May 2022 Bar Bulletin
By Al Davis
In our last article we discussed some of the difficulties with CEOs who can cause problems for a company. But, in many companies, the CEO reports to a board of directors. In this article we look at what happens when it isn’t the CEO that is having difficulties, but directors.
A dysfunctional board has the ability to cause havoc with a business or organization. Not only will a dysfunctional board often fail to make the decisions that are in the best interest of the organization, but the dysfunction of a board also has the potential to move outside of the board room, often creating negativity with employees and other stakeholders. Many of the issues outlined here come from our experience serving as interim management or in receiverships.
Much of what the board discusses should be kept within the organization. When directors do not keep this information confidential, problems often ensue. Directors may think they are simply sharing the information with close friends, but it could be misconstrued and released to stakeholders, causing undue stress, or shared with competing organizations. Leaking information is one sign of problems within a board.
Occasionally directors experience a lack of respect for the CEO and vice versa. This often happens when directors have been in place for a long time and a new CEO enters the company. All parties must develop respect for one another based on their common interest in working for the good of the organization in order to keep the board from becoming dysfunctional. A lack of respect between the various board members or factions is a sign that there might be dysfunctionality within the board.
Directors need to be on the same page when it comes to the future of an organization and its initiatives. If board members have conflicting agendas related to the direction of the organization, it will be hard for the board to make decisions. In addition to being on the same page as one another, board members must also be on the same page as the head of the organization. Conflicting agendas often represent conflict within the board and often the company.
Meetings involving the board should function in an orderly manner. If board members quickly jump from topic to topic, argue with one another or fail to discuss the most important matters at hand, the board is dysfunctional. Board meetings should contain a designated leader and an agenda to make them productive.
A meeting of the board can present a hostile environment, particularly when board members do not get along with one another. This type of environment stifles productivity and prevents board members from sharing constructive opinions. A meeting may become a venue for personal attacks rather than for focusing on coming to business decisions or providing constructive discourse.
While some information the board discusses should remain confidential, organizations should become concerned if a board regularly holds secret meetings or meet on an unofficial basis. Not only may some board members be left out of these meetings, but decisions could also be made without the input of crucial members of the organization, or with unethical motives.
Directors should not allow personal and political agendas to cloud their decision-making. If board members continually propose moves that would benefit them personally or take a political stance, the image of the company could be compromised. Personal and political agendas also lead to more disagreements among board members and often signal that the board is not focusing on the best interests of the company.
Employees in an organization must trust the board in order for the organization to be functional. If the majority of employees do not trust members of the board, the advice and decisions the board makes may be ignored or may lead to high turnover rates within the company, among other issues.
Directors should work as a team to make decisions to benefit the organization. The board’s ability to make the best decision is compromised when one or two board members are allowed to dominate the meetings. This may involve harassment of other board members, talking loudly to dominate the conversation or immediately shooting down any dissenting opinions. When certain members dominate meetings, the situation requires agreement as to how to make certain that everyone has the opportunity to participate.
Many boards are created by company owners or CEOs as a company grows. Often boards created in this way are based on personal relationships without regard for the member’s background or experience. Boards should consist of members who each have particular experience related to both the business of the company or overall business and finance. These members should be independent of ownership or management of the organization so that they will be in a position to make the often-difficult decisions that enable the organization to move forward.
Al Davis serves as Principal at Revitalization Partners LLC, a corporate and board advisory firm that specializes in restructuring and receiverships. He is a Court Appointed General Receiver in the State of Washington as well as an interim CEO and advisor to middle market companies. He can be reached at adavis@revitalizationpartners.com or 206.903.1855.