D&O questionnaire: What it is and 8 tips to create one

Boards work year-round to ensure the success of the corporations they serve. Board evaluations examine the roles, responsibilities and output of each director and officer using Director and Officer (D&O) questionnaires.

These aren’t just a list of questions, either. D&O questionnaires are vital corporate governance tools that shed light on conflicts of interest and encourage the board to disclose significant information. Many regulatory bodies govern these disclosures, increasing the need for thorough questionnaires that facilitate honest and timely information.

Though completing them — or encouraging directors to complete them — can be a challenge, doing so can turn evaluations into a pivotal growth opportunity that trickles down to the rest of the organization. Here, we’ll explain how to create effective D&O questionnaires, including:

• What a D&O questionnaire is, why it matters and how it’s used
• Regulatory requirements that govern D&O questionnaires
• Tips and best practices for creating a D&O questionnaire
• Recent trends to consider

How a small U.S. investment company significantly improved its D&O questionnaire process

What is a D&O questionnaire?

A D&O questionnaire is a document used to collect data from a corporation’s directors and officers regarding their backgrounds, affiliations, financial interests, and conflicts of interest. It’s a standard governance practice but also essential to the annual disclosures the Securities and Exchange Commission (SEC) requires.

Directors and officers fill them out to provide information on their personal and professional lives, including their education and experience, professional affiliations, relationships with key shareholders and more.

Why do D&O questionnaires matter?

D&O questionnaires play several roles in and out of the boardroom. They support:

1. Transparency: Stakeholders can use D&O questionnaires to get a deeper look at the backgrounds and affiliations of directors and officers. Gaining insight into each director and officer empowers stakeholders to more accurately assess whether directors and officers are truly fulfilling their fiduciary duties.
2. Risk management: Organizations can better mitigate risks related to conflicts of interest and competing financial interests when they know about them. D&O questionnaires promote timely and regular disclosure so corporations can proactively protect their reputation and success.
3. Regulatory compliance: The SEC and other regulatory bodies require corporations to disclose information about their officers and directors — information organizations can collect using the questionnaire.
4. Board composition: D&O questionnaires reveal directors’ qualifications and affiliations, helping organizations assess whether a particular director is the right fit and whether the board as a whole has gaps in skills or expertise that need filling.
5. Governance: Using a D&O questionnaire signals to stakeholders that the organization cares about good governance, which builds trust over time.
6. Digitization: D&Os have slowly gone digital in recent years, further advancing the digitization of the boardroom beyond board portals. Newer solutions have folded D&O questionnaires and other board effectiveness tools into a unified governance platform.

How are they used?

D&O questionnaires are used across various sectors and industries, but how each sector uses them varies. Here are some examples:

• Public Sector: Government agencies use D&O questionnaires to collect data about appointed officials’ backgrounds, affiliations and financial interests.
• Banking and Finance: D&O questionnaires help commercial banks assess the integrity of board members and executives to maintain shareholder, regulator and customer trust in the bank’s leadership. Investment banks, on the other hand, use D&O questionnaires to uncover potential conflicts of interest that may impact investment strategies.
• Healthcare: Hospitals and health systems most often use D&O questionnaires to determine how qualified board members are and whether any affiliations would prevent them from acting in the best interest of patients. Pharmaceutical companies commonly want to know whether board members are truly independent regarding drug development and marketing.

Insurance: Insurers use D&O questionnaires to reveal directors’ backgrounds and affiliations, particularly those that might introduce risk to the company’s underwriting and investments.

Regulatory requirements and frameworks

There are several regulatory bodies with rules that impact how D&O questionnaires are created, completed and stored in the U.S. and around the world.

1. SEC: Though the SEC doesn’t regulate D&O questionnaires specifically, the questionnaires help boards and corporations comply with SEC disclosure requirements for directors and officers of publicly traded companies. Regulation S-K, for example, requires corporations to disclose specific information in annual reports and proxy statements — information they can collect using the D&O questionnaire.
2. Sarbanes-Oxley (SOX) Act: The SOX Act regulates corporate governance policies related to financial reporting. D&O questionnaires help companies certify the accuracy of financial statements and disclosures and report on internal controls over financial reporting, including describing directors’ and officers’ involvement.
3. General Data Protection Regulation (GDPR): Though GDPR regulates data collection and not disclosures, corporations must abide by BDPR in obtaining and storing officers’ and directors’ data.

Security requirements for virtual governance software: Client data should be encrypted at rest, in transit and on users’ devices, with at least 256-bit encryption. Software providers should be able to show clear annual SOC-2/SSAE 18 audits and ISO 27001 certifications for security.

What is included in a D&O questionnaire

A typical D&O questionnaire includes multiple sets of questions to gather information about directors and officers. Some common categories in a D&O template are:

• Biographical information: Directors and officers must provide their name, title and position within the company, as well as background information about their education, professional qualifications, certifications and career history.
• Affiliations: The questions will also seek to ascertain whether directors or officers hold positions in other companies or organizations. This portion of the questionnaire will also ask about membership in professional associations or relationships with key shareholders or competitors.
• Financial interests: D&O questionnaires should also uncover whether board members have an ownership interest in the company or any other company or venture. These questions should also cover compensation beyond salary or bonuses, such as consulting fees.
• Legal and regulatory matters: Directors and officers must also disclose whether they’re involved in any legal proceedings, litigation or regulatory action, including if they’ve been charged or sanctioned in the past.
• Conflicts of interest: Questions in this category will ask about whether the directors’ relationships, affiliations or financial interests conflict with the best interest of the organization. Directors should also disclose actions they’ve taken to mitigate the conflict, such as recusing themselves from certain decisions.

Compliance: Directors should certify that they’ve complied with company codes of conduct, ethics policies and governance guidelines.

9 tips for creating a D&O questionnaire

1. Define clear objectives: Outline the specific information you need from the directors and officers to meet disclosure requirements, effectively assess conflicts of interest and evaluate current governance practices.
2. Agree on a well-planned process: Set a regular time of year for conducting board self-assessments with clear instructions and deadlines. Many boards find that it's prudent to set up a board committee to make recommendations for decisions about whether the scope of the assessments will include the whole board, individual directors or both. The committee should also recommend whether the board will pursue individual assessments or peer-to-peer assessments.
3. Allow for anonymous feedback: Board evaluations should encourage honest feedback by ensuring that results will remain anonymous. Manual processes and online surveys require using personal or company emails, which defeats the goal of remaining anonymous.
4. Tailor questions to your organization: Information needs vary from organization to organization. Customize the questions based on your industry, size, complexity and regulatory environment to ensure you’re collecting relevant information.
5. Include both standard and custom questions: Use templated questions to capture essential background information, then incorporate customized questions that capture your unique governance concerns or risks specific to your industry.
6. Review and update questionnaires: While there are typically few changes to D&O questionnaires from year to year, the need to incorporate new information must still be assessed. For example, as conversations around diversity have come into sharper focus, a company may plan to collect and disclose voluntary information about directors’ diversity characteristics. The D&O questionnaire would be one such way to gain directors’ consent.
7. Streamline manual parts of the process: Consider your current process for D&O questionnaires. What are your top frustrations or inefficiencies? Chances are they can be solved by technology. Governance technology providers like Diligent offer tools specifically designed to streamline the D&O process, from building questionnaires to collecting responses and exporting results. Top governance teams are automating manual tasks like D&O questionnaires so that more time can be spent on strategic responsibilities.
8. Consider the director and executive experience: Amid a director or officer’s busy schedule, completing D&O questionnaires can feel like a distraction. Thus, making the process as efficient and painless as possible is the best way for governance professionals to get quick and accurate results. An effective D&O process leverages technology that allows for contingent questions and even pre-fills each director’s or officer’s answers from the year before.
9. Select the right software provider: Digitized D&O solutions can streamline information collection, but only if you choose the right provider. Look for solutions that allow directors and executives to access their D&O questionnaire from any device to make it easier for directors to fill out.

Ensure software can pre-fill answers: Some information on the questionnaire won’t change over time. Pre-filling answers from the year before saves directors and officers time and increases the chances they’ll submit the questionnaire promptly and with minimal chasing.

7 best practices for D&O questionnaires

1. Be clear and concise: Make sure questions are clear and easy to understand. Likewise, avoid jargon that could confuse directors and officers. Using simple language ensures the questionnaire is more user-friendly and easier for directors and officers to fill out.
2. Provide guidance: Add overview statements and notes throughout the questionnaire to provide context about why you’re asking specific questions. Giving examples or explanations for more complex questions can help directors answer them accurately.
3. Promote data accuracy: D&O questionnaires are only useful when the data directors provide is accurate and timely. Build validation checks and review mechanisms to ensure data is complete and accurate. Encourage directors and officers to review their own responses before submitting them to verify they contain all the necessary information.
4. Communicate confidentiality: Directors and officers may have sensitive information to share. Put privacy measures in place and share them with directors and officers so they trust their responses will only be used for governance, risk management and compliance.
5. Ensure your next evaluation accounts for today’s challenges: The past few years have been anything but ordinary. As organizations navigate a new work environment and uncertain economic future, many aspects of board composition, board processes and committee structure have been put to the test. How is your board taking this opportunity to reflect and improve? What questions need to be added to account for today's unique challenges? High-performing boards use the assessment process as an opportunity for growth.
6. Collect feedback on new virtual governance processes: As boards have transitioned meeting formats and processes to a virtual setting, many have discovered new conveniences and efficiencies. Which of these processes has made the board more productive? Which ones should be integrated even after health/safety restrictions are lifted? Governance professionals should work with board leadership to ensure they collect feedback on new virtual meeting formats and processes — particularly those that save time and have the power to impact board performance.

Secure board evaluation data: Effective boards take the annual evaluation process seriously, meaning they often enclose very candid and sensitive information as part of their evaluation. Governance professionals must make sure this information stays protected in a virtual evaluation process. If companies are using digital tools to complete director evaluations, they should ensure each adheres to top security requirements.

Recent updates and trends

The D&O landscape is changing. Emerging technology and intensifying shareholder scrutiny have shaped how directors and officers disclose their information and the kind of information they disclose.

Benefits of digital D&O questionnaires

D&O questionnaires have traditionally been labor and time-intensive, requiring a significant investment to create and distribute them — as well as remind directors and officers to return them. While D&O questionnaires contain much of the same information, they’ve transformed how that information is collected and used, representing a significant opportunity for corporations to do more with directors’ and officers' responses.

1. Efficiency: Digital D&O questionnaires streamline the entire process, saving time and resources compared to their paper-based counterparts.
2. Accuracy: Digital systems can automatically collect much of the data D&O questionnaires call for, ensuring the information within is more accurate than ever.
3. Accessibility: Directors and officers can complete the questionnaires no matter where they are, promoting expediency.
4. Customization: Organizations can use digital questionnaires to create a tailored experience for each director to zero in on the most essential information for each. For example, if a director answers no to “Do you belong to any professional organizations?” a digital questionnaire can skip any related questions in that category, saving the director time.
5. Integration: Digital D&O questionnaires can integrate within the governance platform, streamlining the organization’s ability to glean valuable insights, identify trends, track responses, and monitor completion rates.

Streamlining D&O questionnaires with digital solutions

EDENS, a small US investment company, significantly improved its D&O questionnaire process by switching to Diligent Premium Questionnaires. This digital solution eliminated the cumbersome, paper-based system, providing clear visibility into the progress of directors' questionnaire completions. The result was a more efficient process, with nearly all questionnaires returned within a week, enhancing the overall experience for the directors and the legal team.

Easily collect and analyze questionnaire data

Modern organizations run on data: business intelligence data, risk data and more, including data about their officers and directors. That information can be difficult to collect and even more challenging to analyze, largely because traditional D&O questionnaires have been disconnected from the organization’s broader analytics.

Diligent integrates D&O questionnaires into a centralized governance platform, allowing directors and officers to complete their questionnaires in the portal they already use to oversee board activities. Our questionnaires are simple and secure, making it easy to create questionnaires, establish an easy-to-follow workflow, create flexible answer formats and pre-fill options, and easily export data into the format you need.

Learn more about how Diligent Boards, part of the Diligent One Platform, can help you simplify your D&O questionnaires.