Director’s dissent: where your undue silence will be used against you

Search yourself. As a director, when have you remained silent or failed to take a stand against an issue you know is undesirable or even detrimental for the organisation?

Increasingly, business reports are revealing how many organisations have seen their demise as a result of an offhand board of directors.

Expected to protect the interests of an organisation at all times, directors must be able to demonstrate their fiduciary duties. Whether executive or non-executive, directors need to have an enquiring, probing mind that interrogates all possible areas of risk which could expose the organisation to unnecessary, unwanted damages.

If a director does not have a clear understanding of the organisation, its business and its full operating environment, including the ability to stand firmly upon their own convictions about that which is right for the organisation, it can become a sure recipe for disaster at a number of levels; and directors themselves can be held jointly and/or severally accountable for their failure of not dissenting upon matters which were deserving of such dissent.

 

Why do directors refrain from dissenting?

There are three main categories detailing the reasons why directors may not express their dissent in the boardroom:

* Lack of knowledge, including: a failure to understand the duties owed to the organisation; a failure to understand the director’s liabilities attached to their fiduciary duties; a failure to appreciate the general role and responsibilities attachedto directors; and lack of skills or experience necessary to make business decisions.

* Lack of preparation, including: not preparing sufficiently for board meetings; and not preparing sufficiently for the role of director within that particular organisation.

* Lack of interpersonal skills/psychological attributes, including: fear of being disliked, ostracised or viewed negatively by board members; lack of confidence in their opinion or lack of confidence to voice their opinion in front of the board; and the desire for social harmony.

The first two categories – lack of knowledge and lack of preparation – may be easily remedied should directors, inter alia, undergo training and commit to their duties as a director.  However, the last category – lack of interpersonal skills/psychological attributes – may indicate that the director does not have the necessary qualities to fulfil the position as a director.

 

What qualities do directors need to fulfil their role effectively?

The qualities and attributes directors possess will ultimately determine if they are fit for the role of directorship.

The following three qualities will ultimately influence their ability (or willingness) to dissent:

* Independence – independence of mind promotes constructive scepticism and the freedom to express differing views.

* Informed and involved – being fully informed of the organisation’s business will put the director in a better position to dissent. The dedication of time to carry out fiduciary duties will affect whether a director has a sufficient understanding of the business of the organisation which is necessary to dissent constructively.

* Initiative – taking the initiative by asking questions, listening and insisting on answers is a quality that will lend itself to the expression of dissent.

Notwithstanding the above, many organisations do not take heed of the necessary directorship qualities when recruiting directors to the board.  Instead, in many cases directors are appointed for political, nepotistic or other impure rationale.  Having unsuitable directors on the board may cause the board to become dysfunctional and, in turn, will lead to a lack of healthy dissent in the boardroom.

 

What are the consequences of refraining from dissent?

Directors are under an obligation to express dissent against actions or omissions that are inconsistent with their fiduciary and statutory duties. Board decisions are taken collectively and it is assumed that each director supported the decision unless dissent was expressed by an individual director.

Thus, where the board has made a decision that is contrary to the law (that is, ultra vires), all the directors may be jointly and severally liable regardless of who initiated the course of action.  Remaining silent is therefore a potentially costly exercise for directors and may render them liable to both civil and criminal penalties.

 

What are the benefits of dissent?

The presence of dissent in the boardroom ultimately improves the decision-making process – it provides an opportunity for questionable business proposals to be challenged and new ideas to surface.

Therefore, constructive debate and dissent should be encouraged during the deliberation process for the board to operate at its optimum level and benefit for the organisation.

Appropriate dissent in the boardroom is vital to the success of the organisation.  Boardrooms that lack healthy debate and dissent may be the reflection of a dysfunctional board of directors.

Remaining silent in the boardroom will not exonerate directors from liability; it may in fact be the cause of a director’s personal demise and an organisation’s inevitable failure. When it comes to directorship, remaining silent when a questionable decision is being made, will surely be used against you.

 

* Article by Terrance M Booysen, CGF Research Institute

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