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Tuesday, 17 January 2012

The 6 Signs of Dysfunctional Company Boards

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I have written in the past few weeks about the problem with board meetings and the problem with sales meetings. It was suggested to me that it might be helpful if I explained what particular issues with a dysfunctional company board and how a well run company board would operate. In this article I intend to concentrate on dysfunctional boards or boards in crisis. 

English: "Wilshire Room," company in...
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So lets remind ourselves what issues should be addressed at board meetings? They’re the meeting that set the direction for the company, confirm policy, and directs the business response to unforeseen events either external like for example a significant change in market conditions or the arrival of a new or stronger competitor. The unforeseen events maybe internal like the loss of key staff or a major issue with sales or production. To get the best out of these meetings they should be held regularly and it should involve a review of the company’s performance.  

So, if that's what a Board meeting should cover what do we typically see in a dysfunctional or crisis board.

Number 1 is not understanding the importance of a board meeting. As individuals and owners we tend work and think at an operational or detail level and it takes some effort and often some training to start to look at strategic and policy issues at a high level. Because operational issues tend to be more immediate and therefore urgent they get in the way of longer term but no less important considerations. Boards meetings are vital to the long term health of a business and are a necessary condition if you want a business to be successful over the long run. I have seen many situations where Board Meetings have gradually been dropped because well meaning owners and managers confuse them with operations or management meeting. Often its only when a crisis hits the business that the management team understand its importance and by then it can be too late.

Number 2 is where day-to-day operations dominate meetings. This is the most common situation and is a result of the first symptom.   Typically the meeting will have no agenda and the participants will have made little or no preparation, consequently what gets discussed is what is on peoples minds at the time (management issues).

Number 3 is not having external advisers. In order to understand and address strategic issues, and probably any issue, it is beneficial to get external advice from people who are not intimately involved in the business. These people can be Non Executive Directors or external advisers.  This separation gives them the ability to make key insights  about the business and its relative performance that would not be possible from internal managers and directors, who often "cant sees the woods for the trees".

Number 4 is hearsay management. This is a situation where the business owner/ CEO makes decisions based on their gut instinct or impulse and without proper evidence. In these situations boards are often seen as a hindrance because board meetings are a forum where   members can question and review key decisions. This type of situation is often coupled with number 5 where the CEO/MD has a low opinion of the management team and doesn't see great value in their input or they don't want to be challenged. I have found this later situation common in family run businesses where the control is kept within the family irrespective of capability and the unwanted scrutiny of a board meeting is something to avoid.

Number 6 the  festering issue/disruptive director. These two often go hand in hand and the disruptive director is often a result of a long running issue that has been ignored, where he or they consider that a poor or no decision has been taken on a subject of great importance to them and despite numerous attempts the problem is avoided leaving a disgruntled board member. The result is that they will go to great lengths to try to raise the issue whilst everyone else will do their best to avoid it, as a result issue and those connected issues are not properly discussed and frequently board meetings are delayed or cancelled as part of the avoidance process. This situation is especially common where you have strong characters who will be persistent in the cause to the point of absurdity and in the long run is very damaging to a team. Often a climate of distrust will develop and worsen team relations the longer the issue is not openly discussed and some form of conclusion reached.

Whilst there are many issues surrounding board meetings don't let this list put you off, many companies have a well functioning board. My next blog post will look at what a properly functioning board look like. I would also like to take the opportunity to give my thanks to Ivor Middleton who assisted in the preparation of this article.
Exigent Consulting provides specialist services for High Growth Business Business Turnaround, and Mentoring to the Small and Medium Business. We help Business Owners improve the profit performance of their business. 

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