In many cases claims against company directors arise because there has been a breakdown in communication between directors. Finding the right balance between constant unanimity and constant fighting is where the Chairman's skills are frequently called into action. Here are some useful insights as to where the balance should lie and how to get there.
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AFR - Steve Pell
Sept 4, 2019 - 12:00am
What is the right level of boardroom tension?
Boards need to engage in debate, which can mean dealing with discomfort. But how much is too much? Four directors put their view.
Boardrooms should be a place for rigorous debate and potential disagreement in order to optimise decision-making, but this raises questions about how much tension is productive, and what happens when it becomes ineffective.
Clearly, there are healthy – and unhealthy – levels of tension. Peter Hay, chairman of Newcrest Mining, confesses that too much unanimity in the boardroom worries him.
“I’m quite disappointed if there’s no spirited discussion on where the company should be headed or whether we have the right people or culture in place,” Hay says. “To me, questioning and debating is a very important part of the board operation.”
Holly Kramer, non-executive director of Woolworths and Australia Post, and a former director of AMP, agrees. “For a board to be truly effective, there must be some degree of uncomfortable tension from time to time,” she says. “Groupthink is quite dangerous, as is the desire for board harmony at the expense of vigorous debate.”
She adds: “The best boardroom cultures, in my opinion, are those where the dissenting view is welcomed by others, and where board members feel that their contribution is valued, regardless of whether their point of view ultimately prevails”.
In some organisations, dissent is encouraged. Indeed, some boards making major decisions, such as on big capital projects, appoint a director to act as devil’s advocate to challenge fellow board members.
“Somebody is actually mandated to try to tear the proposal to shreds and critique it from a negative point of view,” Hay says. “I’ve seen that make a difference to the way that management has thought about a proposal.”
While healthy debate is a hallmark of a functioning board, some types of tension can be harmful. Susan Oliver, chairman of Campus Living Villages and The Wheeler Centre, doesn’t like behavioural tension. “One-upmanship, niggling and annoying others around pet themes – that is unnecessary tension. A productive mindset is oriented towards a good outcome, while an unproductive one can start to erode the trust between management and board.”
Susan Oliver says an unproductive mindset can start to erode the trust between management and the board. Supplied
Kramer argues that bringing the right amount of tension to the boardroom is the responsibility of the chairman. “A good chair recruits board members who bring diversity – intuitive versus analytical thinkers, risk-takers versus the risk-averse – then works hard to ensure that all views are brought to the table,” she says.
“One of my chairs always reminds us that it’s our obligation to dissent if we have a differing perspective. This can be hard to do, as most people prefer agreement to disagreement, but it ultimately delivers the best outcomes.”
Where there is unproductive tension or discomfort, the chairman also needs to address it. Says Oliver: “The tension that’s the best is the one where you’re contesting a view or information that’s important to the future and wellbeing of the company. That’s a healthy tension, and that’s what directors are there to do.”
Directors say it is also the responsibility of the chairman to ensure that potentially contentious issues are put on the agenda so they can be debated. Hay says: “Boards are uncomfortable when topics are not being dealt with. So there needs to be a process where boards can influence the agenda by saying, ‘I don’t think we’ve dealt adequately with this’ or ‘Can we put it on next month’s agenda?’ .”
While the boardroom is a forum for debate, Glenn Barnes, chairman of Ansell, favours taking controversial issues outside the boardroom to help expedite a decision. “If you do have some questions that come up in your preparation, don’t ambush people in the board meeting. Try to get answers to them beforehand by talking to the appropriate managers so they can actually address the issue before the meeting and/or be prepared to talk about this at the meeting.”
Barnes also uses letters between the chief executive and the board to highlight and address issues before they come to the boardroom.
“As a chair, I ask the CEO to write a letter to the board a week ahead of the board meeting. This outlines what big issues, in their mind, need to be addressed and other things that the board might like to think about.
“The directors have dinner before the board meeting, and the CEO talks about the issues that they feel are really important for the board to discuss. The directors put on the table what issues are concerning them and any questions that they think require answering.
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If somebody is so uncomfortable about a decision and they can’t support it, then resignation is the answer.
— Peter Hay, chairman Newcrest
“This means uncomfortable issues are not aired in front of the broader management group in the boardroom, but handled openly and directly between the directors and the CEO. The broader boardroom discussion can then be orchestrated appropriately.”
This approach can help drive a productive solution without causing unnecessary discomfort in the boardroom, Barnes says.
Even after robust debate, sometimes it’s not always possible for everyone to feel comfortable.
“If somebody is so uncomfortable about a decision and they can’t support it, then resignation is the answer,” says Hay. “You’ve got to have a mindset that you’re only there for as long as you’re being useful and for as long as you’re comfortable with the decision-making process of the company.”
Steve Pell is managing director at Board Outlook.