How often do your board members disagree? How often should they disagree?
After all, directors should be appointed for their independent views and their dedication to the organisation. An important corollary of independence and dedication is – or should be – a willingness to stand their ground when challenged.
Yet PwC’s 2019 Annual Corporate Directors’ Survey showed that more than two-fifths of directors find it difficult to voice dissenting opinions. The categories and results were:
- Director re-nominations: 26%
- Director refreshment policies: 12%
- CEO/executive pay: 10%
- Company approach to diversity/inclusion: 8%
- CEO succession planning: 7%
- Public policy/social issues: 7%
- Company strategy: 5%
- Director recruitment: 4%
- Crisis preparedness: 3%
- Company risk appetite: 3%
- None, not difficult to voice a dissenting view: 57%
These numbers should be cause for reflection. Without encouraging dissent for its own sake, we nevertheless want our directors to engage each other directly and defend their views robustly. When done in a respectful, collegial fashion, this is how boards deliver good governance – by vigorously debating different views, then arriving at a consensus decision.
As we know, board members have specific fiduciary and legal obligations. As was discussed at Diligent’s Modern Governance Roadshow, it’s important that board minutes accurately reflect every director’s contribution. With increased scrutiny from legislators and stakeholders, this is even more important. No director wants to be in a position where the minutes don’t accurately reflect their contribution. Similarly, no director wants their silence on a matter to be held against them.
It’s also the case that directors have an obligation to dissent from decisions they do not support. In such cases, their dissent should be noted for three critical reasons:
- The dissenting director may gain protection against legal liability arising from the decision
- Other directors may reconsider their positions
- Shareholders will see from the board’s voting records the director’s position
In the wake of recent governance scandals across the globe, regulators are subjecting boards and their deliberations to increased scrutiny – which makes good governance even more important. How, then, can boards constructively manage conflict and disagreement?
A well-informed board is an effective board
The first step is to ensure all directors are well-informed. This requires more than just good board packs; it also requires a board culture that mandates preparation and participation.
Adopting a Modern Governance approach is one of the most effective ways to promote good board performance. It entails deploying a unified platform to provide secure messaging and board collaboration tools, including board packs, voting and information sharing. With these tools, directors will find it easier to access and digest the information they need.
Creating the right culture is perhaps more difficult because it relies on every director being aligned and focused on protecting and promoting the company. This culture includes directors preparing diligently for board meetings as well as taking care with the minutes to ensure they accurately represent all expressed views.
Make space for disagreements
It’s okay for directors to disagree. As noted above, the goal to promote vigorous discussion. Board composition plays a role here: a more diverse board, with a greater range of skills and experiences, will generally enjoy more robust debates. These will benefit the organisation as nuances that escape one director may be perfectly obvious to another.
We’ve seen that diversity is business-positive. As McKinsey notes, “research makes it increasingly clear that companies with more diverse workforces perform better financially”, and this extends to the boardroom as well. HBR research has confirmed the link between management diversity, innovation and profitability.
Most importantly, governance professionals must create a ‘safe space’ in the boardroom for directors to disagree and to assure them that the minutes will accurately record their contributions.
This can help give directors confidence to speak up without fear of their views being sidelined or misrepresented.
Finally, regular board assessment is a vital component in helping manage the board. True dissenters – who don’t share the organisation’s values and are unwilling to make positive contributions – should be identified and their views addressed.
Perhaps they have genuine concerns or reservations about the organisation; in such cases, these should be addressed. This may result in the director changing their view or the organisation changing its position.
But if an accord cannot be reached, then it may simply be the case that the director isn’t a good fit for the organisation. Such situations are regrettable, but they highlight the importance of careful screening when appointing new directors.
Running a company isn’t easy and effective board collaboration is a crucial ingredient of corporate governance. The board of directors It’s important for the board of directors to make good decisions. Disagreements will always arise; one sign of a good organisation and a strong board is to manage them constructively.
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