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

Contribution by Sonal Agrawal, Managing Partner Accord India / AltoPartners Global Operating Committee Member and AESC Main Board Member

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 - October 2020

Our dilemma this month looks at the dilemmas facing a board whose company has outgrown the founder’s ability to govern effectively.

Amelia chairs a not for profit board that has successfully grown the company from less than $2,000,000 turnover to over $20,000,000. The company was founded by an individual with passion and drive who brought several of her own family members into the company to support her in delivering the mission. The founder was CEO for the first few years and is still an executive director, although a professionally qualified sector specialist was recruited last year to take on the CEO role.

Amelia and most of her board and staff has affection and respect for the founder; she is a formidable advocate for the cause. However, she has been finding it hard to step back, even though she recognised the need for a more professional CEO as the company developed systems and governance appropriate for its current size. Amelia can’t countenance a return to the previous ‘ad-hoc-racy’ style of governance and management. She is proud of how well the company is performing, financially, competitively, and in relation to accepted governance standards.

The Founder helped to select the new CEO and said during the recruitment process that she would not challenge the new incumbent. Unfortunately, she has not been able to live up to her aspirations and, rather than supporting and mentoring the CEO, has taken to undermining her and the board. Amelia now regrets that her board allowed the Founder to remain on staff, looking after donor relations, as she is fomenting dissent. The CEO is very uncomfortable and has offered to leave.

Amelia needs to do something. The CEO has phoned her, in tears, on several occasions; the situation can’t be allowed to continue. She is asking you for advice on how best to proceed.

What would you say?

Sonal’s Answer

This happens in corporate boards as well. As Chair, Amelia has a fiduciary duty to all stakeholders but in a non-profit, the long-term welfare of the beneficiaries needs to clearly guide Amelia’s decision-making process.

This is not about affection for Founder; this is a governance issue. Even if there are valid concerns about the CEO, these must be addressed within a framework and not in an ad hoc way. Disruptive behaviour, no matter how well intentioned, cannot be allowed to overshadow the needs of the company and its beneficiaries.

Amelia needs to consider the following:

1. If efforts to counsel the Founder have been unsuccessful, Amelia must engage in a hard discussion with the Founder about the legacy she wants to leave. This must lead to a three-month wind-down plan for her to gracefully exit any sort of executive involvement. Since the Founder is a passionate advocate, she could be tasked with an appropriate ambassadorial role, with no executive authority, and clearly stated operating protocols.
2. While always acknowledging the founder’s contribution, the Board must clearly and publicly indicate support to the beleaguered CEO through positive statements, to reassure the CEO and team.
3. Help the CEO bring in her own team to remove any remaining dysfunctional elements, to ensure she has a team that is aligned and committed. Set review protocols that clearly address the Founder’s concerns, if required.
4. The CEO is described having frequently been in tears due to the conflict. She might also benefit from support through executive coaching on managing adversity and establishing authority.
5. Failure to act decisively may result in a painful and protracted battle of wills, leading to attrition at all levels, which may damage the company in an irreparable manner.

Good luck!

Julie’s Answer

A director must not disrupt management in delivery of tasks that the board has delegated. Nor should any executive subvert the authority of the CEO.

Amelia should instruct the CEO to get a legal opinion on the substantiated behaviours and the reasonable consequences for an executive. This will provide a defense against accusations of unfair action against the Founder in her executive role. It is possible that the behaviours constitute gross misconduct and merit dismissal.

She must talk with the Founder and inform her that her behaviours will not be tolerated. If her employment is extended, there must be clear written agreement on expected standards and immediate removal from her executive role if these standards are breached.

The transgressions as as a board member, whilst equally serious, are harder to address. If the employment is terminated and the Founder wishes to remain on the Board a ‘holiday’ should be requested to provide time for both parties to cool off and compose themselves. If the employment continues and the Founder wishes to remain on the Board the ‘holiday’ won’t add value.

If the directors want the Founder to leave the Board they will need to ask for her resignation and, if this is not provided, hold a Members’ Meeting to ask that she be voted off. With a popular and high profile Founder that outcome may not be achievable, however, if behaviour does not change, it should remain as the ultimate option.