Director & Officer questionnaires are an essential tool for public corporations — or corporations that are about to go public — which need to comply with stock exchange regulations and initial listing standards. They are lengthy documents which must be sent to and filled by dozens of executive officers and board directors.
But how do you avoid a long, troublesome process when you need to get the questionnaire distributed to dozens of board members, and get them back properly filled, in time for an IPO’s registration statements, or for periodic reports? And how to ensure your questionnaire is not missing vital information?
In this article, we look more in detail at the purpose and form of D&O questionnaires, and give you a few tips on how to create better questionnaires and make it easy for each director and executive officer to fill them correctly and in time.
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What is a D&O questionnaire?
A D&O questionnaire is a form with a series of questions addressed individually to each director and officer in a corporation board. Its purpose is to collect information about anything that might bring into question that person’s qualifications and independence as a decisionmaker in the corporation.
The company discloses the information obtained from board administrators through D&O questionnaires to stakeholders and regulatory bodies such as the Securities and Exchange Commission (SEC).
Why do corporations use D&O questionnaires?
At the end of the day, corporations use questionnaires for D&O because they want to improve governance as well as protect themselves from incompetence, corruption, undue influence, legal suits, damages to their reputation and other negative consequences that can result from having the wrong people in the wrong places.
D&O questionnaires help companies protect themselves by giving them access to data that allows them to:
- Assess the risk of corporate malpractices (risk management questionnaires for D&O)
- Confirm accurate disclosure of informations in documents such as the Form 10-K and proxy statements
- Ensure compliance with legislation such as the Federal Securities Act of 1933
- Protect themselves against liability
- Improve board governance (corporate governance questionnaires)
- Increase transparency vis-à-vis the stakeholders
- Apply for D&O insurance (D&O insurance application questionnaires)
What questions are asked in D&O questionnaires?
Directors & Officers questionnaires typically include questions about the respondent’s educational and professional background, family connections within the company or its affiliates, past positions held by the respondent, past or current litigations they are party to, conflicts of interest, and financial disclosures.
More specifically, D&O questionnaires ask detailed questions about:
- The individual’s background, education and professional experience
- Positions held by the respondent in the present company, its affiliates or in other companies
- Participation in compensation committees
- Legal proceedings and convictions
- Fraud, bankruptcy or insolvency
- Insider transactions, and equity securities owned by the respondent
- Compensation received from the corporation
- Any relationships of associates and family members of the respondent with the company
- Respondent relationships with FINRA
If you would like to know what an actual Directors & Officers questionnaire looks like, you can check these:
- Morgan Lewis sample D&O questionnaire
- SEC D&O questionnaire example
- Goodwin D&O questionnaire template
Which people are involved in a D&O questionnaire process?
D&O stands for “directors and officers”, that you know — but who exactly are they? It’s easy: the officers of the board are the corporate secretary, the board chair and the executives. The board directors are all the other board members.
Apart from officers and directors, the company’s legal counsel can also be involved in the process of creating the D&O questionnaire, since they give advice on all legal requirements the company must fulfill.
Once the questionnaires are filled, they are submitted to the officials at the financial industry regulatory authority.
Best practices for D&O questionnaires
If you want to improve your Directors & Officers questionnaire, so as to make sure they are comprehensive, clear and clutter-free, here are a few tips:
- Make sure that the questions are clear and concise. Granted, sometimes you just have to use jargon — but more often than you think, you can write in normal everyday language, which is a lot clearer and easier to understand. And don’t let appearances fool you – being brief and being concise are not necessarily the same. Normal language often takes more words than legalese to say the same thing, but as long as you don’t add unnecessary ideas, you are being just as concise.
- Tailor your questionnaire to your company and industry. Don’t just take one of the templates we listed above and use it as it is. It’s important to adapt it, so that every question is pertinent to your board members, and no pertinent questions are left out.
- Keep your questionnaire for D&O up-to-date. Things change from one year to the next, so just because your questionnaire was perfectly tailored to your company last year this doesn’t mean it’s still perfect this year. Before you send it out, go over it and delete, add and adapt questions according to changes in regulations and in the company itself.
How do financial institutions use D&O questionnaires?
Financial institutions, such as banks and credit unions, use D&O questionnaires in order to collect data that will help them comply with industry regulations and with federal and state laws and regulations.
Recommended D&O questionnaire updates 2022
If you are preparing your D&O questionnaire and want to know if there are any new D&O questionnaire requirements for this year, here are two pieces of advice from the White & Case law firm:
- Because the US Department of Justice has recently been focusing on potential violations of Section 8 of the Clayton Act, you should consider adding to your questionnaire questions that will help you identify any antitrust concerns.
- Due to the sanctions passed on the Russian Federation because of its all-out invasion of Ukraine, you may want to build out (or add) questions about Iran-related activities so that they also cover potentially problematic relationships with Russian entities.
Common challenges of using a D&O questionnaire
Questionnaires for D&O are unavoidable – and so are the challenges they bring along. The most common difficulties you have to face when using a D&O questionnaire are:
- Privacy concerns. The people who answer these questionnaires are sharing a lot of sensitive personal data. They surely don’t want this to fall into the wrong hands – and if you are responsible for the questionnaires, it’s also your responsibility to ensure that all that private data stays private.
- Potential for litigation. If the questionnaires are out of date or the answers are incomplete, your company may unwittingly fail to comply with regulations, and suffer lawsuits and reputation damage as a result.
- D&O questionnaire management. There’s usually a deadline to get all your D&O questionnaires printed, mailed, filled and mailed back to you, so you can submit them to the regulatory bodies in time. It’s your responsibility to ensure everyone involved carries out the necessary steps within schedule.
- Storage space. In a Corporate Counsel survey of 57 respondents, over 2/3 said they keep D&O questionnaires for more than 3 years, and ¼ said they keep the questionnaires for more than 7 years. These D&O questionnaire statistics show that most companies have some of their secure physical storage space taken up by thousands of pages waiting for the day they can be shredded.
How to improve your D&O questionnaire process
While companies can work with paper D&O questionnaires, a digital solution is much more effective than the physical one in addressing the issues listed above.
Board management software saves time and trouble to all the people involved in the D&O questionnaire process — with a board portal, it’s easier and faster for them to create or update questionnaires, share them with board members, fill them with all required information, and submit the questionnaires to the competent regulatory bodies.
A board portal also enhances data security and makes it easy to store the questionnaires after the process is completed. And in case the board decides to call a virtual board meeting to discuss the questionnaire for D&O, a board portal makes it possible to conduct a secure, effective and paperless board meeting without leaving the platform.
If you would like to try using a board portal for your D&O questionnaire process, iDeals Board offers an excellent online board management solution. It is a top choice of our experts across the years!
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D&O questionnaires are a tool for corporations to collect essential data about their board members. Questionnaire responses allow the corporation to assess risks, ensure compliance with regulations, protect itself against liabilities and increase transparency in relation to stakeholders.
There are several challenges involved in creating and handling D&O questionnaires. They include printing and mailing questionnaires, addressing privacy concerns, ensuring that the questionnaires are properly filled, and storing them after they’ve been submitted.
In order to meet these D&O questionnaire challenges, you can use board management software instead of paper questionnaires.
What types of questions are typically included in a D&O questionnaire?
D&O questionnaires are lengthy, and include dozens of questions about the respondent’s personal data, education, professional background, family and business relationships, compensation, participation in committees, securities ownership, and legal proceedings and convictions.
How often should a D&O questionnaire be completed?
The D&O questionnaire should be completed as part of the preparations for the company’s Initial Public Offering. After that, each board member has to complete an annual D&O questionnaire. They may have to complete an off-cycle D&O questionnaire on specific occasions – for instance, if the company is applying for D&O insurance.
Are D&O questionnaires confidential?
Yes, all the information included in D&O questionnaires — both by the corporate secretary who draws the questionnaire and by the executive officer, director, or other board member who completes it — is confidential.