7. Are we living within our means?

This question flows naturally from No. 6. Boards need to look beyond the here-and-now of quarterly earnings to the company's long-term obligations. Obtaining a true picture is rarely easy. Most debt does show up in the "liabilities" column of the balance sheet. But stock options typically don't, even though they too are likely to be a claim on the future wealth of the company. Pension obligations—which get pretty big when you've got more retired autoworkers than autoworkers—can be played down using some rosy assumptions in small type. But let your debt, option, or pension burden get too big, and you've got a GM-sized problem. These days the automaker has been issuing a lot of debt to help cover its pension payments—the equivalent of using one credit card to pay off another. Better to ask well ahead of time: Are we spending money today that we'll need for bills that come due tomorrow?

8. How much does the CEO get paid?

The recent disclosure that Dick Grasso, then chairman of the New York Stock Exchange, had been granted $139.5 million in compensation was startling to many. But just as striking was what FORTUNE learned in the wake of Grasso's downfall: One Exchange director claimed that board members outside the compensation committee had never seen the total pay package broken down before.

The fact is, many board members don't really know how much money the CEO stands to make. That has partly to do with the crazy complexity of CEO contracts, which resemble giant equations in which x is the performance-related bonus, y is the unvested portion of retention grant five, and z is either salary or "other," whichever is greater. But it's also the result of a classic boardroom error: No one bothers to do the math. You don't need calculus to ask the head of human resources (or an outside compensation consultant that reports to the board) some basic "if ... then" questions. If the stock price rises to $150, for instance, how much does the CEO stand to make? If the CEO retires early, what's the total take-home value of cash and prizes? If the chief financial officer were to be fired for looting the company, would we still be bound to give him a $20 million send-off? The final compensation number is the one that will appear in the headlines—and the one you must have in mind when judging whether the CEO is paid fairly or not.

9. How does bad news get to the top?

In most organizations, bad news travels down but not up. That can leave top managers—and thus directors—dangerously unaware of problems brewing deep inside the company. Employee discrimination, improper accounting, low morale: Those are the things management should want to know about. And it's why they need mechanisms that counteract gravity and pull bad news to the top—whether it's a simple hotline, an employee survey, or a third-party reporting service that guarantees anonymity and eliminates fear of reprisal. Medical-device maker Medtronic, long considered a model of corporate governance, has a 24-hour privacy-protected 800 number that workers (and anyone else) can call if they wish to report a concern.

Big companies are like big cities. It's nigh impossible to keep everyone honest. As Wal-Mart CEO Lee Scott said earlier this year, "I can guarantee you that at this very moment somewhere [in the company], somebody is doing something that we all wish they weren't doing." The right system, however, can make sure employee misconduct doesn't turn into a company meltdown.

10. Do I understand the answers to questions 1 through 9?

If not, start again from the top. Good governance is a process, not an exercise you do by rote at board meetings a few times a year, before the chicken florentine lunch and just after management's big PowerPoint presentation. So even more critical than asking the questions above is the process of questioning and interacting with the company's management. If that engagement feels stilted to you, if your questions are dismissed or glossed over with platitudes, or if management responds to your queries with slick charts and graphs that skirt the tough issues, don't wilt in your chair. Press on until you really understand, in your gut, how the company is performing. Remember, the mere fact that you are raising these questions signals what you, as a member of the board, believe is important. Just asking them is a good way to get the company's top managers focused on the right issues—even if they don't have the right answers just yet.