How to manage board conflicts

By CATHY MPUTHIA
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Summary

• Board wars are detrimental to a company’s performance and reputation.
• A board management conflict may be arise where the board micro-manages its CEO.
• Best practice requires the CEO to be given some independence to implement board decisions.
• A conflict can also arise where there is inadequate information from the CEO, usually when they hide crucial information from the board.

Board wars are detrimental to a company’s performance and reputation. Last week a professional members association was embroiled in a bitter dispute that pitted board members against each other. Accusations and counteraccusations were traded in public, evidencing an unnecessary power struggle.

There are two main levels of board conflicts. The first is a board-management conflict where the board clashes with the management represented by its CEO. The second is where board members conflict with each other, otherwise known as “board politics.”

There are several causes of conflicts. A board management conflict may be arise where the board micro-manages its CEO. Best practice requires the CEO to be given some independence to implement board decisions.

A conflict can also arise where there is inadequate information from the CEO, usually when they hide crucial information from the board. Both board-management conflicts and board politics can arise due to conflicting interests. When either party acts in their own self-interest, then a conflict will arise.

Both types of disputes can arise from poor organisational and governance structures. In the case of the board, when members are not clear what their roles are, then a conflict will arise. Personality differences will often create a lot of conflict. People with overbearing personalities may be a source of conflict in the board.

Board conflict is very damaging. The company may lose its reputation with the public. Board conflicts have been shown to result in loss of staff confidence in leadership. As a result an escalated board conflict may lead to loss of talent and massive resignations. Board conflicts may cause the company to lose investor confidence. In some cases, the stock price of the company falls due to escalated board conflicts. In the long runs, board conflict can create massive devaluation of the company.

Board conflicts also increase legal and compliance risk from labour and governance lawsuits. Lawsuits are very costly to the company and ought to be avoided as much as possible. Decision making is often affected during a board conflict. A divided board cannot steer the company nor make sound decisions.

It is therefore important to prevent and manage a board dispute. One way of preventing the board conflict is by having in place sound governance structures where roles are clearly defined. Members ought to be trained on their respective roles and responsibilities and their inter-relationship with each other. This way, the differing yet interactive mandates will be well understood.

A board conflict can be managed at recruitment level. When recruiting the CEO or choosing board members personality and people skills play a big role. While there is no right or wrong personality type, installing an overbearing chairperson or CEO is recipe for conflict. A good chairperson is one who has a conciliatory charismatic personality. The chairperson’s role is vital in preventing disputes from escalating. He should be able to bring disputing parties together and enable them reach a compromise.

Frequent board evaluations and appraisals may help identify possible areas of conflict before they escalate. A board evaluation provides an honest feedback on performance and interrelationship issues.

If the conflict cannot be resolved internally, then the board can use the help of a mediator. A mediator is a trained professional whose role includes helping prevent and manage conflict. Mediation often gives rise to a win-win solution and saves the relationship.

The shareholders too have a role in resolving board conflict. Where the board is engaged in unnecessary dispute that affects the company, then the shareholders can send such a board packing.