Welcome to the August 2009 edition of The Director's Dilemma newsletter. I hope you find it interesting, informative and inspiring.

I advise Boards and Directors on complex and challenging issues which can be resolved in a variety of ways. Each way has different pros and cons for the individuals and companies concerned. Every month this newsletter considers three responses to a real issue. Which response would you choose?

"Belinda is a director of a large NFP in the performing arts industry. The company has had good artistic successes but has lurched from financial failure to financial salvation relying heavily on grants and emergency donations to prevent it from becoming insolvent. The board has improved governance by attending training courses and implementing project planning and financial controls. This stabilised recent financial performance but the CEO found the processes irksome and resigned. The board drew up a job specification for a new CEO based on the planned and desired future performance of the organisation. Financial responsibility and commercial acumen were rated as being of equal importance with artistic merit. The board was delighted when a candidate was found to meet (and exceed) all the criteria. The candidate had great experience in the private sector and was accustomed to delivering outstanding artistic performances and generating profits. When the candidate became the new CEO many of the senior staff resigned en masse. The remaining staff members are proving 'difficult' and refusing to accept the authority of the new CEO. Staff have openly rebelled against the CEO's authority, letters have been published in the press complaining about 'philistines' on the board and vilifying the CEO. The new CEO is very stressed and has offered to resign. What should Belinda do?"

Anthony’s Answer

It is the Boards job to hire and fire the CEO. If the board had been diligent when it appointed the CEO, the Directors would have considered the risk of some employees not being happy with the decision.

Presumably the Board considered this possibility and decided that the benefits of appointing the new CEO outweighed the risks of losing key staff. In essence the board made the decision to appoint the CEO in the best interests of the organisation.

Hindsight is a wonderful thing, however when an appointment is mission critical and a board wants to ensure that they don't lose key staff, it's a great idea to get the mission critical people involved in the selection process prior to their appointment by the board.

In this way, key staff can have input into the appointment having understood the brief and the strategic imperatives of the Board.

Given that the board has made this decision, it must move towards trying to resolve the conflict that exists between the CEO and the staff. This should be done by convening a meeting facilitated by the Chairman with senior management explaining the need to support the new CEO and the reasons for his selection.

In my mind the board and the CEO must work together to impress on the remaining staff that their support of the CEO is critical to the success of the organisation (and their job security).

Staff cannot dictate to the board in regards to who should be CEO. They need to be informed that the board has selected the CEO and advised that they need to work with him. If they can't do this, they should move on.

In my experience, staff that call board members 'philistines' and vilify the CEO do not understand the financial imperatives of organisation and the duties and responsibilities of its Directors.

The board should not accept the resignation of the CEO and should ensure the financial soundness of the organisation by supporting the CEO during this period of transition. This may lead to short term pain, howeverit will lead to the best outcome for the organisation in the long term.

Anthony Joy is Managing Director at Striker Group and has experience as a non-executive director.

Julie’s Answer

What is the vision for this company?

Is it a wildly innovative, cutting edge vehicle that will allow the performing arts community to try and develop new skills even at the cost of its own viability and existence? Or is it a lasting part of the artistic community that must look first to its own survival and then to an artistic profile that will ensure viability?

There is nothing intrinsically wrong with either, or with transitioning from one to the other. But it is important to recognise that they will be governed differently and will need very different executive leadership.

It appears that Belinda's board has chosen the viability option. The board should discuss and confirm this choice. The board must publicly endorse the CEO and present a very united front during this transition.

The staff who were happy to pursue art at the expense of viability can be expected to leave. Those that remain must be engaged with the new vision and the board should support the CEO in implementing a process of change to assist in building acceptance and support.

A code of conduct should ensure proper chain of command, respect and a cessation of letters to the press from current employees (letters from former employees are beyond the board's control). The Chairman may respond if the board feels it right to do so. Belinda should inquire about the impact of staff resignations on the business. The board must have a rational plan for the processes and costs for obtaining replacements. Board unity and support for the CEO are essential, as is a well thought out plan that is properly communicated to all stakeholders including staff. Change is not easy, but if the board are committed and prepared to work hard then they should eventually succeed. Of course, if the board really made the wrong choice in selecting this CEO they must admit and correct their mistake fast (treating the new CEO with respect even as they terminate the employment) before moving on with the selection of a replacement.

Eileen’s Answer

Here are some thoughts that might be helpful...

The Current Crisis: Internally the organization is in transition. This requires a clear goal and shared vision, which is a basic principle of change management and critical to successful change.

A few individuals unable to accept significant change is normal. Staff may struggle with change in general; with understanding their specific role; or with a strong personal commitment to prior leadership. There will also be those who simply don't agree with the new direction. In the latter case, it is time for them to go.

In this case though, there is a large number of very vocal staff, which indicates a serious gap between the board's vision and the staff's commitment.

A good CEO coming into an organization in transition should make it a top priority to communicate the new vision and goals, quickly clarify staff roles, and drive the organization forward, starting with the leadership team. Yes, this may mean replacing the entire leadership team. The organization is behind in this process and the CEO will need to be very strong and persistent. I would strongly recommend an outside business coach to help the CEO. The board's role, of course, is to support the CEO through this process.

Public Relations: If this has damaged the organization's public image, it is worth an investment in a public relations firm that can help the company rebuild its image and retain public support.

Board's Organizational Knowledge: There is also an important underlying organizational issue that needs to be addressed. There is a perceived gap between the board actions and the on-the-ground activity of the organization. There are many ways for the board to address this without becoming involved in the day-to-day operations: from quarterly interactive staff presentations; to a "volunteer day" for board members to work hands-on.

The key is for the board to be in tune with the pulse of the organization and for the staff to be committed to the direction the board has set.

Eileen Herzog is a Consultant at the Council of Community Services of New York.

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 have been changed to ensure anonymity.

What’s New

Book review – Directors do a lot of reading. I keep a note of my thoughts on each book I read. Here is my review of Learned Optimism by Martin Seligmann. All boards could do with some optimism at the moment! This book shows how to develop it.

Video Tips – Thank you to all the people who have commented favourably on the videos. Personally, I hate seeing myself on the screen. The videos are on my website

Where’s Julie? – A few readers manage to catch up with me on my travels and it is such a pleasure to meet them that I now divulge my non-confidential travel plans each month. Where events are open to the public I list the organiser and title. Where events are private I can only meet before or after the function and cannot divulge details.




August 1


AICD: director careers briefing

August 2


AICD: Company Directors course

August 13


AICD: Company Directors course

August 14


Thoughtpost Governance: lunch. We will be discussing shareholder governance.

August 18


Acorn Training: Introduction to Government Sector Governance

August 20


AIM: Evening seminar on Presenting to Boards

August 25


Liquid Learning: Corporate Governance Masterclass for the public sector

August 27-28


IIR: Government Boards in Australia course

August 14


Thoughtpost Governance: lunch

Please call or email me if you would like to schedule a meeting.

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. It is (still) free.

Suggestions for dilemmas – Thank you to all the readers who have suggested dilemmas. I will answer them all eventually.

Be an expert – I will post the next dilemma on LinkedIn. If you would like to feature next month just log on to my Q&A and type in your advice. I will pick the best answers to be published in the next newsletter. 

Farewell until next issue (due 1 September 2009). Enjoy governing your corporations; we are privileged to do what we do!

Best wishes

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