Welcome to the May 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?

Wendy is a qualified company director who is just starting her career, and a few months ago gained her first board position with a not-for-profit association. The constitution makes no mention of maximum tenure and although there are elections every year the board has a core of very long serving members.

The longest serving member, Jonathon, is one of the founders and has been on the board for 19 years. He opposes almost any new ideas and is a source of great frustration to the Chairman (a relative newcomer with only five years on the board) as he continually revisits old decisions and seeks to change them, delves into operational issues and spends a lot of board time reminiscing about the old days when the organisation was new and the board were united in their vision.

The Chairman has asked Jonathon to resign and even took the step of recommending a board approved candidate in the last election when Jonathon was due to stand. The members, oblivious to this, continue to vote Jonathon back in. Jonathon wants to remain on the board. The membership numbers are fairly stagnant and the age profile is increasing. The Chairman believes the board needs to develop some new strategies to attract new members to prevent the organisation fading into insignificance. He has asked Wendy, given her recent graduation from the Company Directors Course, to advise him on how to proceed.

Of course, the organisation has little money for a protracted legal battle and neither the Chairman nor Wendy want this to ‘get nasty’.  

How would you advise Wendy?

Giovanni’s Answer

The answer is: “Don’t”.

Antagonistic board forces should be harnessed for greater good. Let alone, they destruct.  Adequately framed, they bring balanced epiphenomenon. An underlying principle to achieve such an outcome comes from complexity theory: “the whole is greater than the sum of its parts”.

Wendy may advise her Chairman as follows:

  1. Revisit the organization’s mission, its relevance, and clarify success factors and their measure
  2. Assess each board member’s views
  3. With corporate sponsors’ support, organize a board’s off-site workshop session to bring to the fore core problems and brainstorm solutions. The agenda should cover:
    • Current status if mission is still relevant
    • Future mission if current is obsolete
    • Strategic (“back-to-basics”) or transition plan (“fresh start”)
  4. Surprise board members by inviting:
    • An organizational psychologist/coach to facilitate group dynamics, to make each director understand how they function as individuals and establish rules of engagement
    • Third-party subject experts to bring external and benchmarking perspectives
  5. Adopt a bottom-up/consensual approach to attain deliverables
  6. Ensure that, together with deliverables, a board matrix is drawn. Such a matrix will highlight each member’s strengths and what values each brings to the organization
  7. Following this workshop, any board member who doesn’t enhance the organization should feel compelled to step down. Vice-versa, an untapped amount of knowledge equity could be uncovered and unleashed for the greater good of the organization.

Giovanni Di Noto is Group Sales Manager at Sony Direct, Australia. He has created, developed and operated both conventional and digital businesses in Europe & Australia.

Julie’s answer

First be clear: Does this board member no longer add value or are they just not alike in their thinking and values? Excluding someone because you disagree is poor governance. In theory, the board may ask members not to vote Jonathon back in. In practice, if Jonathon still get the votes; the board may become dysfunctional.

First priority:

  • Prevent this problem from getting any worse. If five years is short tenure, board membership is stagnant. The constitution should be updated to include a maximum number of terms (usually three-by-three year terms or two-by-four year terms with, a Chairman sometimes getting an extra term). Existing board members should have their rights ‘grandfathered’ so that they support this. Other issues such as board size, meeting via teleconference, etc. can be inserted.

Next:

  • The board must recognise the contribution of long serving members. This should be celebrated and rewarded. A founding director deserves special consideration. Ask Jonathon what he would like when he steps down. How could his service be commemorated? An honorary life membership, leadership of a life-members council, patronage, and some (sincere) words of thanks are all possibilities. He must suggest his preference.
  • At the same time the Chairman must make his board work hard and discharge its strategic responsibilities to ensure the organisation grows and prospers. Increased commitment may oust members who are there for social reasons. Performance assessments can develop improvement plans for individuals and the board.

If these two actions don’t make retirement an enticing option they will at least assist in getting the board to function better as a team.

The board should consider strategies to increase membership and to increase engagement so that shareholders use their votes wisely. Leave this issue alone until members vote in a new candidate. The current members have voted for their preferred candidate. No professional director should ignore that.

Of course, if the Chairman just doesn’t want Jonathon on his team then the affair will get very nasty. Wendy needs to think carefully about her position. She may have to find courage to tell her Chairman ‘I can’t follow if that’s your direction’.

Jonathan’s Answer

Aside from the expense, any legal action, or even serious conflict among the board members, is likely to destroy goodwill among the membership in a not-for-profit organisation. Thus, legal avenues or other methods of trying to force Jonathon to leave should be avoided.

My initial strategy would be to try and understand what Jonathon is thinking and why he is acting this way. What does he believe in? What does he get passionate about? He is unlikely to be causing a problem just for the sake of it. If the Chairman and other directors can understand what motivates Jonathon, then they can re-frame their own thoughts and actions so they make sense to Jonathon.

For example, it seems clear Jonathon is passionate about a board “united in their vision”. Instead of focusing only on Jonathon, the Chairman should work with all directors to grow and strengthen a unity of purpose and direction. Perhaps a strategy-focused retreat would be useful to re-focus on the organisation’s mission, vision, and objectives? As unity builds among the Board members, Jonathon will be more likely to let go of unjustified dissent in order to maintain the unity he values.

The Chairman should also work beyond the board with the members and, through management, with the staff, to extend this consensus of vision throughout the whole organisation.

Once the board is more united and focused on its mission, it should be possible to openly explore issues of Board performance, evaluation, and training, leading to either personal or constitutional change to prevent the issue recurring.

Jonathan Arthur is CEO and a Director at Sydney BioInformatics. He is also a senior lecturer at the University of Sydney. He is not related to the Jonathon in this dilemma!

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 have been changed to ensure anonymity.

What’s New

Career tips – Many of the directors that I have helped with their careers in the boardroom are initially unsure of what will maximise their chances of gaining a board position or developing their board portfolio to become a viable full-time employment. I have developed some questions that I ask to help me understand what is blocking their progress. Here is a paper that may help you.

Book review – Directors do a lot of reading. I keep a note of my thoughts on each book I read. Given the current crisis I decided to review ‘Bait and Switch’ by Barbara Ehrenreich as it deals with the confusing array of consultants ready to ‘help’ people who have recently lost their employment. On a more positive note, I have also reviewed Hugh Gyton’s excellent book ‘The Art of Conversation’ which would be helpful to anyone networking, interviewing, or serving on a board.

Where’s Julie? – A few readers managed to catch up with me on my travels and it was such a pleasure to meet them that I have decided to divulge my non-confidential travel plans each month. In May, I’ll be in Singapore on the 15th and in Sydney on the 13th and 20th.

In June, I shall (of course) be at the Company Directors Conference in Cairns from 10th-12th; in Hobart on the 15th -16th , and in Canberra on the 18th-19th; and back in Sydney on the 24th. 

July is already booked solid and I shall be in Spain (Madrid, Barcelona and Alicante) from the 9th-20th of July.

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 in the June issue, 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 June 2009). Enjoy governing your corporations; we are privileged to do what we do!

Best wishes
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

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