Dear reader,

Welcome to The Director's Dilemma August 2023

Please read on past the dilemma to find details of my next public course on 'Writing Better Board Papers'. I hope I will see you there!

Each month this newsletter looks at a real-life board scenario and considers a range of responses. The scenarios are de-identified to protect the individuals concerned. This month we advise a not-for-profit board that has badly damaged its relationship with the Members.

Of course, scenarios in this newsletter are general, I work with boards and directors as a confidential mentor and help them beat challenges and seize opportunities. If you would like personalised service, please call me.

To read this email in a web browser, go to www.mclellan.com.au/newsletter.html and click on 'read the latest issue'.  I hope you will enjoy the latest dilemma:

 

Fidel is a director of a national NFP company that formerly met in person at different locations every month to connect with stakeholders and staff. Covid put a temporary end to that practice and, when the board looked to resume in-person meetings, they reviewed their constitution. It looked as if refunding travel expenses (which they had previously done) would be in breach.

The board decided to amend the constitution at the AGM just to be sure. The AGM is held as a hybrid in-person and on-line event.
The company lost $90,000 last year and the board members are unremunerated.

The AGM came and the Chair put a resolution to amend the constitution and provide 'an allowance' for directors' travel and accommodation attending meetings.

The allowance requested was $100,000 per annum which seems high compared to the previous year's loss but reasonable given the cost of airfares, hotels, meals and ground transport for a board of ten directors that meets monthly.

There were twenty people in the room and - according to the chair - 120 online. The people in the room voted against the resolution. The chair said the people online voted overwhelmingly in favour and declared it passed.

Later in the meeting there was a question from the floor about how, given they can't see or hear the online people, members in the room could know the voting and chair responded he counted the raised hands on the screen of the zoom call.

Now the member has written asking for proof of the voting. The zoom chat shows that twenty-one people commented, mostly in favour. The list of participants is no longer available.

What should Fidel do?

I would advise Fidel that he needs to introduce to his Board its best friend: The PROCESS.

It appears that, for too long, the Board has been too casual with the process, and that it should be grateful to the member who questioned the validity of the procedure at the recent AGM.

The procedural breaches started before the pandemic, when the Board refunded Board members' travel expenses, despite the Constitution prohibiting it. The Board also tolerated a $90,000 deficit last year, and it is not clear what process was relied upon to authorize a deficit.

And now to the recent hybrid AGM, which was attended by 20 members in person and 120 members virtually. It is not clear whether the proposed Constitutional amendment (to authorize an allowance for reimbursing Board members' travel and accommodation expenses) was or was not included with the notice of the meeting. Failing to give notice of a contentious Constitutional amendment inherently disenfranchises members who miss an AGM. This deficiency can diminish transparency and reduce trust levels toward the Board.

The next major procedural issue was how the voting was handled. Taking virtual votes by the Zoom "raise hand" feature can never be considered a reliable, accurate and verifiable voting method. This is because there is no real confirmation that those who pushed the raise hand button were actual voting members. A secure voting app was a must in this case, especially in the face of substantial opposition to the Constitutional Amendment.

In light of the above deficiencies, I recommend that the Board formally declare that the Constitutional amendment was not validly adopted. It should then commit to strengthening its processes, and to conducting future AGMs in a transparent and procedurally correct manner.

Eli Mina is a Board Effectiveness consultant, meeting mentor and Registered Parliamentarian. Since 1984, Eli has served his clients by chairing contentious meetings, demystifying the rules of order, preventing and dealing with Boardroom problems, and minute taking standards.  Eli is the author of "101 Boardroom Problems and How to Solve Them", "Mina's Guide to Minute Taking" and other books. Eli resides in Vancouver, Canada.  His website is www.elimina.com

Oh dear. It would be very unwise for Fidel to attempt to act on this unreliable vote. A zoom chat is not a reliable corporate record, and positive comments are not the same as votes. It also sounds as if the positive comments were not the only comments and there is no enduring record of who voted for or against the proposal.

Even though the chair declared the resolution carried, it would be safer to mark the result as 'indeterminate' and to withdraw or rescind the motion. It sounds as though more work is needed to engage with the Members and explain why the cost reimbursements are proposed, how the quantum was calculated, and how the loss from the Covid time can be recouped even with the increase in costs.

Ideally the chair should write back, apologise, and withdraw the decision. He should also apologise for the way the vote was handled. That might not be something the chair will do.

In which case either Fidel will need to persuade the board to enforce these actions and have another director (likely Fidel himself) implement, knowing that the chair is opposed to this. Or the board may need a new chair.

Either way, Fidel will have to push through some uncomfortable experiences to reposition this board as trusted governors of the organisation. Attention to detail and sound process is only part of that; the more arduous part will be rebuilding trust with the Members through respectful and transparent board operations.

Julie Garland McLellan is an experienced non-executive director and board advisor based in Sydney, Australia.

As a member of the board Fidel has to make sure that the organization is not disturbed by doubts concerning a minor question, considering the wider management responsibilities. As there was no precaution made to ensure the accountability of the vote, he should:

• act swiftly and courageously to clear the situation
• contact the Chair and argue for a written confirmation of the vote (by mail or online) by every member of the shareholders meeting
• to avoid further dispute, the precise process should be determined by the board of directors in writing and published to the shareholders up front

By safeguarding the reputation of the chair and the board by confirming the result of the vote, which consists of considerable emotional tension as benefits of the board - volunteers or not - are at stake, Fidel ensures that he as well as the rest of the management stay on top of the game.

An ongoing dispute about the travel allowance of board members and the possible mishandling of the vote in the AGM would hinder all upcoming decisions, big as well as small ones. The undisputed ability to act is the most important task Fidel should ensure. A reputational disaster, even though Fidel is not the primary victim of it, will lead to unmanageable obstacles which have to be avoided by swift action - that's what management is there for.

Dr Julia Zdrahal-Urbanek is Co-Founder Women Corporate Directors Austria, Non Executive Director Gebrueder Ulmer, and Managing Partner ALTO Executive Search GmbH / AltoPartners Austria. She is based in Vienna, Austria.

In the given scenario, Fidel, as a director of the national NFP company, is faced with a situation where there is a discrepancy between the voting outcome at the AGM. Here's a practical advice for Fidel to navigate through this situation:

Review the constitution: Fidel should carefully review the company's constitution to understand the specific requirements and procedures for amending it. This will provide clarity on the process that should have been followed during the AGM.

Consult with the chair: Fidel should have a private conversation with the chair to discuss the discrepancy and seek clarification on how the voting was conducted. Understanding the chair's perspective will help Fidel gain insights into the decision-making process.

Communicate with the member: Fidel should respond to the member's request for proof of voting promptly and professionally. Explain that the matter is being looked into, and assure the member that their concerns are being taken seriously.

Collect evidence: If possible, Fidel should try to gather any available evidence to support the voting outcome. This may include screenshots or any other documentation that demonstrates the voting results and participation in the online session.

Seek expert advice: If the situation escalates or becomes legally contentious, it may be prudent for Fidel to seek advice from legal experts or governance professionals. They can provide guidance on the best course of action to resolve the issue.

Transparent communication: Throughout the process, it is crucial for Fidel to maintain open and transparent communication with all stakeholders. Regular updates on the progress of the investigation will help maintain trust and confidence in the board's decision-making process.

Review voting procedures: As a learning opportunity, Fidel should suggest a review of the company's voting procedures, particularly for hybrid meetings, to ensure clarity, accuracy, and transparency in future meetings.

It's important for Fidel to handle this situation with integrity, ensuring that the company's governance processes are followed appropriately, and that all stakeholders are treated fairly and respectfully.

Get better Board Papers - Are you less than 100% happy with the papers that your board receives? I have recently updated my one-day training course on Writing Better Papers.

New content now includes best practice on preparing papers for use with board portals, writing compelling recommendations, and the process for handling questions prior to the board meeting. If you want to attend, I shall be hosting a public course in Sydney on 15 August. View course details.

If you would prefer an in-house course for your executive team, please call or email me, or ask your training department to contact me at julie@mclellan.com.au to find a date that suits.

Video resources - I post short video insights on LinkedIn. They disappear after a few days. You might like to visit (and please subscribe to) my YouTube channel to see the videos whenever you want to watch them. Let me know if there are any topics you would like to see addressed.

Board review - Every board - just like every other team - needs to measure its performance if it hopes to improve. When your board next needs to conduct a performance evaluation or a governance review, please remember that I would be delighted to help. If I can help, please contact me at julie@mclellan.com.au.

Book Review - Presenting to Boards: Practical Skills for Corporate Presentations

A book of practical skills and tips for making successful board presentations.

Much is at stake when one makes a Boardroom presentation. Presenters are asking for consideration and decision-making at the highest level; gaining acceptance of new strategic proposals; making high-level sales involving significant investments; or building shared understanding and common identities. The ability to present effectively to boards is often important to career success.

Yet presenters are often unaware of the dynamics acting upon a director. Board protocols, behaviours, and legal liabilities may be very different from those in executive life. Understanding the boardroom environment is therefore fundamental to presentation success.

Most information on presenting is designed to help reluctant presenters to survive their ordeal. Very little is written or taught about how to excel and how to meet and surpass the expectations of highly discerning corporate audiences. Yet that is what boardroom presenters must do.

This book provides practical skills that will help make your boardroom presentations successful.

Written by an internationally acclaimed expert on corporate governance and filled with real life anecdotes and helpful tips, this book is a 'must read' for any executive who aspires to succeed in presenting at the highest corporate level.

Available at Amazon.com

Inspirational quote for August

A note on names - A few readers have asked me where I find the names for the protagonists in each case study; I 'borrow' them from people I meet or things that I read. Fidel is an old Latin name. It means loyal, faithful and sincere. Fidel will need to live up to his name as he resolves the dilemma his board faces.

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. They are greatly appreciated. I will answer them all eventually. I could not write this newsletter without your help and without the generous help of all the experts who respond each month to the case studies.

Be a contributor - if you would like to attempt a response to the dilemmas for publication you will be most welcome. Simply reply to this email and let me know. I am always on the lookout for new talent from around the world so please reach out if that sounds like something you could do. I am also always grateful for the generous sharing of the current and past contributors. I couldn't create such an engaging newsletter without their help.

Let's connect - I use LinkedIn to share information about boards and directorship with my friends and acquaintances. If you use LinkedIn and we are not yet connected I will welcome a connection from you. You can find me at linkedin.com/in/juliegarlandmclellan.

Farewell until the next issue due 1 September. I look forward to greeting you again then.

Enjoy governing your companies, it is a privilege!

Best regards,
Julie

Main photo by Mubariz Mammadli at Pexels.com

Quote illustration by Julie Garland McLellanMclellan

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 and do not constitute legal advice. 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.

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