Letting go of a dysfunctional director

Where no term limits are set via regulation, Code of Corporate Governance, the Board Charter of Articles of Association, Board appointments are assumed to be for life. Where term limits are in place and Directors don’t perform or outrightly misbehave, they inevitably complete their terms. Many Boards find it difficult to remove a Director who adds no value to the Board or who is indeed dysfunctional.

The position of a Directoris seen as- 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 is therefore quite unusual to see Directors resign from office – even in the face of ill health which causes them to be absent from several Board meetings.

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 four times a year (excluding committee meetings and other Board related activities), 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 role effectively and ensure that the identified gaps are taken into account by the nominating shareholder/s, such that only those candidates who meet the defined criteria and would fill the identified skills gap are recommended to the Board.

A dysfunctional Director is one who does not contribute to Board effectiveness. He/she is that Director who is often absent at Board meetings. He/she is that Director who is always unprepared for meetings not having read Board papers – easily spotted by the kind of questions they ask or the comments they make. He/she is that Director who is never willing to offer a dissenting view or challenge the status quo. He/she 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/she is that Director who has an overbearing or domineering style that suppresses dissent or diversity of opinion. He/she 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” –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. Accordingto 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 – where the erring Director is the Chairman) 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; listens to and respects other views; acts as a useful resource; and fosters healthy interaction amongst Directors.

A bad score should put the Board Chair (or Lead 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.

The Board is responsible for its own effectiveness. This responsibility should not be lightly treated. Rather than hurdle in small groups during coffee breaks to complain about one of their peers who is so obviously badly behaved, decisive action should be taken in the interest of all stakeholders.

 

Bisi Adeyemi