Public companies and companies that plan to register as public companies are required to submit Form S-1, which is a registration statement under the federal Securities Act of 1933, which is a part of the reason companies fill out D&O questionnaires. The purpose of the Directors and Officers Questionnaire (D&O Questionnaire) is to prepare for the company’s registration statement on Form S-1. The form reflects facts for the last fiscal year, and they must state the date and year on the registration form.
Boards of directors also use the D&O Questionnaires for their own purposes. The D&O Questionnaires assist boards of directors in determining whether the directors on their boards are independent. Audit committees review D&O Questionnaires to assess board director nominees’ level of financial expertise as it relates to federal securities laws. D&O Questionnaires also often define industry terms in an appendix.
Parties Responsible for Completing D&O Questionnaires
Most corporations use one form for all responders, asking them to fill out the sections that apply to them. Boards usually require stockholders to fill out all questions even if the answer is “no” or “not applicable.”
The parties responsible for submitting D&O Questionnaires are:
- Existing executive officers
- Proposed executive officers
- Existing directors
- Proposed directors
- Principal stockholders
One of the big advantages to using an electronic software solution for D&O Questionnaires, such as the Diligent D&O Questionnaire, is that only the questions that apply to each party appear on their individual forms. This is a huge time-saver for board directors because they don’t have to skip questions that aren’t applicable to them. An added benefit to this software is that directors, officers and stockholders can complete them within a secure, fully integrated board portal. The Diligent D&O Questionnaire model also makes the process far easier and more efficient for corporate secretaries.
D&O Questionnaire Questionnaire Template
Let’s look at the categories that the questions fall into:
Name, Address, Age
The first three questions are basic and self-explanatory — name, mailing address and age.
Occupation and Business Experience
This section typically asks for a five-year history of the responder’s occupational and leadership experience. The form is looking for disclosures about whether experience is related to for-profit or nonprofit entities, whether they have employment contracts with any corporations, and whether a resignation or position change signals the start of related payments. This section also seeks disclosure of any family relationships connected with the corporation.
Directorships and Compensation Committees
The set of questions under this section seeks disclosures about whether the responder holds a position as director, executive officer or partner, or served on a compensation committee for the company for which they’re filling out the D&O Questionnaire. It also looks at the relationship between positions they have held and their relevance to other directors, executive directors or members of compensation committees. The objective of this questioning is to ensure that compensation is offered fairly and without bias.
Questions under this category offer disclosures about criminal actions, fraud, personal or business bankruptcy or insolvency, and legal suspensions, revocations or judgments preventing the responder from participating in official trading activities. This section also asks for disclosures of legal matters by business partners.
Arrangements for the Selection of Directors or Executive Officers
The form requires disclosures about current and potential arrangements or understandings for the responder or others they are acquainted with to become a director, nominee for director, executive officer or nominee for executive officer.
Control Arrangements Relating to the Company
This is an important section of questions that relates to the responder’s knowledge about control of the company and whether they have knowledge that the control may change. Responders must reveal their ownership of shares and the related voting power of their shares, as well as whether they have plans to dispose of any of their shares. This includes shares for which the responder may be a beneficial owner.
This section is also pretty self-explanatory. Responders have to disclose any and all compensation they received from the company over the last fiscal year, including use of cars, planes, boats and other types of transportation. This also includes reimbursement for travel arrangements and company-sponsored pension plans.
Regulators are interested in knowing about the types of transactions responders have made with the company and related parties or persons. They’re interested in whether responders have any indebtedness to the company, whether they’ve made transactions with owner family members and if they’re a member of a law firm retained by the company. The form seeks disclosure about whether the responder has more than 10% equity in the company and if they’ve made payments to the company or a related investment banker.
This section includes a sole question about whether the responder is insured or indemnified against any liability they may have as a director or officer of the company.
Responders must disclose any participation with bribes, kickbacks, political contributions and other material misrepresentations.
Financial and Accounting Experience, Education and Certifications
Boards of directors need to disclose the financial expertise of their directors and officers. This section outlines their experience, degrees, certifications, and other training in auditing and finance.
Director independence is required for some corporations and recommended for most others. This set of questions explores whether the director receives any compensation or has any formal or informal affiliation with the company.
The final section has to do with FINRA, the Financial Industry Regulatory Authority. The questions look for information about the responder’s relationship with FINRA, including membership, position as an underwriter and any transactions that relate to FINRA.
Finally, the responder must sign and date the form and provide current contact information, such as in this template.
As you can see, D&O questionnaires contain large amounts of sensitive data. It’s important for directors and officers to provide an answer to each and every question that applies to them. It’s critical to pay close attention to the wording so that they don’t make any unintentional misrepresentations. They should also be aware that the company may have a policy of verifying information that directors and officers report on their forms.
The sheer length of D&O Questionnaires – and the complexity of completing them – justify looking for a software program that makes the process easier for corporate secretaries and directors and officers. The Diligent D&O module lets corporate secretaries duplicate questions from the previous year and set the program up so that responders only see the questions that apply to them. They can also create links to definitions of terms and links to questions that directors and officers failed to answer.