The Director’s Dilemma – May 2024 Edition

May 02, 2024 Share this article:

Directors Dilemma May 2024

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

Contribution by Richard Sterling, is the Managing Partner AltoPartners Australia and focuses on Board and C-suite appoints in the For Purpose and Social Impact sector. He has three decades of consulting, executive and board search experience and is based in Sydney, Australia.

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The Director’s Dilemma - May 2024

This month we consider whether a director has exposed herself to a risk of defamation proceedings in the course of discharging her duties.

Maisie joined a not-for-profit board, the first new director for many years. The Chair was also an employee and manager and there were no formal mechanisms for board oversight of the role, no annual appraisal, no interview process, no job specification.

For the past ten months Maisie tried to get the board to do something about these lacks. They declined to budge, citing all sorts of reasons. She was the only dissenting voice and thinks they resented ‘the newbie’ coming and creating waves. They also didn’t seem to understand that there was a conflict between being chair and manager or that change was needed. To be fair, the organisation does good work and has a positive societal impact.

Eventually, Maisie resigned and reported the organisation to the Regulator. Within a week of the Regulator contacting the company, the Chair resigned from the board, but retained the salaried CEO position. The chair has now threatened Maisie with legal action for defamation and for any potential loss of status or income.

Does Maisie have a problem?

Richard’s Answer

The former Chair’s threat of legal action may be a problem for Maise. However, it’s likely that the former Chair is venting for losing a cushy arrangement.

In the absence of Maise making disparaging or damaging statements there doesn’t appear to be anything defamatory. However, I would recommend that she take legal advice as a precaution.

The lack of formal mechanisms for oversight especially around the former Chair’s management position coupled with the resistance she faced from the board, indicates a major systemic issue.

Maisie’s decision to report the organisation demonstrates her commitment to upholding ethical standards and ensuring accountability. The resignation of the Chair from the board following the report suggests that her concerns have validity.

The good work and positive impact that the organisation is making doesn’t excuse it from the obligation, the ethics and the optics of exercising effective modern governance.

In this case governance translates to a board and a Chair that are independent of management.

This board must fulfill its responsibilities with the utmost integrity as well as minimised perceived, potential and actual conflicts of interest.

Maise was wise to resign as it appeared that she was encircled by ignorance and perhaps ill-will since making the report to the regulator. Not a acceptable situation to be in.

Her efforts to advocate for change may lead to positive outcomes for the organisation but only if the current board members take a course as to their obligations and make the required changes to meet governance standards.

Julie’s Answer

Anyone can allege defamation at any time. It is always a risk.

Maisie could have a problem if she made allegations about the former chair’s conduct that she did not believe were true or that she did not clearly communicate as ‘potential or perceived’ conflicts of interest rather than ‘actual or malfeasant’ conflicts of interest. If she can either prove the truth of any allegation, or can prove that she merely communicated the risks of perceived conflicts, she should be safeguarded.

Unfortunately, the fact that it was your duty to raise the issue is not a defence against a claim for defamation. Directors need to raise issues cautiously and carefully, with proper legal advice taken at the time.

Good protocols around the confidentiality of board discussions and minutes will help Maisie. Directors that gossip about who said what in meetings could strengthen a case brought against her.

Good practice in minuting that the board considered potential or perceived conflicts of interests, rather that attributing the raising of the concept to any individual director will also help.

If proceedings are brought against Maisie, because it was her duty as a director to raise the matter with the board, if the board has D&O insurance, and if it continues after the directors’ tenure has ended, then Maisie may be able to claim.

In future, Maisie should conduct better due diligence about who is on the board and what conflicts might be apparent before she joins her next board. She should also check the D&O cover before accepting another board seat.

Personally, I would assume it is just a cheap blow from someone who resents the impact Maisie had during her short tenure on the board. She did her job, and it is likely that the Former Chair won’t feel like risking litigation unless she continues to speak about him after her job is done.