or federal prosecutors to file criminal charges against board directors and officers for violating federal securities laws.
Many boards find themselves rushing through the D&O questionnaire to meet certain deadlines, or because they think nothing changed from year to year, but that’s when errors and omissions tend to occur. To provide best corporate governance, boards need to make answering D&O questionnaires one of their highest priorities. The financial success and reputation of your company or organization may depend on it.
How are D&O Questionnaires Used in Public Corporations?
Public companies, and companies that plan to register as public companies, are required to submit Form S-1, a registration statement required under the federal Securities Act of 1933. Once filed with the SEC, registration statements and prospectuses become public and can be viewed on the EDGAR database.
In general, registration forms ask for the following information:
- A description of the company’s properties and business
- A description of the security to be offered for sale
- Information about the management of the company
- Financial statements certified by independent accountants
The SEC also requires publicly traded companies to file a Form 10-K, a comprehensive financial report about the company, each year to give investors a detailed look into what the company does and the types of risks it faces.
The Form 10-K covers five sections:
- Risk factors
- Selected financial data
- Management’s discussion and analysis (MD&A) of financial condition and results of operations
- Financial statements and supplementary data
Companies with more than $10 million in assets whose securities are held by more than 500 owners also must file other periodic reports, such as a proxy statement. Public corporations provide this document to shareholders, so they can understand how to vote at shareholder meetings for things like electing new directors, approving a merger, or selling the company.
Proxy statements must be filed with the SEC in advance of any solicitation for votes to ensure compliance with disclosure rules.
How Are D&O Questionnaires Used in Banks, Credit Unions, or Other Financial Institutions?
Banks, credit unions, and other financial institutions are also required to disclose conflicts of interest, ownership, and independence as part of their annual D&O questionnaires.
Prior to signing on with OnBoard in 2019, AgTexas manually created the annual disclosures, printed and distributed them at the first board meeting of the year, then waited for board directors to complete them. Some directors answered D&O questions right away, while others needed to be tracked down, and all needed to be reviewed for accuracy and completion.
“We were doing everything on paper,” says Kayla Robinson, Chief Operating Officer at AgTexas. “The entire process would take a couple of weeks.”
Today, board members complete the entire D&O process electronically, and it only takes about 15 minutes, Robinson says. Her team uses OnBoard to create a D&O template, shares it with board members, and the directors complete and sign their disclosures right from their company-issued tablets.
Example D&O Questionnaire Topics
A D&O questionnaire asks detailed questions about sensitive data to determine a board director’s background, business experience, and financial entanglements. Some categories the D&O questions fall into include:
- Occupation and Business Experience
- Directorships and Compensation Committees
- Legal Proceedings
- Selection Arrangements for Directors or Executive Officers
- Control of the Company
- Related-Party Transactions
- Certain Payments
- Financial and Accounting Experience, Education, and Certifications
- Director Independence
- Matters Related to FINRA (Financial Industry Regulatory Authority)
Click here to view a sample D&O questionnaire.
Is D&O Insurance Related to D&O Questionnaires?
Individuals serving as board directors and officers face significant exposure to litigation, and many board-led organizations see the value in D&O insurance.
If sued for actual or alleged misdeeds while acting within the scope of their duties as board members or officers, a D&O liability insurance policy provides financial protection to the organization. D&O insurance policies can be used to cover the defense costs for the company or organization, directors and officers, as well as any financial losses.
What are the Benefits of Digital D&O Questionnaires?
Going digital on your D&O also:
- Increases security
- Improves efficiency and timeliness
- Shortens time needed to answer D&O questions by only showing what applies to each director, officer, or shareholder
- Prompts boards to answer all D&O questions before submission
- Minimizes errors
- Saves time for board administrators, directors, and legal counsel
- Allows links for more information and attachments to documents
OnBoard keeps board governance and ongoing compliance top-of-mind with its integrated D&O Questionnaire solution. Stop dreading the D&O! With OnBoard, you can transform a cumbersome task into a simple, automated, and replicable annual process.
About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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