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

Contribution by Jaco Kriek, Managing Director of Search Partners International (SPi) / AltoPartners South Africa.

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 2022

Whitney is a director on the board of a large government owned utility business. She loves the challenge of the role and the ability to contribute to the provision of an essential service. Lately, however, she has begun to suspect that the board papers are not reporting all the facts. Risks appear understated and stakeholder interactions are all positive.

In the latest pack there is a paper that talks about a new project. Whitney is aware that several organisations tendered for the work and were surprised not to be shortlisted or granted a meeting to debrief on the tender. The paper provides a list of three organisations that tendered for the work and omits all mention of the ones she knows tendered unsuccessfully. It recommends, based on the selection criteria, that the project be awarded to the best of those three.

The company that the board is asked to approve the award of the contract is a reputable one and has done business in the past with Whitney’s company and many others. They are definitely a worthy business partner. Still, she is concerned that there is no mention of the other unsuccessful tenderers.

Whitney is reluctant to make any accusations, but also reluctant to sign off on awarding a contract when she believes management might have obfuscated some of the pertinent information.

What should she do?

Jaco’s Answer

As this is a Government-owned utility, it’s important for the Board to have full oversight of tenders - ensuring a fair process and that decision-making factors are factual and defendable.

Scenarios to consider:

• If the Chair is a strong and objective leader, Whitney should raise her concern with the Chair prior to the Board meeting. The Chair will request the CEO provide relevant information on the unsuccessful companies. It is easy to justify the request to the CEO, as a perception that the Company was unfair in awarding a tender or can’t clearly explain the decision might create a reputational risk;
• If the Chair is not a strong and objective leader, and perceived to lack the required authority, Whitney should consult the other independent Non-Executive Board members. If there are other concerned Board members, they could jointly request the CEO provide the additional information prior to the meeting, copying the Chair;
• If none of the above options are possible, Whitney should request the information from the CEO prior to the Board meeting and copy the Chair on the correspondence;
• If Whitney does not get the necessary response and support from the CEO, she should formally raise it at the Board meeting. If she does not get the necessary answers during the Board meeting, her concern should be recorded as part of the Board minutes. As a last resort she should then seriously consider her resignation, stating her reasons in writing. Her further participation as a Board member will be untenable as there is a serious breakdown in trust, which will be difficult to restore.

A lasting governance structure, post this issue, could take the following format:

1. The Board review the procurement policy and delegation of authority;
2. Tenders above a certain amount should be presented to the relevant Board Sub-Committee for approval (delegation of authority);
3. General information to be included in all tender reports to the Board: e.g. criteria, number of applicants, short-listed applicants and those companies that were turned down.

Julie’s Answer

Whitney needs to be careful that she doesn’t make any unfounded, and potentially defamatory, statements. She should start by documenting what she knows and how she knows it.

If possible, she should seek the primary source of her information about the other unsuccessful tenderers and get clear statements about whether the tenders were compliant, timely, etc. If not, she should write down who told her the information, when, and under what circumstances. She needs to clearly identify facts and assumptions. Once she has all the facts she can gather, if there is still a cause for concern, she should check with her colleagues if they have any similar misgivings about the papers. Is this a pattern or a single incidence of concern?

Then she should approach the chair and ask that the matter be discussed in-camera by the board before speaking with a united voice to the CEO and prior to launching an official investigation, ideally with an independent expert investigator.

Hopefully, this is just a case of sloppy reporting of a two-stage process or unfounded gossip. If it is proven that the tender was handled wrongly, then there is serious misconduct that will need to be carefully put right. It could be that the tender will need to be annulled, the successful party compensated (if they were not involved in any fraud), and a new tender process started.

Regardless of the outcome of her diligent research into the matter, Whitney needs to work carefully and document her steps.