Board diversity reinforces the breadth and robustness of experience, skill, knowledge, background, and heterogeneity of members of the Board. Board effectiveness is hinged to a large extent on its diversity across these broad areas. Conversely, a diverse Board as a collection of individuals, each with his or her perspectives, interests, and concerns, could also imply a propensity for conflict and where not efficiently managed, such conflict could escalate into full-blown crisis. Disputes, once they arise, must be resolved as soon as possible, to forestall jeopardizing Board effectiveness or indeed negatively impacting the organisation.
Crisis on the Board could be caused by various reasons including, a clash of dominant personalities on issues of appropriating company assets and exploiting corporate opportunities, executive mismanagement of company resources, and continuous erosion of shareholder value. A key issue in corporate governance is the balance of power on the Board, hence the introduction of the concept of Independent Non-Executive Director (INED). Where the Board is fortunate enough to have an effective INED, the individual is able to provide the required stability in cases where the Chairman is at the centre of the crisis.
In a crisis, especially where the stakes are high and scrutiny is intense, the Chairman is primarily responsible for taking the initiative to find an amicable resolution and steer the Board through the crisis. The Chairman should lead the Board to develop a long-term crisis resolution plan. At the onset of crisis, there is a tendency to respond quickly and act swiftly– even before properly scoping the full extent of the crisis and its implications for the entity. The Board resist the urge to act spontaneously and must be able to continue to function despite the uncertainty presented by the crisis. Once the full extent of the crisis is determined, the Board should work together to articulate an amicable resolution.
An effective crisis management strategy must begin with the Board. Ira Millstein advised that when boards are selecting new directors, they should consider the capacity of potential board members to respond constructively to distress and to help the company prevent it. Directors should take the initiative in solving their challenges and disagreements using the most constructive means possible. Individual initiative, negotiation skills, informal mediation skills, diplomacy and objectivity are qualities that all directors should have and nurture.
It is imperative to codify a Dispute/Crisis Resolution Policy that will be easily activated in the wake of a crisis. The Policy will incorporate the use of internal and external resources in resolving the crisis situation. Generally, and unless otherwise counterintuitive, recourse should be had in the first instance to internal resources before consulting external resources. The Board should also have access to a range of tools, including the Board Ombudsman, for highly confidential, informal problem-solving assistance to resolve sensitive or contentious issues. For problems that require a formal investigation, it is best to hire a qualified third party to undertake this. Resort may also be had to mediation or arbitration for full-blown disputes involving multiple parties. The Board Ombudsman is a valuable resource for the Board, with the potential to resolve conflicts swiftly, quietly, and effectively.
Managing internal and external communication should be at the top of the board’s priority list when dealing with a crisis. Whilst not suppressing the true state of affairs, positive, lucid communication that reassures internal and external stakeholders that the Board and Management are fully in control of the crisis should be put out in a constructive manner. Where communication is not handled effectively, a crisis could easily degenerate into a disaster. Periodic updates should be provided proactively by a designated individual – depending on the nature of the crisis, this could be the Chairman or the CEO.
Crisis on the Board is typically not triggered by an isolated event. More often than not, a culmination of events with unintended consequences suppressed over time may result in a crisis. Where Directors are not able to freely express dissonance in the face of a dominant Chairman or CEO, there is a tendency to bottle up issues which remain unresolved and manifest in crisis that could shake the very foundation of Board cohesiveness. The ability to nip potential crisis in the bud by creating an ambience of trust, candour and congeniality on the Board is the hallmark of an effective Board.
Bisi Adeyemi is the Managing Director/CEO, DCSL Corporate Services Limited. Kindly forward comments and reactions to badeyemi@dcsl.com.ng