The Director’s Dilemma – March 2019 Edition

March 01, 2019
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Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

Contribution by Albert Froom, Managing Director at Leaders Trust International in Zeist / AltoPartners Netherlands. Albert is a founding member of AltoPartners and he was the Chairman of AltoPartners from 2006 to 2009. He is currently Global Practice Leader of Financial Services and a member of the Board Practice.

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The Director’s Dilemma - March 2019

This month our case study protagonist faces an unforeseen dilemma that will require policy to be made in response to a situation that has appeared out of the blue. These are the ‘interesting’ things that sometimes happen to test our ability to think ethically and decide on a course of action that maximises the outcomes for all concerned.

Ica is the external independent chair on a domestic subsidiary board of a multi-national company. It is a pleasant, collegiate board and includes the national MD, who resides in-country, and the international business development manager and the MD’s line manager, who are both based overseas.

Recently one of the senior executives, who does not have a board seat but reports to the board, asked for a meeting with Ica. She made time to meet him as soon as she could. At the meeting the executive informed Ica that he had got into financial difficulties following the failure of some private investments for which he had borrowed capital. He was about to file for bankruptcy and wanted to know how this would impact his job.

Ica wasn’t sure. There did not seem to be any policy which set out what the company should do under these circumstances. She knows that the MD likes and values this team member. She feels the same, and has assured him that the company will do what it can to support him through this difficult time. She recommended that he talk with his MD and with HR.

Now Ica is wondering how her desire to help this employee can be turned into a policy to give guidance and support to all staff. What issues should she consider and address?

Albert’s Answer

Where lies Ica’s dilemma? Is it a moral dilemma or is it a legal dilemma?

As an external independent chair of a subsidiary of a multi-national company, Ica can argue that it is not her problem at all. She could say, wrong address, go to your line manager; probably the MD of the subsidiary. This is also what she recommends AFTER an interview with the executive.

So probably Ica feels it as a moral dilemma, because there is no policy and it is a successful executive. If there is a known policy (thus created at HQ, known to the whole group of companies) one does not have a moral dilemma, but a known corporate governance policy; comply or explain.

Bankruptcy can be read differently in different cultures. In the USA, is getting back on your feet after a bankruptcy perhaps a plus for the executive. In Europe the bankruptcy could be seen as to have taken too many risks, which might be a sign of irresponsibility, so a minus for the executive. A global policy will therefore be very difficult. Besides it is private matter. A cultural dilemma too.

If the executive will be fired because of this, without a policy from the company, I think he would have a solid case before court. Ica should investigate these risks.

Julie’s Answer

No board can plan and have policy in place ready for every situation that may occur!

A collegiate and respectful board that supports the executive team is well positioned to make difficult ethical decisions, considering all the facts, and respond to events as they emerge.

First the board need to consider the legal background to the issue. Ica owes her duty to the company; not the executive concerned. She needs to consider both the role and the performance and potential of the executive to ensure that she acts to improve the long-term value of the business, rather than from any feelings of friendship. Next, she should consider legal constraints to helping the executive. Does this executive fulfil any functions that have a statutory obligation of solvency? Fortunately for Ica this executive does not have a board seat; directorships cannot be held by anyone who is an undischarged bankrupt. If there is no statutory restraint on the executive remaining in his position, Ica needs to then consider the nature of the position and any practical considerations such as the inadvisability of having the executive handling cash, etc.

If Ica can verify that there are no factors that would cause the executive to be ineffective in his role she, and her board, need only to note the bankruptcy and resolve that there is no impediment to continuing the employment relationship. If the role needs to be changed to better manage the risks, the board should resolve that and delegate implementation through the CEO.

Next Ica needs to ensure that her HR professionals are up to speed on any administrative matters, such as garnishee orders, that will need implementing.

Finally, the board should consider the need to treat the matter with tact and sensitivity. This is a ‘need to know’ issue best kept among a small group.

The next edition will be published at the beginning of April 2019

Albert Froom
Managing Partner, Global Practice Head Financial Services AltoPartners Zeist