Welcome to the February 2008 edition of The Director’s
Dilemma Newsletter. This is the first edition and I hope you
find it interesting, informative and inspiring.
In the course of my work advising boards and directors I
encounter complex and challenging issues. There are often
several different ways to resolve the issues. Each way will
have different pros and cons for the individuals and companies
concerned. Every month this newsletter will address an issue
with the assistance of some governance experts that I admire
and enjoy working with. Compare the various possible responses
to the situation. Which response would you choose?
Here is this month’s ‘mini case study’:
Melissa joined the board of a major utility company
with some very exciting strategic challenges. She noted that
the constitution called for one of the board members to be an
employee representative and saw that the current incumbent had
a long track record of employment there. She thought it would
be interesting to have his views in the boardroom. The other
board members were the usual mix of former civil servants,
lawyers, accountants and senior executives. Apart from the CEO
and the union representative, all board members were
On joining Melissa discovered that the board was
hopelessly dysfunctional. The employee rep leaked sensitive
information to employees and/or the union and seemed
unconcerned about the long term well being of the company. The
other directors had taken to having discussions without him
(these were not minuted and often had few proper papers).
Decisions at board meetings were based on resolutions in the
board papers with no supporting documentation as documents had
been leaked in the past. The minutes were so brief as to
record nothing other than the resolutions passed. The Chairman
and CEO would occasionally meet and make decisions which were
then communicated to the Minister before the board heard about
What should Melissa do?
Melissa has an advantage being new to the board. She has
the fresh perspective and therefore can use that to offer the
Whilst she will still be forming her relationships, she
needs to assess the receptiveness of the directors and
consider how to influence them. Most people become defensive
and resistant when they are criticised. Her emphasis needs to
be one of the intent of adding value, enabling things to be
more effective, including understanding how it got this way.
Equally, Melissa needs to get very clear about what is
acceptable and unacceptable for her continued involvement with
A serious question - Are these directors aware of their
breaches and the possible consequences to themselves as well
as the organisation? Some people don’t link risks and
Melissa needs to raise this with the Chairman and ask for
an agenda item on board performance to include discussion of
the code of conduct and corporate governance accountabilities.
This discussion needs to include how to hold each other
responsible whilst still maintaining mutual respect.
This is a scenario of avoidance. Leadership requires you
step up to the challenge skilfully not find the path of least
Cornally is a strategic leadership advisor to
Chairman, board directors, CEO's, managing directors and
senior executives, specialising in leveraging leadership
A conversation with the chairman is essential to enlist
support for fixing matters and to find out what has been tried
already and why it failed.
Melissa could also try talking with the employee rep; he
would probably welcome a friend. This could alienate Melissa’s
other board colleagues. Educating the employee rep in the
duties of a board member may help. Give him or her a copy of
the judgement in Bennetts v. The Board of Fire Commissioners
of NSW. Nominee directors often suffer from conflicted
loyalties and don’t know how best to resolve their conflict.
Getting the board agreed about one project they all support
would be a good step; can Melissa see something suitable in
the strategic plan? Developing a charter or a new vision for
how the board could work would energise and unite the members.
Melissa could use her newcomer status to help her be a
catalyst for change.
The shareholder can, at a special meeting, remove a
director but, in the case of a director appointed after a
ballot of employees, this will be politically unpalatable
Changing the constitution and removing the director is a last
If change does not come Melissa should talk with the
auditor (in this case the auditor general) and, if she still
cannot succeed, should resign and make her reasons for
resigning known to the shareholder and chairman (but no-one
The Board of this company are like ingredients that have
not yet been combined properly to make a delicious cake. They
are operating individually rather than a board team with the
interests of the company as a whole at heart.
I would talk to the Chairman about my concerns and seek an
undertaking to establish:
- Protocols for the employee nominee in terms of
- A process for briefing staff directly by the Board
(rather than from the employee);
- Protocols for when and how the non-executive directors
meet, including when it is legitimate to call a meeting,
notice, agenda, papers and minutes; Protocols for when and
how the Chairman and CEO make decisions (i.e. power of
delegations) and a process of informing and/or review for
those decisions by the Board;
- A board and director evaluation within the next 12
- A review of the Board structure (possibly in conjunction
with the Board evaluation), possibly involving the Minister
or their Department.
If I was unsatisfied with the Chairman’s response I would
ask to have these issues placed on the Board agenda for
discussion. If there was a failure to have these issues raised
or adequately discussed I would consider talking to the
Minister or their Chief of Staff if I felt it was in the best
interests of the Company do so. Failing that, I would consider
resigning, the question being whether I would tell the
Minister why, if I had not done so already.
Andrew Donovan is a non-executive
director and board adviser, with a current interest in the
hotel and hospitality industry.
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 on the issue. Names and
some circumstances have been changed to ensure anonymity.
Reporting to the Board - I have developed
this new training course for the Australian Institute of
Company Directors. It was piloted on 30 January and initial
feedback was very good. More information is available at www.companydirectors.com.au/education
Is your audit committee effective? - In
November I spoke at the CPA and IIAA conferences in Melbourne
and Sydney. A paper highlighting the key points is available
for free download from my website.
Unite and focus your board - a governance workshop helps boards to focus on
how they choose to play their role in the success of the
organisation. These workshops are brief, only one hour long,
and take place in the context of a board meeting. They contain
a 20 minute presentation on key governance issues facing the
board and a 40 minute discussion on possible actions the board
Book review - Directors do a lot of
reading. I like to make a note of my thoughts on each book I
read. Here is my review of Inside the Boardroom by Richard
LeBlanc. This newsletter - I will
issue The Director’s Dilemma monthly for 11 issues then evaluate
how it is performing. If you have any ideas for improving the
usefulness or attractiveness of the newsletter please let me
know. If you would like to forward it to friends, please do
but please ask them to subscribe to it on my website so that
they get their own copy in future and I can see where the
letter is going.
Well, that is all for this month.
Enjoy your roles governing Australia’s corporations; we are
privileged to do what we do!
www.mclellan.com.au | PO Box 97 Killara NSW
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