The role of a director is to oversee that direction is provided, but it is not to execute that direction or mange the organization unless the board member believes that the CEO and management are not reliable and competent to do so. A director does this by asking sufficient questions, so the director has a reasonable belief that the CEO and management are reliable and competent in what they are authorized or directed to do.
Questions should not generally be “how are you going to do this.” Management should have the authority to determine “how.” A director’s questions are to verify or confirm management’s reliability and competence in making the “how” determination: “How does this benefit the best interests of the business?” “Is it consistent with our business model and strategy for the future?” “What financial, legal, ethical, strategic and reputational issues have been considered?”
Directors should take into account the premise of Nassim Nicholas Taleb’s book, “Black Swan, The Impact of the Highly Improbable,” that policy makers such as directors must consider all of the possibilities, especially those that could have a high impact, albeit remotely probable, and not just the normal. The current “Great Recession” is the likely result of a failure to take into account the highly improbable, but high impact, occurrence of real estate and investment prices falling significantly at the same time.
Accordingly, the most important questions that a director should ask are “what if,” most importantly, “What happens if things don’t go as expected?”