Happy New Year! Welcome to the February 2015 edition of The Director’s Dilemma. To read this email in your browser, go to www.mclellan.com.au/newsletter.html and click on ‘read the latest issue’.
This month our dilemma focuses on the tricky issue of when to take sides in a divisive debate and how to handle matter with diplomacy and care whilst providing transparent disclosures. If Paula were your friend, what advice would you offer?
Paula is one of only three directors on the board of a small listed company. The CEO and founder is also the largest shareholder. The Chairman is a well-respected director who sits on two large listed boards but has no start-up experience. The CEO recently informed the board that he had become involved in a private legal dispute. The chairman suggested that the proper course of action was for the CEO to stand aside while the board conducted their own investigation into the matter and considered what effect it might have upon the company and its share price.
The legal dispute concerns a private investment trust of which the CEO is trustee. An investor in the trust has claimed the CEO failed to provide proper reports on the conduct of the trust and used trust funds to pay personal expenses. The CEO has indicated that he intends to admit to ‘administrative failures’ and non-provision of reports but to refute any misuse of funds. The CEO is confident that he can provide the required reports and that he will not be banned from directing or managing a company, although he may be fined and reprimanded for his slackness. He claims that his attention has been focused exclusively on the success of the company and this has led him to neglect other duties, including administration of the trust.
The Chairman says directors and officers should manage their personal lives to the same high standards expected of their listed entities. He believes this court case will undermine trust in the company. The CEO believes he will emerge unscathed and, even if he doesn’t, that he should be allowed to continue in his role until the court case is resolved and the board can stand him aside only if he is banned. Both are looking to Paula to resolve their dispute.
What should Paula do now?