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Several times in the past year, I have been asked for advice, even to intervene, in situations where relationships between board members have become strained, or shareholders have fallen out—with each other or with board members—over differing expectations around returns and/or succession. Each situation has been both complex and demanding, for they involve people and human emotion.
The following vignettes are illustrative of the types of things that can go wrong and the ensuing behaviours of various actors:
  • ​Four directors of Christchurch City Holdings Limited have resigned following a relationship breakdown with CCHL’s shareholder, the Christchurch City Council. Reports suggest the shareholder wanted dividends paid at levels the board thought was above what CCHL could sustainably provide. Despite considerable effort to resolve the matters, four directors have decided that the demands are unreasonable; enough is enough, and they have walked away. One, Abby Foote, is an esteemed director and Chartered Fellow of the Institute of Directors.
  • A large-scale family company has been experiencing some difficulties, and several ‘next generation’ leaders think the patriarch should step aside. The company has a long history of success and balance sheet growth, and it has enjoyed a positive reputation in the market. But now, the patriarch, who thinks he is still the best person to run the business despite poor health, has become a stumbling block. The sole independent director can no longer claim to be independent either, as she has been captured by the patriarch. Family members are frustrated, and company performance is languishing.
  • The shareholders of a business active in agriculture and forestry in two countries have found themselves at odds over the future of the business. The largest livestock unit has struggled to make a profit in recent years, and the trees on the main forestry block are reaching maturity. Some brave decisions need to be made to secure the future of the business. Some of the shareholders have sought advice from a consultant, and they seem to be comfortable with the advice (to harvest the trees to fund continued dividend payments that they have come to rely on), despite a clear conflict of interest (the consultant is a shareholder of a lumber milling business that stands to gain from the harvest). Other shareholders want to engage some independent advice and take a longer-term approach to sustainable performance and value creation.
As is typical in board and shareholder matters, options are many and resolutions are far from clear cut. What options might a capable independent director consider in such circumstances?
  • Should they try all reasonable options (such as the CCHL board appears to have done), but reserve the option of resigning if a satisfactory resolution cannot be achieved; or,
  • should they steadfastly remain loyal to the shareholder who appointed them, even if they disagree and are no longer being effective; or,
  • ​should they continue to try to achieve a resolution having noted the duties owed and fiduciary responsibility, despite the risk of legal challenge and reputational damage?
These are questions of commitment and duty. Directors need to not only recognise this, but consider options amidst ambiguity, and work within the constraints of the law and what is ethically acceptable. Essentially, these questions ask how far a director is prepared to travel, how hard they are prepared to work, how long they might prepared to wait before enough is enough. Are they prepared to make decisions that may be unpopular or even unpalatable, because such decisions are in the best interests of the company? Will they go to the ends of the earth, so to speak? Or does the preservation of reputation rank more highly than acting in the best interests of the company—essentially, will they bail when the possibility of reputational damage arises (as several directors of Wynyard Group reportedly did just before the company failed several years ago)?
Directors would be well-advised to have asked themselves these questions before they accept an appointment. They should also be prepared to act (step away) if the thresholds they set themselves are surpassed, or if they no longer have the expertise or courage to act.
Of the directors you know, how many possess the wisdom and maturity to act diligently, in the best interests of the company?