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

Contribution by Dr Julia Zdrahal-Urbanek, Co-Founder Women Corporate Directors Austria, Non Executive Director Gebrueder Ulmer, and Managing Partner ALTO Executive Search GmbH / AltoPartners Austria. She is based in Vienna, Austria.

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 2023

This month we advise a not-for-profit board that has badly damaged its relationship with the Members.

Fidel is a director of a national NFP company that formerly met in person at different locations every month to connect with stakeholders and staff. Covid put a temporary end to that practice and, when the board looked to resume in-person meetings, they reviewed their constitution. It looked as if refunding travel expenses (which they had previously done) would be in breach.

The board decided to amend the constitution at the AGM just to be sure. The AGM is held as a hybrid in-person and on-line event.The company lost $90,000 last year and the board members are unremunerated. The AGM came and the Chair put a resolution to amend the constitution and provide ‘an allowance’ for directors’ travel and accommodation attending meetings. The allowance requested was $100,000 per annum which seems high compared to the previous year’s loss but reasonable given the cost of airfares, hotels, meals and ground transport for a board of ten directors that meets monthly.

There were twenty people in the room and - according to the chair - 120 online. The people in the room voted against the resolution. The chair said the people online voted overwhelmingly in favour and declared it passed. Later in the meeting there was a question from the floor about how, given they can’t see or hear the online people, members in the room could know the voting and chair responded he counted the raised hands on the screen of the zoom call.

Now the member has written asking for proof of the voting. The zoom chat shows that twenty-one people commented, mostly in favour. The list of participants is no longer available.

What should Fidel do?

Julia’s Answer

As a member of the board Fidel has to make sure that the organization is not disturbed by doubts concerning a minor question, considering the wider management responsibilities. As there was no precaution made to ensure the accountability of the vote, he should:

• act swiftly and courageously to clear the situation

• contact the Chair and argue for a written confirmation of the vote (by mail or online) by every member of the shareholders meeting

• to avoid further dispute, the precise process should be determined by the board of directors in writing and published to the shareholders up front

By safeguarding the reputation of the chair and the board by confirming the result of the vote, which consists of considerable emotional tension as benefits of the board - volunteers or not - are at stake, Fidel ensures that he as well as the rest of the management stay on top of the game.

An ongoing dispute about the travel allowance of board members and the possible mishandling of the vote in the AGM would hinder all upcoming decisions, big as well as small ones. The undisputed ability to act is the most important task Fidel should ensure. A reputational disaster, even though Fidel is not the primary victim of it, will lead to unmanageable obstacles which have to be avoided by swift action - that’s what management is there for.

Julie’s Answer

Oh dear. It would be very unwise for Fidel to attempt to act on this unreliable vote. A zoom chat is not a reliable corporate record, and positive comments are not the same as votes. It also sounds as if the positive comments were not the only comments and there is no enduring record of who voted for or against the proposal.

Even though the chair declared the resolution carried, it would be safer to mark the result as ‘indeterminate’ and to withdraw or rescind the motion. It sounds as though more work is needed to engage with the Members and explain why the cost reimbursements are proposed, how the quantum was calculated, and how the loss from the Covid time can be recouped even with the increase in costs.

Ideally the chair should write back, apologise, and withdraw the decision. He should also apologise for the way the vote was handled. That might not be something the chair will do.

In which case either Fidel will need to persuade the board to enforce these actions and have another director (likely Fidel himself) implement, knowing that the chair is opposed to this. Or the board may need a new chair.

Either way, Fidel will have to push through some uncomfortable experiences to reposition this board as trusted governors of the organisation. Attention to detail and sound process is only part of that; the more arduous part will be rebuilding trust with the Members through respectful and transparent board operations.