Dealing with Disputes in the Boardroom

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In accordance with their fiduciary duties to the organisation, directors have a responsibility to implement good governance. The board is expected to operate collegially. Each director brings to the boardroom their own particular skills, knowledge and experience, and has a duty to apply that skills, knowledge and experience. An effective board seeks to stimulate the flow of ideas, identify key issues, consider alternatives and make informed decisions. To do so requires often-vigorous debate, which can sometimes turn into conflict, but there are many more reasons why issues might arise. Such disputes must be dealt with as soon as possible, since if left unresolved, they can undermine the board’s effectiveness and the organisation’s performance.

 

While most organisations will have policies and procedures to deal with complaints or grievances by customers, staff and the public, there is often a reluctance to deal with conflicts in the boardroom. Such conflicts include those:

  • Between directors;
  • By a director regarding a board policy, process or procedure; and
  • By a director regarding a resolution of the board.

In further discussing boardroom disputes, it is necessary to distinguish them from specific types of disputes that may involve the board such as shareholder disputes or a clash over related-party transactions – these require legal advice. Instead, I will focus on simple ways that can help the board to resolve disagreements and in some cases prevent some conflicts altogether by creating a productive board environment.

 

To achieve these goals, the following steps may assist:

  • Ensure the alignment of directors with the organisation’s fundamental purpose for existence (Who are we? What do we do? Why do we do it? For whom do we do it?) and its core values – when a director’s personal values are compatible with the organisation’s core values, there will be less conflict and more effective decision-making in the boardroom;
  • Clarify the roles of the board and management including the roles of the chair, CEO and individual directors;
  • Establish sound board processes, e.g. an agenda that focuses board discussion on strategic matters;
  • Ensure the proper flow of information – nothing can sour the relationship between the board and management more than directors not being given the data they need to make fully-informed decisions or feeling that they are not being told the full story about organisational performance;
  • Encourage a board culture that allows for effective discussions, debates, and deliberations: – The chair can do much to establish and maintain a healthy balance in director participation and to rein in dysfunctional behaviour;
  • Encourage directors to get to know one another and members of the senior management team – scheduling dinners the evening before and/or boardroom lunches on the day of the board meeting will help in this regard;
  • Incorporate dispute resolution into not only the organisation’s culture and practices, but into the board’s as well, e.g.:
    – The board charter or other policy provides principles and procedures for resolving disputes;1
    – The board has a code of conduct that directors are made aware of upon induction to the board – in some cases directors may be asked to sign the code of conduct to show they have read and understood its implications for boardroom behaviour;
  • Conduct regular board evaluations that incorporate individual director self- and peer-review and investigate topics such as group dynamics and the chair’s leadership abilities to act as an early warning system of possible issues.
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    The above steps are the result of having had to help resolve a number of board disputes, which could have been avoided if the boards and individuals involved had had a clear idea of the role of the board in the first instance.2

     

    1. You can find a complimentary example of a dispute resolution policy you could adapt for your board here.
    2. For more on improving boardroom dynamics to avoid disputes, see G. Kiel, G. Nicholson, J.A. Tunny, & J. Beck, 2012, Directors at Work: A Practical Guide for Boards, Sydney: Thomson Reuters.

     


     

    James Beck will be speaking at the Better Boards Conference 2015 on preparing for strategic planning and decision-making. Register online now.

About James Beck

James is Managing Director of Effective Governance, a privately-owned advisory firm that provides expertise and assistance on corporate governance, strategy and risk in Australia and New Zealand to a wide variety of clients including public and private companies, not-for-profit organisations, associations, co-operatives and government owned corporations.

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