As the calendar year comes to a close, boards of directors are focused on wrapping up the current year and planning for the one ahead. For many boards – especially those serving publicly traded companies – a big part of this is ensuring every director has completed a D&O questionnaire.
Recent regulatory changes have directly impacted D&O disclosures, requiring more comprehensive and transparent reports. As regulatory and compliance requirements continue to evolve, it’s important for boards and their directors to stay up-to-date on the latest trends and outcomes that impact the organizations they serve.
Recently, Pamela L. Marcogliese, Head of U.S. Transactions, and Mary Eaton, Co-head of Securities & Shareholder Litigation, both of Freshfields, joined us for a discussion about key D&O disclosure trends to look out for this year. The session explored myriad topics, including:
- Evolving best practices for corporate governance, including board composition, independence, and oversight responsibilities.
- Enhanced disclosure of material risks related to climate change and sustainability for modern risk management.
- How to report executive compensation policies and clawback provisions with clarity for stakeholders.
- Updated approaches to fully disclosing significant legal proceedings and compliance matters.
Here, we share some of the top takeaways from this timely session.
D&O Questionnaires are an Important Tool
D&O stands for directors and officers. A D&O questionnaire is a form that’s issued annually to gather key information about each director and officer serving on a company’s board of directors.
Traditionally, completing D&O questionnaires is a laborious process. “I know many officers dislike this time of year,” said Marcogliese. “These are long documents.”
However, directors and officers must take the process seriously, as D&O questionnaires are “a very important tool,” according to Marcogliese.
The information provided in D&O questionnaires is used in a number of ways. For one, the information directors and officers provide in this questionnaire is used by the company to populate different required disclosure documents. In addition, publicly traded companies have to abide by certain regulations. These questionnaires collect information the company needs to ensure they’re abiding by these regulations.
There are other use cases for the information provided in D&O questionnaires, including board composition planning.
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D&O Questions Address Several Key Areas
There’s no single D&O questionnaire used by every organization. Instead, D&O questions vary from company to company. However, there are certain key factors that are commonly addressed in the D&O questionnaire.
- Independence: Ensuring you’re satisfying stock exchange requirements when it comes to director independence. Questions should also work to identify any conflicts. If there is a conflict, it doesn’t necessarily mean a director can’t serve in their role. However, organizations must exercise extra caution around their involvement.
- Skill sets: Public company shareholders are incredibly interested in the skill sets of directors, especially when it comes to hot-button topics like cybersecurity, ESG, and climate.
- Compensation: There have been a number of enforcement actions related to disclosures around compensation. This includes monetary compensation, as well as perks like the use of the corporate jet.
- Equity ownership: A company doesn’t know with certainty how much a director has bought or sold in the market unless they disclose it. “[The D&O questionnaire] allows individuals to say, ‘yes, this is correct.’”
D&O questionnaires be lengthy. According to Marcogliese, they may include between 400 and 700 questions for directors and key officers.
“It’s onerous for directors,” she said. “No matter how big or small the company is, this can be a pretty heavy lift.”
This is especially true for professionals who serve on multiple boards. “Many directors serve on more than one board,” Marcogliese continued. “You can find yourself in a situation where directors have to fill out several.”
The Shift to Digital Streamlines D&O Questionnaires
Thanks to technology, we’ve seen a significant shift in the way D&O questionnaires are distributed, completed, and retained.
“In the old days, [D&O questionnaires] used to be paper documents that were distributed to members of the board and the corporate secretary was responsible for maintaining them,” said Eaton.
Today, many organizations are embracing digital solutions.
“Now, it’s much more automated and easier for directors to fill them out with OnBoard or similar portals,” Eaton said.
With a solution like OnBoard, directors and organizations no longer have to deal with unwieldy stacks of paper. In addition, a board portal can pre-fill answers from the previous year, which can save directors a lot of time.
Organizations Must Follow Document Retention Best Practices
According to Eaton, D&O questionnaires should be “retained long enough to fill out the disclosures in the proxy statement. But they shouldn’t be kept around forever.”
D&O questionnaires are discoverable. As such, administrators should follow the company’s good governance hygiene around retention.
“Companies need to remember to do something with [D&O questionnaires],” said Eaton. “When companies are using a board portal, there should be a setting so you’re not preserving them forever.”
D&O Questionnaires Can Help With Board Composition
Aside from helping ensure organizations meet compliance regulations, the D&O questionnaire is also a great tool for assessing board composition.
“These D&O questionnaires give you a lot of information about directors on the board,” said Marcogliese. “All together, you get a good idea of the composition of the board.”
This is especially important now, as the world of business continues to rapidly evolve. For example, in today’s world, there is often a need for board expertise in areas like AI, ESG, and cybersecurity – just to name a few. “Shareholders are paying attention,” said Marcogliese.
D&O questionnaires can help you identify gaps, which you can work to fill through recruitment efforts. Or, you can supplement with outside advisors to educate the board on these topics and how to think about them.
Proper Processes are Critical
D&O questionnaires are an important tool. It’s important to establish proper processes around collection, completion, use, and retention.
“It may just be compliance but it’s really important compliance and people should take it seriously,” said Marcogliese. There are real consequences. Doing it properly can save the company from a ton of pain.”
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About The Author
- Adam Wire is a Content Marketing Manager at OnBoard who joined the company in 2021. A Ball State University graduate, Adam worked in various content marketing roles at Angi, USA Football, and Adult & Child Health following a 12-year career in newspapers. His favorite part of the job is problem-solving and helping teammates achieve their goals. He lives in Indianapolis with his wife and two dogs. He’s an avid sports fan and foodie who also enjoys lawn and yard work and running.
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