Summary

The “expertization” of directors as relates to specialized domains, including, among others, cybersecurity, data privacy, ESG and regulatory compliance, as well as recent case law potentially expanding the risk of directors’ personal liability for failing to oversee corporate risk, have coalesced to blur the lines between directors’ oversight function and management’s executive role. Directors may feel that they need to dig into granular numbers, alternative analyses and third-party data sources to test management’s assumptions and assess management’s justification of its decision-making and strategy. Management may question whether the directors are wading so deeply into day-to-day operational matters that it interferes with the ability to provide independent oversight, while directors may fear that not doing so could be used to call into question their willingness to provide effective challenge. When does a director’s questioning turn into management? The balance between oversight and management is shaped by established governance principles.

Balancing Directors’ Rights and Management’s Role

The Directors’ Right to Ask

Directors are entitled, and indeed obligated, under Delaware law to obtain the information they need to discharge their fiduciary duties of care and loyalty. Absent a conflict or improper purpose, a director’s right to company information is “essentially unfettered in nature.”[1] Directors’ oversight duties (and potential liability for breaches of those duties) are delineated in cases such as In re Caremark International Inc. Derivative Litigation and its progeny, which highlight directors’ obligation to monitor corporate risk and ensure the existence of adequate reporting systems.[2] In practical terms, directors may meet with management, ask questions and request reports or data they consider relevant to their oversight role. Similar principles apply under the corporate laws of other states, such as Nevada and Texas, which recognize directors’ broad informational and oversight rights.[3]

Directors also may look to outside research or third-party sources to inform their own judgment and test management’s assumptions. In that regard, although directors are not obligated to share every piece of outside information they come across, there is an argument that third-party data of real significance should be shared with management and the full board so that all fiduciaries have the same baseline of information.

These rights are reinforced in many companies’ corporate governance guidelines, which often state that directors may propose agenda items, request reports or raise topics at board meetings. These types of provisions help clarify the difference between oversight and execution: directors gather information and press for accountability, while management continues to execute daily business. Put simply, directors may request detailed data, but the purpose of those requests should be to support effective oversight, not to manage regular operations.

Management’s Role and Discretion

Although directors have broad access rights, management retains responsibility for determining whether particular data is relevant, reliable and material, and should be prepared to explain its reasoning to the board when questions arise. As the day-to-day operators of the company, management has the benefit of granular visibility into historical trends and market and peer practices, and often is uniquely positioned to contextualize this information. In instances where directors present third-party or other outside data, management can and should request the underlying source or methodology in order to assess the data independently and compare it against the company’s internal metrics. This approach allows the board to receive informed, contextual analysis rather than raw, potentially incomplete or misleading figures.

Practical Approaches: Maintaining Constructive Working Relationships and Process

Misalignment between management and directors on the relative importance or utility of data or other operational reporting can undermine the efficiency and effectiveness of board oversight. The following practices can help preserve constructive working relationships while ensuring that the board receives the information it needs to carry out its duties.

Centralized Information Gathering and Sharing Processes. Routing information requests through a single point of contact (such as the corporate secretary or General Counsel) or another established process can help ensure that requests are being addressed efficiently, avoid potentially duplicative, inconsistent or incomplete responses, and preserve applicable privileges. If the volume or level of detail of directors’ information requests are significant, or if requests are being directed to multiple different members of management, management may designate an employee to work directly with the directors to coordinate the collection and curation of the requested data. This employee may be a member of the finance team or the strategy or corporate development team, rather than a member of the legal department or corporate secretary’s office, to facilitate access to raw financial data. Additionally, adopting a process by which substantive responses to directors’ information requests (whether requests are initiated by an individual director or the board as a whole) are shared with the full board or the relevant committee can promote transparency and avoid perceptions that information is being shared selectively.[4] For companies that utilize a board portal, this process can be implemented efficiently by posting responses in a centralized location, reducing the need for ad hoc email exchanges.

Providing Feedback on the Utility of Information Requests. Board evaluations and assessments are one tool that boards can use to evaluate whether directors are asking productive questions and requesting useful data. The board chair or the chair of the nominating and corporate governance committee may need to provide coaching to a director who is viewed as repeatedly making inefficient or unproductive information requests. By the same token, they should also be providing regular constructive feedback to the management team to ensure that information provided to the directors is conveyed in a user-friendly format that is responsive to the directors’ requests and needs.

Structured Discussions. When questions arise, directors should preview their concerns with management to give management time to research the data at issue, address any discrepancies and offer insight into management’s analysis. An opportunity for considered dialogue gives directors the chance to understand management’s rationale for relying—or not relying—on certain information in strategic and operational decisions. This also provides management with direct and candid feedback from directors about opportunities for improving management’s practices and procedures.

Meeting Format. Directors may raise any topic and request reports, data or other information in any board meeting, but detailed or data-specific observations, especially those relating to assessing the validity and reliability of key performance indicators, may be best suited for separate, focused board sessions or committee meetings. Setting a meeting to focus on the narrow topic of the specific data at hand allows directors and management to prepare for a targeted discussion and avoid detracting from other agenda items.

Maintaining Constructive Working Relationships. The board chair or lead independent director often assumes a central role in maintaining constructive dialogue between the board and management. If appropriate, the chair or lead independent director can work with management ahead of board and committee meetings to ensure management is appropriately prepared to field the directors’ questions. Just as importantly, the chair can reinforce in board meetings that directors provide guidance and oversight, while management executes. Preserving this boundary helps prevent one-off data-driven debates from slipping into operational micromanagement.

Directors have both a duty and a right to be well-informed, and management has both a responsibility and discretion to structure those discussions in a way that is efficient and effective. By approaching data requests with structure and appropriate preparation, boards and management can engage more efficiently, strengthen oversight and reinforce sound governance.