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Conflict in the Boardroom

Posted: 17 May, 2022

When turnaround professionals are appointed to assist distressed companies, it is not unusual to find conflict amongst directors. This is not surprising, particularly given that directors of distressed companies may be disagreeing about how to proceed or may be assigning blame to those they think are responsible for the company’s downturn. With directors worried about what will happen to the company, their staff and their own income should the business fail, it is no wonder that high frustrations and stress lead to arguments.

That’s why any turnaround professional will know that a good turnaround plan depends not only on addressing the problems with the business, but also on addressing problems between the people that run it. Turnaround professionals provide an essential supportive role to the board, suppliers, employees, creditors and other stakeholders to ensure they are united in their efforts to save the business.

Here, we lay out some of the ways in which turnaround professionals can help to keep the peace between directors, and what can be done once conflict has already arisen.

 

How can you prevent conflict in the boardroom from arising?

While each conflict will have a different root cause, there are a variety of tools that turnaround professionals can employ to help directors maintain good relations and manage disagreements as and when they arise.

Once of the best tools to prevent disagreements from turning into conflicts is a shareholders’ agreement. Included within a shareholders’ agreement, there should be an orderly process laid out that tells the board what to do when a dispute arises. This could include whether a vote is to be taken, whether wider shareholders are to be consulted, or whether an independent mediator is to be used. By laying out protocols and decision-making guidelines when parties are thinking rationally and ahead of any conflict, many conflicts can be avoided in the long run.

Another asset that can be used is the company’s chairperson. A good chairperson does more than just preside over meetings and as well as being familiar with governance and their duties, they should know and understand the characters of each board member and be skilful in diffusing conflict in its early stages.

Finally, the staff handbook is a useful tool to refer to in cases where behaviours such as bullying, or abuse occur and lead to or fuel conflict. The staff handbook should clearly lay out how these behaviours will be dealt with, regardless of seniority level within the company. Such a document is essential to ensuring that everyone within the company feels safe to report abuse and that their allegation will be dealt with professionally and properly.

 

How can you resolve a boardroom conflict already in motion?

While these tools can help to prevent a disagreement from turning into a conflict, there are often times when turnaround professionals must deal with conflicts already in motion. Sometimes they have a clear cause, and other times they have built over many years.

Where a dispute is already in motion, it can be useful to conduct a Root Cause Analysis (RCA) to identify where and how the dispute has arisen. An RCA is a systematic process for identifying root causes of problems before you can develop an approach for responding for them.

While disputes can spiral into bitter battles about anything and everything, there is usually a root cause and if identified early enough, further damage to the business and relationships between board members can be prevented.

When conducing an RCA, the origins of a dispute can be classified as having a:

  • Physical cause – such as a breakdown of machinery
  • Human cause – such as a personality clash or mistakes
  • Organisational cause – such as hidden flaws in a system or process that are likely to lead to misunderstandings
  • Financial or strategic cause – such as disagreements over investments or the direction of the business

By identifying the root cause of the disagreement, not only can a solution be found, but other problems might also be uncovered about the business or way people work that is essential to understanding why it is in distress in the first place.

Of course, legal advice can be sought and in some cases this may be necessary. But most conflicts can be resolved through listening, understanding, empathising, negotiating and compromise to reach a consensus that all parties can accept. This is where independent advisors such as turnaround professionals can be invaluable. Not only are they there to ensure the company’s survival, but turnaround professionals understand the position directors are in and can, with objectivity and the benefit of experience, provide sound advice and acceptable resolutions.

Unfortunately, some conflicts are more difficult to resolve, and these are often seen in small companies where directors with an equal stake in the business are in a deadlock. In these situations, often between just two directors, some form of mediation or dispute resolution can be necessary. As directors in this situation have often been friends or progressed from a mentor/mentee relationship, trusted parties such as friends representing each director can also be utilised to help diffuse emotional situations.

As a last resort, the courts can be used to help resolve these kinds of conflicts, especially where the company is being split and there is a disagreement over how. But the court will want to see that other dispute resolution options have been explored so it’s important to explore mediation or dispute resolution avenues first.

 

TMA UK is part of TMA, a global organisation that represents the interests of turnaround professionals as its members who have the skills needed to assist companies in challenging times. If you need assistance, please contact our helpline on 0844 804 0116

 

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