Welcome to the May 2010 edition of The Director's Dilemma. I hope you find it interesting, informative and inspiring. If you are new to this newsletter, a compilation of the first two years of dilemmas has been published in a new book and is available at Amazon.com

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 several responses to a real issue. Which response would you choose?

Octavia is CEO of a not-for-profit organisation. She reports to a Board of 15 people and is finding it exhausting. The board members don't have a shared opinion about anything. They are all passionate about the mission but disagree on how best to deliver it.

The Board is diligent in reviewing operations and require extensive detailed reports at each meeting. These are analysed and discussed at length. There are often requests for additional information to be provided at the next meeting, between meetings or to a committee.

The company is facing some big strategic decisions and Octavia really needs an agreed strategic direction and risk appetite. She can't get the Board to agree on anything beyond the next few months' activities and even that is contentious. Every time she tries to get a long term commitment to a course of action she is met by requests for more analysis and then the Board debate the accuracy of the assumptions and data in the reports instead of choosing a course.

The staff are fed up with meeting the demands for information and she is concerned they will leave for organisations where their efforts will lead to something more inspiring than a pedantic board debate.

What should Octavia do?

Andrew’s Answer

The first question is who chairs the board meetings? If Octavia does, then she bears some responsibility for letting the debates get out of control. If she is not the Chairman, then she should go to her or him privately and explain that the discussions are becoming counter-productive, and that the whole organisation is suffering from a lack of a clear strategy. If this action fails to make an impact, then Octavia can either try to engineer a board coup by enlisting friendly directors to restrain or replace the Chairman, or she can threaten to resign.

In almost every case, especially in a Board as large as this, there will be two or three strong-willed individuals who are tugging the Board in different directions. The rest will be following, or at least trying to appease these leaders. Somehow, the Board must be persuaded that it is wasting the limited resources of a not-for-profit organisation, demoralising the staff, and leading the organisation off a cliff. Those most responsible for the divergent tugging should be persuaded to ease up, for the good of the Board and the organisation. If they are not prepared to be reasonable, then either the Board must change or the Chief Executive must resign, or both.

Ultimately, those upset with the lack of direction of the organisation might appeal to its constituency: those who fund it, and those who depend upon its services. But such an attempt to revitalise an organisation from outside is messy, difficult to engineer, and can even lead to the demise of the organisation. Whether to attempt such a solution depends upon how important she thinks the organisation's work is, and how indispensable she believes she is to the organisation. It is usually far better to resign, find another job, and leave the task of turning the situation around to someone else, who may often be aided by being a newcomer who has been brought in to solve a crisis.

Andrew Clearfield is President at Investment Initiatives LLC and a former member of the Board of Governors at the International Corporate Governance Network (ICGN).

Julie’s Answer

At the next board meeting Octavia should discuss the current short term focus and the danger to the organisation if it continues. Then she should set a date for tabling a strategy and make it clear that an agreed long term course of action is required.

The Board needs a clear, coherent strategy; directors should understand that once approved, the strategy must be implemented consistently. Every strategy will have risks and these must be understood and accepted by the Board. The risk appetite must outline acceptable levels for each key risk; the Board must be steadfast in allowing the organisation to pursue the strategy as long as those levels are not breached.

Prior to tabling her strategy Octavia must discuss with the Chairman the potential for disaster if the Board cannot unite behind a long term course of action. It will be better to achieve consensus on a less ambitious strategy than to embark on a more ambitious strategy with a disunited Board. A key facet of the Chairman's job is to build a true informed consensus.

If the Chairman agrees, Octavia may meet each board member, one-on-one, to discuss the key points of the strategy and ensure it is understood. She should not canvass support at these meetings, merely a commitment to understand the strategy. If the Chairman does not agree to one-on-one meetings Octavia should ensure that the plan is circulated well before the meeting and offer to answer any queries. Octavia's strategy may be drastically altered when the Board discuss it, but the outcome of the meeting must be a strategy that all the directors will support.

Every board member, at some time in their career, will support a strategy that is not their personal preference; this is not a problem as long as the strategy is appropriate for the organisation and does not imperil its survival. Any board member who puts their own personal preference ahead of the long term good of the organisation is not worth having. The Chairman should be willing to back Octavia and her staff to ensure they get the support they so desperately require.

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

David’s Answer

As characterised by enduring, successful organisations, the Board and the CEO team with shared values and culture to respectively set and guide - then execute - the strategy developed and presented. In Octavia's situation, these key elements are missing.

Octavia has some important leadership decisions to make, and either implement, or seek another direction. I suggest that the first of these is with her leader counterpart - the Chairman. She needs to have a frank discussion about the Board's lack of cohesion, the impact this is having on the Company and the management team, and the likely consequences should this situation continue. The Board as a whole needs to step up to its responsibilities and undertake dedicated effort to meet its inherent obligations; it is insufficient to just seek and debate management information - the paralysis by analysis effect.

From Octavia's position of addressing the issues, I would recommend to the Chairman a review of the Board and the development of a Board renewal agenda, consistent with the organisation's constitution. This will likely need experienced, professional, independent external facilitation to provide the necessary clarity to the issues faced.

Most importantly, the role of the Board needs to be clearly re-established, because the strategic direction developed and communicated appears to have 'drifted'; some professional training for Board members appears warranted. The Board structure (size and composition, and supporting committee structure) should be considered. With 15 members, the formation of appropriate supporting committees (using Board member skill-sets as appropriate) is also warranted. Audit and Risk committee review have important roles and responsibilities in this situation, and when correctly applied, should ease the current lack of cohesive direction. I would anticipate the need to develop succession planning, with an audit of the Board's future skill-set needs undertaken as part of the Board's review.

If the Chairman is unable or unwilling to exercise his leadership responsibilities and obligations, Octavia should consider the methodology and likely consequences of addressing these matters with the whole Board.

If still unable to gain an executable collegiate and 'teamed' decision, Octavia should evaluate her tenure and obligations, a most difficult decision for anyone who is caring and passionate about the organisation they serve.

David Willcox is a Company Director, Owner & Principal of Non Executive Management Pty Ltd, and a former Fighter Pilot with the RAAF.

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. 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 reviews – Directors need to read. It is a great way to learn from other people's experience. This month I have reviewed Bad Ground by Tony Wright. I have received a review of Dilemmas, Dilemmas: Practical case studies for company directors by Geoff De Lacy, of Polaris Consulting. Dilemmas, Dilemmas is now also stocked by the Australian Institute of Management (AIM) and available online or in their bookstore. Readers travelling on Qantas this month may also hear an interview about the book on the In-flight radio station 'Talking Business'.

Diversity – Over the coming months I am scheduled to give a number of talks and seminars on how to build a boardroom career. Dates for the public courses are provided below. Read this commentary on how qualification assists in supporting true diversity.

AICD Article – I was pleased to be asked to supply an article for the AICD NSW newsletter on how governance varies in different contexts. You can read a copy here.

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.