Dear reader,

Welcome to the February 2016 edition of The Director’s Dilemma.

Our case study for February concerns a listed commercial board with some ethical and practical issues to manage. I hope you will enjoy the dilemma and the three suggested responses.

To read this email in your browser, go to and click on 'read the latest issue'.

Andrew is a director of a medium sized listed company. The company has a diverse board with expertise from its industry and from the international countries where it operates. Everyone in the boardroom adds value. Board practices appear robust and discussions are frank; leading to decisions that are often not what Andrew had expected when reading the papers on his own beforehand but which have proven to be very successful when implemented. Perhaps because performance has been very good, the shareholders are quite passive and only one, a financial institution, responds when they reach out to consult or inform.

As part of its strategic evolution the company sought a review of M&A targets plus an independent analysis of its own portfolio. The company has grown significantly since the last review six years ago and wants up to date reliable information. The shareholding institution was not invited to tender for the work to avoid any potential or perceived conflicts of interest.

News of the tender has filtered out across financial services industry and the chairman of the shareholding institution called Andrew. He was angry that his company was not invited to tender. In spite of Andrew's attempts to stay calm, positive and friendly the conversation became heated. It ended with the chairman threatening to use his shareholding to vote down the next directors standing for election or re-election.

What should Andrew do?

Robyn's Answer

The board's first responsibility is to the company; in almost all cases, they must advance and protect the interests of the entity before those of shareholders.

Supporting this notion and in underwriting the company's integrity and market confidence, Andrew's board excluded parties with equity-based connections from participating in the tender. The company specifically sought independence, perspective and objectivity from the review and as a listed entity would have also sought an outcome free from taint, bias or influence (real or perceived). 

The fact that the shareholder was excluded on the basis of a potential perceived bias is evidence of the board's commitment to strong and transparent governance, and disciplined application of the company's conflicts management framework.  There is attributed value in these characteristics for the shareholder, intrinsic within the share price and long term sustainability of the company - there would ordinarily be no incentive for Andrew's company to de-stabilise or detract from that.

Regardless of the shareholder's belief in their ability to deliver an unbiased outcome, the perception of the broader market always needs to be carefully managed by a listed board.

Influenced (consciously or unconsciously) by what they can stand to gain from a situation, perceived conflicts are usually more difficult for involved-persons to identify and come to terms with. 

My advice would be that timely and clear written communication with the shareholder explaining the company's decision is essential. Andrew should immediately confirm and document the exchange with his Company Secretary and Head of Investor Relations, who will then determine an official response to the shareholder (the relative size of the shareholding probably accounting for whether the response will include the chairman or not).

Robyn Weatherly is General Manager, Governance for United Super (Trustee for Cbus) and is the author of Eyes Wide Open an informative book for aspiring and novice directors. She is based in Melbourne, Australia.

Julie’s Answer

This company is listed and news of a strategic review tender has filtered across an industry; rumours will be circulating. Under ASX rules the company should comment to ensure that the whole market has timely access to the same complete and accurate information. Under ordinary circumstances the appointment of a strategic advisor would be confidential; this selective leaking of information is not normal. Andrew must inform his Chairman immediately and then they should work with the CEO and Company Secretary to expedite an announcement.

The announcement must state truthfully that the review is part of routine strategic data gathering and not an announcement of imminent merger, acquisition or divestment activity. It should mention that the company is aware of, and complies with, its continuous disclosure obligations.

Shareholder liaison may normally be delegated to the company secretary or CEO but this is a very large and very angry shareholder. It is more diplomatic for the Chairman to call the shareholder Chairman and speak personally with him. It is not Andrew's job, as a 'mere' NED, to speak on behalf of the company and he cannot commit either the company or the board. He should convey the information to the board via his Chairman.

Unfortunately such a large shareholder may have the power to vote down a recommended board appointment. However, although they threaten, shareholders rarely do this. They have a vested interest in maintaining the good performance of their investment. They will not wish to disrupt a well performing board. They will also not wish to inform the entire market of their attempt to bully an investee company's board into awarding them a tender when they have a clear conflict of interest. In fact, the investor Chairman's attempt to use leverage to gain the tender award is a clear indication that this conflict of interest would likely not be well managed and the directors would be very ill-advised to do more than apologise for any offense that may have been taken and concentrate on continuing to do their job well.

In the longer term Andrew should work with his board and management to develop a shareholder engagement program that really does engage the shareholders. That will underpin better shareholder relations in future.

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

Alan’s Answer

Andrew has been placed in an awkward position if he does not act appropriately in response to the phone call from the Investor Chairman.

It was wrong of the Investor Chairman to approach Andrew who is an NED.

Any complaint by such a person should have been directed to Andrew's CEO or Chairman. Andrew is not in a position to speak for the company and this approach has serious overtones of improperly seeking confidential information.  

Andrew should now promptly inform his CEO and Chairman of the approach. The chairman should speak with the Investor Chairman to explain the position.  

It is regrettable that advice of the review tender leaked, even though it is normal for companies to conduct such reviews using appropriate consultants. It is incumbent on the consultant to maintain strict confidentiality concerning everything they learn from the company and their report to the company. The consultant should have effective Chinese walls within their own company to minimise the internal spread of information, including that they are working for particular clients.

The information they learn about their client and the information they provide to the client, becomes "inside information", and they must ensure it cannot be used to influence share trading or investment decisions. If the consultant’s company has any significant investment interest in the client, they should decline to tender.

A further consideration is that as the shareholder no doubt has its own other investments, it may well have conflicts of interests in undertaking such a review, perhaps for example favouring as a takeover target, a company in which it already has a significant investment, or not favouring a company which it may wish to take over itself.

In these circumstances, it was entirely proper for Andrew's company to not invite the investor to participate in the tender. Indeed, had they done so, the company could rightly be accused of treating one shareholder preferentially with respect to information.  Not only would this breach company law, but it would also likely upset other shareholders should they learn of the exercise being undertaken.

The chairman should explain this firmly, if diplomatically to the shareholder, including pointing out that regulators would no doubt take a dim view of both companies if they had proceeded to involve the investor in the tender.

Alan Castleman is Chairman of The Board Advisory Group.  He is based in Melbourne, Australia.

What's new

Book review - Not for Profit Board Dilemmas; practical case studies for directors in the non profit sector.

All Directors are leaders, whether in the private, public or not-for-profit space. All organisations look to their boards for direction, mentoring, support and advice - adding tremendous value to the professionalism of organisations.

NFP directors are in a unique position.  They are advocates of their cause and many also contribute to their organisations on a volunteer basis outside their role as a board member. What is vital though, is that these directors understand their legal obligations as custodians of their organisation.

I congratulate Julie Garland McLellan on successfully highlighting the importance for directors, specifically NFP directors, to practice good governance across all aspects of their organisation in her series of relatable and honest case studies.

John Brogden, MD & CEO of the Australian Institute of Company Directors, Chairman of Lifeline Australia, UrbanGrowth NSW and Furlough House Retirement Village.

Available at

If you wish to purchase multiple copies please email Julie and she will arrange a bulk discount for you. Purchase during the month of February and receive a free copy of Julie's best practise board templates and administration guide.

Inspirational quote for February - This month my favourite quote is:

"You can spend your entire life waiting for perfect. The perfect job. The perfect partner. The perfect opponent. Or you can acknowledge that there is always a better time or a better place or a better opportunity and refuse to let that fact hold you back from doing everything to make the present moment the perfect moment."

~ Ronda Rousey ~

Sometimes life in the boardroom makes MMA look like a very relaxing pursuit but even when circumstances are at their worst directors must do their best. They must also surround themselves with 'corner people' who will tell them what they need to know rather than what they want to hear.

And, of course, we must always be vigilant because there will always be a competitor out there working hard with a view to beating us!


Well the Christmas holidays have vanished into the past. I hope you enjoyed the break.

January was a busy month with some writing assignments (developing courses for international education delivery), the first AICD Company Directors Course delivery for 2016, and a lovely trip to Dubai to facilitate a two day course on 'Achieving Organisation Board Effectiveness'. The participants came from across the Middle East and Africa so we had much and varied experience to share. The course highlight was an interactive case study which, as usual, generated a range of different responses to the challenges, with debate about which course to take. The photo at left was taken during a lunch break overlooking Dubai Marina.

I hope you are happily busy and look forward to hearing from you should you have a need for my services in board facilitation, performance review, recruitment or education.

A note on names - A few readers have asked me where I find the names for the protagonists in each case study. I can only say that I 'steal' them from people I meet or things that I read. Andrew is a popular name with an ancient Greek root. It means "manly" and, as consequence, is also associated with concepts such as "strong", "courageous", and "warrior-like". The Andrew in this month's case study will need all those attributes which, incidentally, are also frequently found in high-achieving women so perhaps nowadays it can mean 'womanly' as well.

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 March 2016). I look forward to greeting you again then. In the interim I hope you will enjoy health, happiness and hard work.

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

Best regards,




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.