Welcome to the April 2012 edition of The Director's Dilemma.

This newsletter provides case studies that have been written to help you to develop your judgement as a company director. The case studies are based upon real life; they focus on complex and challenging boardroom issues which can be resolved in a variety of ways. There is often no one 'correct' answer; just an answer that is more likely to work given the circumstances and personalities of the case.

Although these are real cases, the names and some circumstances have been altered to ensure anonymity. Each potential solution to the case study has different pros and cons for the individuals and companies concerned. Every month this newsletter presents an issue and several responses.

Consider: Which response would you choose and why?

James is a recently-appointed director on the board of a family business. He is the nephew of the founder and has worked in the business for several years since completing his MBA

He is concerned because the board meetings are all taken up with historical reports and endless discussions of 'who did what' and how it affected performance. There has been no forward-looking or externally generated information presented to the board in all the months he has been a member.

James knows that good boards operate at a strategic level and that his industry is changing rapidly with new technology and impending legislative changes. He has attempted to raise the issue with his uncle, who is now the company Chairman, but got brushed off with the statement that none of the other directors were complaining.

What should James do?

Cheryl's Answer

A family business, his uncle is the Chairman of the board, he's the new kid on the block, and we don't know how many other board members there are or their relative ages.

Things have been running smoothly, as per all the older board members and the Chairman, only James is questioning the operation and function of the board. Do they now conform to some structure or form that modern governance theory suggests they put into place? It would be very difficult for the new kid on the block to implement or even suggest changing things at this point if all are happy with the way things are running. He will be looked upon as dissenter, an upstart, a trouble maker, as the older members are relying on past performance and successes and are not addressing the present or future and as often happens, are missing the boat and stuck in the past.

I would suggest that James go slowly, and try to form an alliance with one, two or three of the board members who are sympathetic to his cause if he can woo them with sound thinking, logic, and enthusiasm. He will be more influential if he can communicate how his vision will increase profits and what the consequences will be of not keeping abreast of trends and technology. He needs support first before he attempts to buck the establishment, otherwise his words will fall on deaf ears and he will be voted down.

This is both an emotional and psychological game he must win and it's always trickier when it involves relatives. I wish him the best.

Cheryl Roshak is Founder and Principal of CatapultMe and Cheryl Roshak Associates. She is a former Vice President at Jerry Fields Associates Inc. and is based in New York, USA.

Julie's Answer

James is right; the board should be forward looking and playing a strategic role. He needs to remain confident in his judgement. He also needs to bring the board to share his view. This will require influence as he cannot control the board. Fortunately, neither can the Chairman.

A good place to start is the board agenda. James should volunteer to assist with board administration and place some items onto the agenda that will cause some forward looking discussion. I would suggest some 'for information' papers regarding the way in which competitors seem to be responding to the changes in technology and the legal environment.

James should read Prof. Robert Tricker's book International Corporate Governance and apply the 'Tricker model' to his board, using it to help him to build a balanced agenda with forward looking and historical reporting for both internal and external audiences. By starting with information papers James can get the board comfortable with the new focus before again suggesting that they play a stronger role in strategy. James needs to build a shared awareness of the range of future possibilities among the board members in order for them to provide useful input to strategy formulation.

James also needs to understand where the current strategy came from. He should be humble and offer to help and ask to be taught. It is quite possible that the current Chairman has had a personal interest in developing the strategy and will view James' interest as a threat. Careful and attentive listening will indicate his interest without being seen as threatening. Some authentic admiration will also assist in building a better relationship (but only if it is authentic) and James should balance inquiry with appropriate praise for the good company that the founder has created.

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

Mark's Answer

James should expect progress to take several months and not try for fundamental changes from day one, as this will most likely result in resistance from the Chairman and failure. He needs to accept that he is dealing with the successful founder of the business who, although comfortable with his 'winning formula', will be open to change if he sees it will make the company more successful.

He should ask the Chairman well ahead of the next meeting if an agenda can be circulated, in which case he should add items for discussion on the 'new technology and industry legislation' that is concerning him. It will help if he offers to circulate the agenda to make sure it happens, along with background information to aid the discussion. In this way some part of the next meeting will be focused on the future and so a change is beginning that needs to be repeated each meeting via specific agenda items.

He needs to start a dialogue with his board colleagues to encourage others who feel more discussion of the future direction of the organisation would be beneficial; there will be at least one who can help him bring about the necessary change.

Once the discussion of the future is becoming a regular feature of the board meetings and as a longer term goal, James should propose to the directors the benefit of appointing a Non-Executive Director who could directly assist the company with an outside and forward looking perspective. Timing of the proposal will be important as change in these types of situations will be a gradual process.

Mark Foster is a professional non-executive director and former CEO of the Gledhill group of companies based in Lancashire, England.

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.

What's New

Book review - Steve Jobs was amazing. I cried when I saw the headlines announcing his death. He built a wonderful company that made great products. He broke many rules, including most good governance recommendations, and made a huge dent in the universe. Here is my review of his biography by Walter Isaacson. RIP Steve.

New Book of Dilemmas - The second book of collected newsletters is now available at Amazon.com. If you enjoy this free newsletter please recommend the book to your board colleagues or simply buy them a copy! I would like nothing more than these books to be considered a case study reference that provides value and food for thought for board directors for years to come.

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.

She Business - I really enjoyed presenting to the members of She Business in Sydney on the topic of starting and developing a career as a director.

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 May 2012).

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

Best regards
Julie

www.mclellan.com.au | PO Box 97 Killara NSW 2071
email julie@mclellan.com.au | phone +61 2 9499 8700 | mobile +61 411 262 470 | fax +61 2 9499 8711