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

Contribution by Keith Labbett,Managing Partner at Osprey Executive Search / AltoPartners Toronto

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 - August 2021

This month we consider how to handle a director who acts for nominators rather than the company.

Jaron chairs a not for profit board and is increasingly worried about unity and confidentiality.

One of his long-standing directors has the unwavering support of a group of long-standing company members. This director always considers the needs and wants of his cohort when making decisions. He prioritises these over ideas that are clearly in the best long-term interests of the company, such as encouraging younger members to join or supporting gender and cultural diversity strategies.

It’s obvious that this director is not listening when others speak at the board meeting; he has consulted his supporters and made up his mind. He votes against proposals that make clear sense and have the support of the rest of the board. Jaron would prefer consensus decisions but can’t allow this one director to halt decisions indefinitely. His board has made numerous majority decisions over the past few years.

The company members are largely unengaged and don’t turn up to AGMs or vote for director elections. The troublesome director will likely continue to block constitutional reform, such as term limits for directors, to gain re-election. His cohort are often more than fifty percent of the attendance at the AGM.

There is evidence that board discussions, minutes, and papers are leaked to the troublesome director’s support group. Some have talked publicly about CEO remuneration and major contract awards.

Jaron has spoken with the director and been rebuffed. His response was “I support the people who elect me, and I’m not interested in all your ideas about change”.

What can Jaron do?

Keith’s Answer

This seems like it could be larger problem than simply cooperation. Is there a conflict of interest (sharing contract information for personal gain) and/or breach of privacy laws (CEO remuneration)?

I would advise that the Chair take a deep dive into the organization’s governance by-laws and laws governing not-for-profits in their jurisdiction. Can the board member be found guilty in violation of any of these laws or negligent in duty as a Board member? If so, what is your legal duty as Chair to the organization? Can the board member (and cohorts) be removed because of this?

If they are not guilty or negligent, I would suggest having a face-to-face meeting and asking what is their motivation in regards to the organization and for being on the board of the organization (including all members in these one on one’s). Maybe by inquiring about their motivation the Chair will be able to manage this member or the cohorts to be cooperative.

Julie’s Answer

This director is not Jaron’s biggest problem. The issue that gives rise to this behaviour is the lack of engagement of a wider group of company members which allows a small group to dominate the AGM and elect their chosen representative regardless of performance in the role.

Stakeholder engagement is a board role. It is not to be unthinkingly delegated to management. If members are disengaged to the point of apathy, then the board must task management with developing strategies for greater engagement and ensure that these work when implemented.

Most importantly, this board needs to get out of the boardroom and listen to members. They should try to find out what the unengaged silent majority think and feel about their organisation. They should also reach out to their dissident colleagues’ support group and find out what they think and feel. Why do they support a director who votes against proposals that make sense? What is driving their support of one individual rather than the good of the organisation? The emphasis should be on understanding, not on changing their minds.

The constitution and board charter possibly have requirements that directors act in good faith and maintain confidentiality. They are impossible to enforce without goodwill. Until the board has the support of members, they will not be able to appeal to members to remove a director for breach of the requirements. Once the board has the support of the members, they will probably find that this issue has been resolved.