Rooting out Dysfunction on the Board of Directors

0
319

By ADEYEMI Bisi

TUE, 6 AUGUST 2016-Except for regulated entities subject to Corporate Governance Codes that impose term limits on Directors, many board appointments are assumed to be for life. Thus even where there are term limits and Directors don’t perform or out rightly misbehave, they inevitably complete their terms. In Nigeria, Directors are hardly ever removed. It is also not fashionable for Directors to resign.

The position of a Director is seen – and rightly so –as one of high office. Depending on the size and “prosperity” of the appointing entity, it would typically come with a few perks and a lot of prestige. It however comes with loads of responsibilities which may not always be commensurate with the “benefits”. But that is a matter for another day.

Directors have individual and collective responsibility to provide oversight to Management in ensuring the maximization of shareholder value and protecting the interests of relevant stakeholders. The role is not a ceremonial one and should not be so treated. Given the fact that most boards meet an average of five times a year, it becomes imperative that all Directors contribute equally to the effectiveness of the Board.

Achieving effectiveness begins with the process of appointing Directors to the Board. Given the ownership structure of many companies, Directors are typically appointed as representatives of substantial shareholders. Whilst this right is inalienable, a proactive Board should define criteria for Director Selection to guide the nominating shareholders and not treat such nominations as fate accompli. The Board should periodically assess the competences and skills set required to ensure it continues to perform its oversight functions effectively and ensure that the identified gaps are taken into account by the nominating shareholders.

A dysfunctional Director is one who does not contribute to Board effectiveness. He is that Director who is often absent at Board meetings. He is that director who is always unprepared for meetings not having read board papers. He is that Director who is never willing to offer a dissenting view or challenge the status quo. He is that Director who never declares a conflict of interest but is more often than not personally interested in matters that come up for Board approval. He is that Director who has an overbearing or domineering style that suppresses dissent or diversity of opinion. He is that Director who wants to be the CEO – constantly second guessing her and seeking to micromanage.

So what does the Board do about a dysfunctional Director?

Many Boards address the issue via the Director attaining the “retirement age” – fixed in a roundabout way by the Companies and Allied Matters Act at age 70 (and sometimes by the Board Charter) or via term limits. However, where a dysfunctional Director is not anywhere near the retirement age or still has several years to go under a fixed term regime, what should the Board do?

If we concede that the recruitment process might have been flawed, why then is it difficult for the Board to call out a dysfunctional Director for disruptive behaviour? Traditional Boardroom decorum and collegiality prevent Directors from criticizing a fellow Director. Boards find it easier to fire a CEO than to remove another Director. According to Nadler, Behan and Nadler in their book “Building Better Boards”, a willingness to address director performance problems is the hallmark of effective board leadership.

An annual evaluation of individual Director Performance enables the Chairman (or the Lead Director – a phenomenon the draft FRC Code now seeks to introduce) identify and give feedback to dysfunctional Directors and also reinforce the values of a well-functioning Board. The evaluation takes the form of getting feedback from peers on how an individual Director can better contribute to the effectiveness of the Board. A well administered peer assessment that assures confidentiality of Director Responses is quite useful in this regard. Typical questions would include whether or not the Director brings useful skills and experience to the Boardroom; comes prepared to Board meetings; helps with business development; acts as a useful resource; and fosters healthy interaction amongst directors.

A bad grade should put the Board Chair (or Lead Director in the event that the Chairman is the dysfunctional Director) on notice and prompt him to call such a Director to order. According to James Nevels, founder and Chairman of The Swarthmore Group “when the dynamic between a director and management is not going well, it is incumbent on the Chair to confirm with other Board members that the person is disruptive and enlist their understanding and aid. That consensus gives the Chairman the moral suasion and explicit authority to remedy the situation” (Boards that Lead, Charan, Carey&Useem).

Once a performance issue has been brought to the attention of a Director, he should be given the opportunity to remedy the situation. The second stage would involve coaching the Director who may indeed not be aware of his disruptive behaviour. However, if the problem persists or simply cannot be resolved, the Chairman must manage the process so that the Director can depart with dignity. A departing director has to be given a graceful way out so as not to burn bridges or create a rift within the Board.

ADEYEMI, Bisi is the Managing Director DCSL Corporate Services Limited. Email:badeyemi@dcsl.com.ng|www.dcsl.com.ng

DCSL 90X780

LEAVE A REPLY