The Director’s Dilemma – February 2020 Edition

February 04, 2020
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Produced by Julie Garland-McLellan, Consultant at AltoPartners Australia and non-executive director and board consultant based in Sydney, Australia.

This edition of the newsletter was first published on The Director’s Dilemma website and the full newsletter is available for viewing here. To subscribe to future editions of the newsletter, click here

The Director’s Dilemma - February 2020

This month our dilemma examines the implications of expectations of a ‘quid pro quo’ when asking people to assist a not-for-profit board.

arah sits on the unremunerated board of a not for profit that has the good fortune of owning its own business premises. The Chair recently invited an acquaintance, who has a deep experience in facilities management and property development, to join the board.

At the new director’s first meeting the Chair asked him to prepare a report on strategic options for maximising the value of the premises. There would be design constraints, but, if those are managed, there is potential to extend the building and give the company a more efficient and modern working environment as well as an income stream from rental of additional office space.

At the next meeting the new director presented a report and suggested that his firm would be willing to undertake the design work required to obtain the planning approval at no charge with the proviso that, if a permit was obtained, his firm would undertake the development.

Sarah pointed out the conflict of interest in this course of action. The board is now split, with half the directors wanting to take up the offer because it is a ‘no risk’ way to realise the potential and the other half wanting to engage an independent firm to do the design and/or construction even though this would require the organisation to expend precious funds with a possible risk of not obtaining a permit. The organisation does not have much cash in the bank and the building is its biggest tangible asset. Even worse, the Chair now seems to blame Sarah for the board disunity and has stated openly that “people like the new director don’t join boards without some expectation of a reward for their time, effort, and risk.”

How can Sarah help her board to regroup and proceed with good commercial sense as well as good governance?

Julie’s Answer

Legitimate expectations of reward for the time, effort and risk of service on an unremunerated not-for-profit board are:

  • the satisfaction of a job well done, and
  • the respect and consideration of your peers.

When recruiting a new director to join it is important to discuss the culture, expected contribution, and rewards of service on this board. Failure to talk at the beginning can lead to even more difficult conversations later.

Sarah’s board sounds dangerously passive. A good board would:

  • be involved in decisions about director appointments and suitability of candidates’ skills and culture fit.
  • discuss implications of any report on strategic options when the report was commissioned; before anyone ‘invested’ time and effort into investigating and writing it. be alert to conflicts of interest, which include aligned interests, and have a policy to manage these. welcome the raising of potential conflicts with a view to understanding the risks so as to make a better, more nuanced decision. Act as a cohesive team and seek to make decisions that all could support.

Sarah’s board needs to make a commercial decision about the potential costs of locking in a preferred supplier versus the risk of spending money on studies that may not bear fruit. They should apply their conflict of interest policy which will likely preclude the new director from taking part in the decision. It should not be an emotional or personal conversation.

Sarah should have a quiet word with the Chair, or Audit Committee Chair if that is more comfortable, and suggest getting this discussion onto the next agenda so that the board can move forward with unity.

Once they have documented their decision they can proceed with either course of action