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Berkonomics

So, your board is dysfunctional. What to do?

It happens. Boards are elected by the shareholders, sometimes with preferred shareholders holding seats by right of their investment.  In that instance, often the investor selects the board member and the CEO goes along with the choice, mostly out of having no alternative at the time.

How the board can arrive at dysfunction

Then there comes the first – or better yet the fourth – meeting of the board following the appointment of a new member.  Remember that the board must by law be acting completely on behalf of the best interests of the company, not the investors, in all deliberations of the board.  For the first several meetings, all parties usually play nice as they get to know the company and each other.

The noisy and dominant, or bullying board member

Some board members come to the table with preconceived notions about the capabilities of current management.  And some board members show their colors in the form of being dominant, hushing their peers and often interrupting others.  Sometimes this board member or another seems to always change the subject to their own agenda during meetings, including challenging management, sometimes by attacking individuals (called argumentum ad hominem), rather than their ideas and statements of vision, fact, or judgement.  And some board members are just bullies, alienating the rest in a single sentence or meeting.

Have you been lucky with your board?

[Email readers, continue here…]    If you have never experienced such a board with members out of sync and out of sorts with each other or the rest, you have been lucky.  But you have missed one of the great challenges of your business career, depending upon the importance of the board, the size of the company, and the immediacy of decisions resulting from these events.

Who is responsible for taming the beast?

If you are the chairman, the CEO or lead director, it is your responsibility to return the group to the core issue and even move to another agenda item if running the meeting.  And if that does not work, temporarily adjourn the meeting to speak individually (and alone) with the offending board member out of earshot of the others.  Describe how the actions of that person affect you and how you see them harming the board itself.  If you get nowhere and you believe your cause to be just and perhaps representative of the group, return to the meeting and air the problem out with the entire board.

And what if the beast cannot be tamed?

What if the person continues with his or her personal agenda or continues to disrupt?  I have had this experience more than once.  The solution I chose was to approach the VC, or another partner of the angel group, and explain the problem.  I would do this only if the problem was seen in consensus by the rest of the board.  In one instance, this brought about a replacement board member much more attuned to the duties and culture of the corporation.  In the other, the offending board member did back off in subsequent board meetings.

What about designated board seats?  Can you change?

Designated board seats cannot be changed because of investment documents. In the worst of situations, you might ask another partner of the investment firm for an alternate board member. For non-designated board seats, the solution may be to propose a slate of board candidates without the offending person to present to shareholders for a vote at the next annual meeting, if board members are elected annually.

Alternatively, it is effective – even if confrontational and emotional – to just ask the board member to step down and allow for another to be elected.  And if that person is the CEO, the board will find a more effective solution not at all to the liking of the CEO.  That too has happened in my board career.

And public boards can be the worst… My story

In one extreme case, I was a member of a public board whose members could not agree on anything substantial, each claiming that the value of the company would be damaged in the market by proposed actions.  In this case, the board was not held together by a strong chairman or CEO.  I felt it my duty to suggest, then strongly support, discussions about merging with another company, which the board ultimately did.  In a merger, egos sometimes dictate who survives at the board level (and at the CEO level), and offending board members from one company are rarely retained.

Preventing a step toward mediocrity

Board members can be very professional in comportment and in their exercise of their duties.  Or not.  Putting up with bullies, or those with obvious conflicting agendas not in the best interest of the company, is a step toward mediocrity.

#Berkonomics  #Boardofdirectors  #companymanagement #DaveBerkus

  • Arthur Lipper

    Boards are dysfunctional, in part due to the conflicts of interest and relationships with those nominating them. D&O insurance protects directors but
    does not assure better decision-making in the interests of all of the shareholders.

  • Very good article on dysfunctional BODs and remedy options. Having been through this, one comes to appreciate how problematic it is and how difficult things can be to resolve – given the various personalities, agendas, feeling of self-importance, contrarian behavior, emotions, bias, naivety, etc.

    The good thing about getting past these issues is it demonstrates company leadership has the resolve and vision to move forward – or not. This is a test of strength or weakness – which goes directly to reducing or increasing risk respectively.

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