Training Directors for Better Questions

The problem with Board training is perhaps not that directors are being taught too little. It is that we may be teaching them the rules without teaching them how to challenge the story.

Directors today are expected to undergo familiarisation and training on a wide range of subjects – the Companies Act, SEBI regulations, fiduciary duties, financial reporting, related party transactions, risk management and their responsibilities as directors. All of this is important. But knowing what the law requires does not necessarily make someone an effective Board member.

The real test comes when the management presentation is over and the Board has to decide what to do with the information placed before it.

Does the director know what to question? More importantly, does the director know what to question next?

If management presents strong revenue growth, asking what drove the growth is fairly straightforward. The more important question may be whether that growth is sustainable, whether it is dependent on a few customers or one-off factors, and what assumptions are built into the numbers.

Similarly, when an acquisition is presented as a strategic opportunity, the Board should not only understand why the transaction makes sense. Directors should also be asking what could go wrong, what assumptions are being made and what the downside looks like if those assumptions do not hold.  Alternative proposals, where relevant, should also be considered before arriving at a decision.

This is not about directors becoming management or questioning every decision for the sake of appearing independent. Questioning is part of the Board’s responsibility to exercise judgement. Sometimes the first answer may be perfectly satisfactory. Sometimes it should lead to a second question.

This is where director training needs to move closer to the reality of the Boardroom. Directors should be trained not merely to understand the information placed before them, but to interrogate it. What assumptions sit behind the numbers? What has not been presented? Is the answer addressing the question, or merely explaining around it? The ability to ask the next question — particularly when the first answer appears satisfactory — is often where effective Board oversight begins.

Perhaps this is also how companies should think about measuring the effectiveness of Board training.

Not simply by asking whether a director attended the programme or completed the required hours, but whether the director came back to the Boardroom better equipped to challenge assumptions, test information and ask the question that others may have missed.

Because a good Board is not one where directors have all the answers.

It is one where they know which questions need to be asked, and are unafraid to ask.

Mahima Chopra