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

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The Director’s Dilemma - May 2021

This month our case study considers the spirit and the letter of the constitution when a non-profit organisation goes into unprecedented territory.

Gabriella is a director on both the state body (which she chairs) and the federated national body of a non profit health advocacy organisation.

The constitution states that directors must not be paid for their roles and that each state body may nominate one of its directors to be a director of the national body. Traditionally, the chair joins the national board. The national board often argue about where to spend funds as each state chair tends to favour his or her own state.

Two months ago the two largest state bodies merged. The merged entity asked for two board seats. They nominated the chair of the merged board and the CEO of the merged entity as their national board representatives.

The other states and the national board are unhappy. They fear this voting block could be a defacto takeover and will make the decisions on revenue collection and allocations for expenditure even more vexed than they are at the moment.

They are objecting on the grounds that the CEO is paid and therefore can’t be a director, and that the merged entity is now only one ‘state body’ so only gets one board seat.

The national chair is avoiding conflict and dithering over a decision, wanting to simply get legal opinion on the matter and then do whatever the lawyers recommend.

Gabriella is not sure that legal advice will solve the issues, she feels that there is more need for shared vision and leadership.

How can she help the chair to a better decision?

Julie’s Answer

It is time for the national board to unite and plan for a different future.

Gabriella should prepare a list of pros and cons of having two representatives of the same State-based organisation on the National board. She should then consider what new and valuable contributions would a CEO of a State-based company bring to the National board. How would the operational and industry detail inform decisions? Where would the conflicts of interest need careful management? Next she should consider the potential contribution of independent directors, who are not related to any State-based board, to the National board. She should also map out the cash-flows from members to the organisation and from the organisation back to members or beneficiaries in each State.

Gabriella is right to think deeply and strategically about this issue. The best legal opinion on the current constitution is not going to solve the structural and interpersonal issues her boards face. Gabriella needs to unite the board behind a structure and operating protocols that make good business sense.

She must acknowledge her own conflict of interest as a chair of a small state body with an interest in the balance of power on the national body’s board. Only then can she, with the support of the national board chair, build the trust that will be needed to take this organisation forwards to fulfill its important purpose.