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

Contribution by Murat Kaan Güneri, Managing Partner of MKG & Partners / AltoPartners Turkey

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The Director’s Dilemma - June 2021

This month we look at a complex relationship between a board and a committee.

Howard is a director on a government-owned company board. As the only accountant on the board he was asked to sit on the audit committee. The Board Chair is the other board member on the committee. The Audit Chair is an independent financial expert who has been appointed to the role to ensure that the board has independent leadership and advice from the committee.

Unfortunately, because the Audit Chair doesn’t attend board meetings, he doesn’t always understand the context of items on the Audit Committee agenda. The Board Chair gets very impatient with the Audit Chair and she is occasionally quite rude and dismissive.

She has taken upon herself the role of keeping the board informed about issues the committee is considering. She has also started to usurp the role of the Audit Chair and run the audit committee meetings.

Management are feeling very vulnerable because they want to respect the Audit Chair, who sits on a number of other government committees and is generally well respected and liked. Management also want to please the Board Chair.

The CFO has asked Howard for advice on how to handle the situation which is starting to impact morale.

What can Howard do?

Murat’s Answer

Howard is the only one to have a clear picture of the entire context. Therefore, the request of the CFO to Howard seems to be the right step.

The root cause of the problem is the fact that the Audit Committee Chair does not receive the necessary information about the activities of the Board. Therefore, a system which provides for informing of the Chair should be in place.

The Audit Committee Chair is accountable for providing advice to the Board. Therefore, the detailed minutes and decisions of the Board should be forwarded to the Chair, immediately after Board meetings.

It looks that the Board Chair is not against the Committee Chair; she only gets frustrated because the Audit Committee Chair does not fulfill his duties, as expected by the Board. On the other side, the Board members are aware that they should keep satisfied both, the Board Chair and the Committee Chair.

Therefore, it would be best if they could establish a mechanism which provides the close collaboration of both parts. It would be wise to organize 1:1 informal meetings, between both Chairs, where the Board Chair would clarify her expectations about the issues of the Board and, where the Committee Chair would provide his recommendations about these topics, on a friendly environment.

Julie’s Answer

This is a difficult situation driven by people who are in a complex relationship and reacting rather than carefully and thoughfully responding to the situation. There is likely to be some clear guidance on how committee members relate to committee chairs in policies about committees and governance. This applies even if the committee member is the board chair; respect should always be given.

Independent audit committee members, who are not members of the board, are becoming common in the government-owned sector. They add value and give the shareholder confidence the board are not forming a view of the accounts or performance that might not be shared by a rational outsider. They also add complexity because standard governance practices do not easily accommodate this more distant relationship between boards and committees.

Howard should read the relevant committee and board charters, then check the legal framework and any guidance from government departments on how the relationships are supposed to operate. If there is nothing to prevent it, he could suggest some of the following:

• The Audit Chair attend board meetings as an obseerver and report verbally to the board on audit committee activities
• Howard takes on the Audit Chair role and the independent becomes ‘just’ a committee member
• The Board Chair leaves the Audit Committee
• Howard, or the Board Chair, brief the Audit Chair on issues at board level before each meeting

None of these will be a ‘silver bullet’. If something is not done, the situation will get worse and positions will become entrenched.