Sections of this topic
Recent calls by the governance advisory community for the individual voting record of each director to be disclosed to shareholders are missing an important aspect of boardroom dynamics – joint and several liability.
Within a board, each director should feel that they can, and will, be held to account for any, and all, of the decisions of the board. The prospect of a director saying, in effect, “Don’t blame me; I didn’t vote for it” is utterly dismal. Such a director would possibly also feel able to shirk responsibility for devising solutions to problems that ensued from a course of action he or she had voted against. That would be divisive and could dangerously weaken the board by removing insights, knowledge, and moral support from the team making the rectifying decisions.
There is a big difference between informed consensus on a strong board and weak directors who pander to and support the decision of the majority.
When a director, as all board of directors must at some time in their careers, finds him or herself disagreeing with a course of action that the majority of the board wishes to implement it is imperative that he or she continue to disagree until satisfied that:
- The decision will not materially harm the company in the short term
- Implementation will provide information that can then be used to decide if, and how, to continue
- The proposed actions are broadly in line with the expectations of all shareholders
- There is a review point at which the whole board can reassess the decision
- The opportunity cost is affordable, and
- The decision is legally and morally defensible.
If a director finds that the rest of the board wishes to implement a decision that violates one or more of these statements then the safest thing to do is resign. This board is not serving the shareholders’ interests and it will be dangerous to remain associated with it.
If a decision meets these tests but is not to the director’s liking it is for that director to propose an alternative that will better serve the needs of the shareholders. If there is no better alternative to a course of action that is affordable, in line with shareholders’ expectations, in the interests of the company, legal, and capable of being halted at a later stage if adverse effects become apparent then there is no reason to oppose the decision.
Much depends on the trust that the individual director is able to place in his or her fellow directors. If it is believed that these are honorable people, who will stop and reassess when if say they will, and who are working in the company’s (or shareholders’) interests then a director may allow the board to proceed even if, personally, he or she would prefer not to. If the decision, once taken, will then be allowed to run an unexamined course or if a review is not also a point for reassessing the direction (often serving, instead, to determine bonuses for completion of certain stages) then a director may be loath to proceed even with assurances.
Chairmen, in particular, should ensure that their boards are scrupulous in living up to any commitments that have been made to gain approval for a decision. They must also be patient and allow dissenting directors to find a point to which they are comfortable to proceed. In the long run, a board that is confident and able to form true agreement on each and every decision is far stronger than a board where factions and spurious majorities can force the board’s hand on important decisions. If the voting record shows 100% agreement on all substantive issues that should be a good thing. The true measure of the caliber of individual directors should be the time and diligence with which the whole board seeks consensus and the unanimity with which they endorse and support decisions once they have been made.
What do you think?
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Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website and LinkedIn profiles, and get her book Dilemmas, Dilemmas: Practical Case Studies for Company Directors.
