The board included four CEOs and a former dean of a business school.
None of them asked the second question.
September 1980, Chicago.
Trans Union, a large public company that leased railroad cars.
The chairman, Jerome Van Gorkom, is close to retirement age.
Without telling the board, he sets a price for selling the company on his own, and offers it to the tycoon Jay Pritzker.
Pritzker demands an answer within three days.
At the board meeting, the chairman presents the deal orally for twenty minutes.
The directors do not see the merger agreement itself.
The directors ask the CFO whether the price is fair.
The answer: "in the range of a fair price".
But he adds: "at the beginning of the range".
Then silence.
Nobody asks why at the beginning of the range.
Nobody asks to see the analysis.
After about two hours the deal is approved.
That evening the chairman signs the agreement, in the middle of the gala opening of the Chicago opera season. No director had read it.
In 1985 the Supreme Court of the State of Delaware, where many companies in the United States are incorporated, ruled that the directors had been grossly negligent.
Not because of the price. Because they did not check.
Here is the insight:
The answer to the first question is almost always prepared in advance.
The second question is the one that reveals whether anyone really checked.
"Based on what?"
"Who checked this, and when?"
"Can we see the document?"
"What happens if we postpone the decision by a week?"
The next time you vote on a big decision, try to remember:
did you ask only the first question?