Welcome to the June 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 case study concerns a moral dilemma facing a not for
profit organisation with a complex devolved authority structure.
Travis chairs a regional committee of a national charity that
organises sporting competitions and activities for children. Although
his committee is not separately incorporated it manages its own bank
account and, under the constitution of the national body, is authorised
to undertake local fundraising to support the coaching and local
The national body receives some grant funding and manages major
national sponsorships to support the national and international
Recently times have been hard; small businesses that previously
provided sponsorship funds and also some goods in kind have proved
reluctant to continue to do so. The national body has been unable to
assist as it, also, has had reduced cash inflows.
The local franchisee of a large fast food restaurant chain has
approached Travis and offered to sponsor some events. They are offering
cash, food and drink for competitors, subsidised food and drink for
spectators to purchase, and prize vouchers redeemable in-store.
The issue is that the sporting community may possibly not react
well to association with a supplier of food that is high in calorific
value but low in nutrition. There has been negative press reporting on
the danger of ‘fast food’ and some nutritionists seem to advise against
letting children eat any of the products; even as a special treat. The
national body is also likely to object.
The committee has been worried that funds are approaching a
critical low. They understand the danger of trading whilst insolvent.
They are also committed to ensuring that the sporting activities
What should Travis do?
Insolvency and Reputational risk are key governance issues. Solvency
laws apply for NFP’s as well and every charity lives or dies on their
Consider the following as input to your decision making process before acting unilaterally:
The Solvency Risk - The National Board is accountable overall rather
than any committee acting alone. A frank dialogue with your Chairman
will help you understand the best way for your committee to act in these
circumstances. Open the communication channels, validate your
assumptions, ask the tough questions and expect some guidance and
The Reputational Risk - Any misfit between espoused values and actions
can unwittingly disenfranchise the very supporters and sponsors on whom
you depend. Engage your stakeholders (supporters, sponsors, employees,
national Board etc.) to understand this matter from all sides. With this
diverse input and resulting choices, you will be able to find a
solution that holds your values intact, reinforces your reputation/brand
and allows for the funding support you need. The best solution will
balance all these forces at play. It’s hard work but that’s the job of
directors. Your new sponsor may be of great help in solving this puzzle,
so be open with them. If not, you probably didn’t need them anyway.
Look for others.
Courage to stick to your values plus open and inclusive communication
will always help as you navigate the ‘red flags’ through the fog.
is non-executive director of Forico Pty Ltd and Executive Coach at
Catalyst Coaching. He is a former director of Du Pont Australia Ltd. He
is based in Sydney, Australia.
Travis needs to move carefully. He may have delegations that allow his
committee to receive and expend funds locally but he does not have any
formal authority to form strategic alliances or to make statements that
could attract interest on a national level. The potential implications
need to be thought through carefully and this is a strategic decision
which must necessarily involve the national board.
Travis should immediately contact the central body that oversees the
grass-roots activities and ask them what precedents exist for forming
local relationships with national brands. He should also make clear the
parlous state of the local bank account and the need for an injection of
funds. He may wish to add his own personal view of the best way forward
and the consensus view of the committee.
As Travis’ committee is not separately incorporated it acts as a part
of the national whole. The national directors are at risk if any part of
the corporation fails to meet its obligations as and when they fall
due. Travis’ committee must take care to ensure that they adhere to
common sense and commercial good practice. They should notify the
national board that they have financial stress and an option to relieve
this. Funding is, ultimately, up to the National Board. If the only
alternative to cessation of activities or a national ‘top up’ of funds
is likely to generate a media storm then that board needs to be briefed
and asked to support the course of action before any agreements are
Fast food as an occasional treat will not harm the children or their
parents and, if Travis combines the sponsorship opportunity with
education on healthy eating and exercise a win/win outcome is possible.
The important thing for Travis is to be open and transparent with all
parties and to make sure that he does not lead his committee beyond the
scope of activities that fall within its remit.
Julie Garland McLellan is a practising non-executive director and board consultant based in Sydney, Australia.
Travis is in an unenviable position. Indeed, it could be summed up
quite succinctly as "dam'ned if you do, dam'ned if you don't."
Fast food inevitably earns the ire of do-gooders for various stripes
and persuasions: those that don't object to its use of GMO will object
to its low nutritional value. Those that don't object to its low
nutritional value will object to its exploitation of low-waged workers.
Those that don't object to its use of low-waged workers will object
because they're vegans... and so it goes, ad infinitum ad nauseum.
Attracting noisy protest groups is the nature of the fast
food industry. However, it is important to put their protests into
perspective: they represent a noisy minority of society as a
whole. How do we know this? We know this because fast food is
enormously profitable, it always has been, and it will always continue
to be -- unless, of course, it is outlawed. Somebody is buying all
that fast food! Moreover, judging by the presence and popularity
of the children’s menus, it's not merely adults doing the buying!
The issue, then, becomes somewhat simplified: to what degree is Travis
willing to be bullied by noisy special interest groups that do not
represent the majority of his community? His sports club is in a very
real bind: monies are not forthcoming from their usual local sources,
nor is the National Body being particularly helpful with making up the
shortfall. It is within his delegated authority to fundraise locally.
How he does that, and from what sources, is his call to make. Travis is
hardly in a position to pick-and-choose where his club's money is going
to come from.
The local fast food franchise is tossing Travis a lifeline he would be
remiss to ignore. Within the community, the franchisees are -- no
doubt -- significant employers of young people. High school
kids probably go to them for their first jobs. As local business owners
they are probably well respected pillars within the community: the
sorts of people who join Rotary and do what they can to "give back." By
trying to help, they are being good Corporate Citizens. Without
their help, Travis' club is in big trouble. Rebuffing their kind
offer of assistance could very easily backfire, particularly if Travis
were to do so in a manner that implied criticism. It isn't as if he
is accepting funding from a porn shop, or from a brothel, or from a
casino, or even from a tavern. It's a perfectly-harmless fast-food
franchisee! One which likely moves in
circles (like Rotary) that could contain other potential funders --
funders more likely to be sympathetic to the franchisee than to Travis,
if push came to shove.
Travis' only sensible response is to graciously accept the offer of
assistance, fully and visibly support the fast food franchisee, and
weather the storm. Best to do that from the front-foot, by writing
to the National Body a very short communique, along these lines:
"You will all be aware of the parlous state of our finances in West
Nuttsville, and that we risk trading while insolvent. As this
situation is both untenable and unacceptable, and in the absence of any
viable alternatives, I have decided to accept an offer of funding
from our local Fast Freddy's Fast Food Franchise in lieu of ceasing
operations immediately. This decision will probably attract some
opposition from a noisy segment of our community. However, we are
fully committed to making this sponsorship work, we are confident of
being able to work with Fast Freddy's to manage the public relations
issues surrounding this decision, and we expect your full cooperation
That may/may not go over well with National Body, but Travis has
nothing to lose one way or the other. Might as well be bold: that's
what Leadership is all about.
There remains the inevitable Public Relations line: initially, Travis
should take his lead from the fast food franchise. Alert them to
the potential issue. They will -- no doubt -- have dealt with this
sort of issue before, many times. They will also -- no doubt --
have a PR team well accustomed to putting out any fires that may result
from sponsoring Travis.
However, if confronted by a protest group directly,
Travis can always shrug and say "We're just a community sports club,
trying to survive. Fast Freddy's funding is kindly helping our
community's kids to do sports. We'd be delighted to accept your
is National director and Chairman of the International Alliance of
Guardian Angels New Zealand Charitable Trust, Trustee of the Walsh
Trust, member of the board of governors of Mangere East Family Service
Centre and Managing Principal of Digital Angels Computer Clinic. He is
based in Auckland, New Zealand.
Director issues in the news - This month I have published two more papers.
The first is entitled The 'Google-Board' and explores the idea of a directorless boardroom - read the paper here.
The second is entitled How to become a (professional) company director and provides some insights into becoming a director - read the paper here.
I would welcome your comments and suggestions for other topics of interest to the director community.
Evaluating Governance Effectiveness - This is always an exciting course: In July, August and September we will take the course to Sydney, Melbourne and Brisbane. I do hope that some of you will join me. Early booking is advised as places are filling fast. Full details are at available at:
Inspirational quote for June - This month my favourite quote is:
“Give careful thought to the paths for your feet and be steadfast in all your ways.”
~ Proverbs 4: 26 ~
Company Directors Conference - In May I attended the AICD Company Directors Conference in Malaysia.
Almost every session featured valuable information and stimulating
presenters: My personal favourite was Baroness Susan Greenfield on
neuroplasticity and the way in which environment can impact cognitive
ability. I came away with renewed resolve to make a positive difference
in the workplace.
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 July 2015). I look forward to greeting you again then.
Enjoy governing your corporations; we are privileged to do what we do!
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.