Welcome to the Aug 2014 edition of The Director's Dilemma.
Boards operate best when each director trusts each other director to adhere to the jointly accepted governance processes and policies as well as the relevant laws and regulations. This month our real life case study considers what to do when that trust is lost.
Consider: What would you advise a friend to do under these circumstances?
Jake is a club chairman. The former chairman resigned after a major disagreement with the rest of the board which arose because the former chairman signed a major contract. When the board discovered what had happened they were furious that a large decision had been made without involving them. The former chairman stormed from the meeting and resigned in writing the following morning.
The Board then acted without a formal chair, directors took turns to chair the meetings, until the next election. During this time the board rewrote the by-laws which previously allowed the chairman to sign contracts after verification by the treasurer that doing so would not lead to insolvency. They adopted new by-laws that stated no director, including – for absence of doubt – the chairman and/or treasurer, could commit the club to any contract, expenditure or course of action unless approved in a duly constituted board meeting.
Jake was not previously on the board and was elected unopposed after being invited by the treasurer to stand for election. He is a successful businessman but has no experience with consensual board decision-making. He has now discovered that the club is wallowing because recent decisions have not been made in a timely fashion. His fellow directors are numerous, factionated and indecisive. The CEO has low delegations and the constitution envisages that the chairman, CEO and treasurer should make decisions between meetings and use the board to ratify strategy, engage members and provide oversight. The amended by-laws prevent the constitution from working but don’t provide an alternative workable model.
The board reacted with horror to a suggestion that they soften the new by-laws but don’t appear willing to improve their own performance so the club can operate under the new by-laws. Staff performance reviews and bonuses are soon to be agreed and Jake is fairly certain that his board will not make rational decisions or support the CEO’s recommendations. He knows that he needs to act decisively to avert disaster but doesn’t know where to start.
How can Jake create an environment that allows for effective management of the club before this situation spirals out of control?