Dear reader,

Welcome to the Aug 2014 edition of The Director's Dilemma.

Boards operate best when each director trusts each other director to adhere to the jointly accepted governance processes and policies as well as the relevant laws and regulations. This month our real life case study considers what to do when that trust is lost. 

Consider: What would you advise a friend to do under these circumstances?

Jake is a club chairman. The former chairman resigned after a major disagreement with the rest of the board which arose because the former chairman signed a major contract. When the board discovered what had happened they were furious that a large decision had been made without involving them. The former chairman stormed from the meeting and resigned in writing the following morning.

The Board then acted without a formal chair, directors took turns to chair the meetings, until the next election. During this time the board rewrote the by-laws which previously allowed the chairman to sign contracts after verification by the treasurer that doing so would not lead to insolvency. They adopted new by-laws that stated no director, including – for absence of doubt – the chairman and/or treasurer, could commit the club to any contract, expenditure or course of action unless approved in a duly constituted board meeting.

Jake was not previously on the board and was elected unopposed after being invited by the treasurer to stand for election. He is a successful businessman but has no experience with consensual board decision-making. He has now discovered that the club is wallowing because recent decisions have not been made in a timely fashion. His fellow directors are numerous, factionated and indecisive. The CEO has low delegations and the constitution envisages that the chairman, CEO and treasurer should make decisions between meetings and use the board to ratify strategy, engage members and provide oversight. The amended by-laws prevent the constitution from working but don’t provide an alternative workable model.

The board reacted with horror to a suggestion that they soften the new by-laws but don’t appear willing to improve their own performance so the club can operate under the new by-laws. Staff performance reviews and bonuses are soon to be agreed and Jake is fairly certain that his board will not make rational decisions or support the CEO’s recommendations. He knows that he needs to act decisively to avert disaster but doesn’t know where to start.

How can Jake create an environment that allows for effective management of the club before this situation spirals out of control?

Jane's Answer

Jake recognizes the issues but does not have sufficient experience in non-profit board decision-making to offer practical solutions. In any case, the board has not yet re-built trust with the chair position, and is quite reasonably unwilling to delegate authority for strategic decisions. All board members are liable for those decisions, and models where a small group makes the decisions and gets them ratified later - the board members as trained seals approach - have mostly disappeared.

The bylaws probably do not prevent rational decision-making processes, and these are better spelled out in a board policy than in bylaws anyway. Rather than seeking to soften the bylaws, Jake could form a task force consisting of himself, the CEO and two directors interested in governance to develop a better board agenda and advance board package to support timely, quality decision-making.

The CEO can use that system to produce a strategic report that documents his or her criteria, options and recommendations for the staff bonus and performance review system. But it’s not a crisis if bonuses are delayed a bit while board members test their new way of operating. The CEO seems to have been operating contrary to the wishes of the majority of the board with respect to how decisions get made, and probably shouldn’t expect a large bonus.

There are times when no internal voice is respected. Jake would likely find that an external facilitator specializing in non-profit boards would add credibility and expedite adoption of a better governance approach.

Jane Garthson is President of The Garthson Leadership Centre. She is based in Toronto, Canada.

Julie's Answer

Winston Churchill once suggested that one should ‘never waste a good crisis’ and Jake must act to turn this potential crisis into the catalyst for a better standard of governance. Many incorporated bodies have constitutions and/or by-laws that allow for an ‘executive committee’ or subset of the board to enact decision between meetings although in an era of joint and several liability this is a risk for the remaining board members. Rather than return to an old-fashioned governance model Jake must find some way to make his board perform to current standards of good governance.

Although many of his board members will not have governance training or legal knowledge, all will have joined the board from an altruistic desire to serve the club. Jake says his club is wallowing. He needs to look carefully for one problem that has been caused or exacerbated by the board’s failure to make a timely decision. If he can demonstrate beyond any doubt that the board has harmed the club his directors will sit up and take action. Jake must then be ready to guide that action.

He should work with the CEO to identify:

  • what issues the board must approve for the proper implementation of the strategy,
  • what issues the board must receive reports upon for proper supervision and risk management, and
  • what information the board must contribute to the management to assist in running the club and building future strategy.

He should also sit down and have a long, deep discussion with the Treasurer and find out what  issues are causing the board disunity. It is unusual for a President to be new to the board and there may be other disagreements and issues that have prevented one of his longer serving directors from stepping forward to take the position. Jake must not be blindsided again. He must find out more about his directors and the reasons for their factions in the boardroom. Only then can he help them to do what they all want to do; govern their club successfully and leave a lasting legacy for the future.

Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.

Doug's Answer

This board is obviously seriously risk adverse and fragmented by nature or as a result of the nasty experience mentioned. They must be brought to the realisation that the biggest risk facing the club, and them personally as directors, is the absolute dysfunction within their ranks.

To continue in this fashion is untenable. In other words, business as usual is not an option. There is no point in taking this further without total commitment and “buy-in”; from board and management. Dissidents must be given the option to ‘consider their positions’.

A review program is required by a 3rd party to include size, skills and processes along the lines:

  • Establish clear vision & strategy, process, people and performance (KPIs) criterion in all aspects (Strategic, business and policy).
  • Establish clear Delegations Policy in line with vision & strategy, process, people and performance (KPIs)
  • Then address the “People” aspect as core to transformation - mutual understanding of the individuals innate differences; instil trust, respect and develop a philosophy of constructive contention.

The outcomes:

  • Transform factional differences to mutual respect for their different needs and talents
  • Transform risk aversion to risk management
  • Establish clear meeting protocols to include, for every issue and agenda item, a decision; an action plan and then CEO oversight on implementation in line with delegations
  • Ultimately facilitating the above transformation goes a long way to replace suspicion with trust

Again, positive “buy-in” to fix this situation from the whole board and management is a given or the program will be untenable.

Doug Jardine is a Principal of Doug Jardine & Associates which provides consulting services focussing on getting teams working together constructively. Doug is the convenor of the Gordon Directors’ Group based in Sydney, Australia.

What's new

Quality Times - The Indian Institute of Directors featured an article I wrote on the differing perceptions of risk between managers and directors. You can read it at:
http://iodonline.com/pdf/2014/july.pdf

Inspirational quote - I subscribe to a service that delivers an inspirational quote every day. It is a good way to get into a positive frame of mind for the work day ahead. This month my favourite quote was:

The only job where you start at the top, is digging a hole.

~Anonymous~

It is quite likely the anonymous quote caught my eye because I was thinking of ‘Jake’ and also of my one experience of being the externally recruited chairman of Oldfields. In each case the board had a specific reason for seeking an externally recruited chairman but, in each case, there were issues that were hard for a chairman to address without a great deal of inside information from fellow board members. Fail to get that information and you will dig until you find magma or get burned!

If you would like to subscribe the quotes service is run by Darren La Croix at:
http://365inspirationalquotes.com/.

Certified Speaking Professional - On 7 July I heard that I had been awarded the coveted CSP designation. This is the highest international speaking qualification and I was ecstatic at the news. The process was quite demanding and the evaluation criteria quite daunting but it was all worth it and I can now proudly state that I am ‘Julie Garland McLellan, CSP’!

Many thanks to all my speaking colleagues for their help and inspiration.

Disclaimer
The opinions expressed above are general in nature and are designed to help you to develop your judgement as a director. They are not a definitive legal ruling. Names and some circumstances in the case study have been changed to ensure anonymity. Contributors to this newsletter comment in the context of their own jurisdiction; readers should check their local laws and regulations as they may be very different.

This newsletter - If you have any ideas for improving the newsletter please let me know. If you are reading a forwarded copy please visit my website and sign up for your own subscription.

Suggestions for dilemmas - Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Farewell until the next issue (due 1 September 2014). This newsletter was written in Tonimbuk, Victoria as I am helping my sister who has broken her ankle. Next month I shall return to Sydney and write at my usual desk. I look forward to greeting you again then.

Enjoy governing your corporations; we are privileged to do what we do!

Best regards,
Julie