Dysfunctional by Association

September 9th, 2015   •   no comments   

Sports Direct is facing heavy criticism in the press. Its board labelled as dysfunctional by the Institute of Directors (IoD) for failing, among other things, to check the powers of founder and executive director Mike Ashley. Apart from major decisions being made without board level consultation until the very last-minute; an atypical board structure; and unexpected decisions being made with no explanation, the Sports Direct board comes in for flack for its unusual governance. Have associations anything to learn from this example?

Dyfunctional by association

According to reports in The Guardian newspaper, Sports Direct`s chairman, Keith Hellawell, told a recent commons Scottish affairs select committee that non-executive directors were unaware of a plan to put part of the group into administration until the day before it happened, despite discussions with the administrator over nearly three months. Two hundred workers lost their jobs as a result. A handful of senior executives took key decisions without any discussion at board level, and one shareholder is facing legal action from Sports Direct after he sought access to the retailer’s shareholder register to gain support for a campaign on the use of zero-hours contracts.

Whilst the Sports Direct board may be an extreme example, I could name at least one membership association in a similar fix. So, with the effectiveness of a board and its members able to make or break an organisation, is it time to ask – how functional is my own board, and is it making good decisions? Membership boards aren`t exempt from failure after all!

Some forms of dysfunction may  be easily addressed but others can be much more difficult to resolve. In my experience, ninety percent of the time the problem is the wrong mix of people. They may have been  appointed board members because of their expertise, experience, great reputations and networks, and often due to their strong personalities. But this can sometimes prove a toxic mix!

There are numerous reasons why individuals sign up for board positions in the first place, and understanding these can go a long way to explaining dysfunction in the boardroom. Sometimes, its purely for ego’s sake, believing the role will look good on their CVs, rather than out of a true interest in contributing to the board and in doing their fair share. I know of boards where directors simply don’t turn up for regular, scheduled meetings. And others where they almost never read briefing notes. Plus, un-remunerated volunteers may give low priority to their duties.

Sometimes it is the inability of the chairman to keep order, prevent side meetings, and make sure all points of view are heard – curbing the bullying or garrulous, and encouraging the timid – so that the discussion flows and timely decisions are made. Postponement and procrastination are the enemies of decision-making. And failure to instil the principle of `cabinet government` – whereby the whole board puts its weight behind its collective decisions – can leed to a leaky and divided board. Directors must also leave individual self-interest at the door, acting only for the common good. Some trade association directors find this latter principle very hard to grasp.

So, a vital job for any board is to monitor  its own performance – with the help of an independent observer – to see if there is remedial work to do. The outward signs of board dysfunction should be easy to spot, and may include churn in the boardroom and among senior management; a CEO who struggles because of lack of support (a CEO running rampant can, conversely, be a sign of Board weakness); and constant failure to meet objectives in an otherwise healthy market.

The effects can be severely damaging. The business will undoubtedly lose good people and will make bad decisions. But there is no quick fix and severe damage can be done during the time it takes to remove and replace under-performing, dead-weight, or wayward directors. Nip the problems in the bud at an early stage. Don’t waste precious resources firefighting after the event – risking the loss of members’ confidence – with all that can entail in terms of lost revenue. Take action now!

Latest reports indicate that in the Sports Direct case, one result may be an AGM vote against the retailer’s executive deputy chairman by an influential shareholder. Where that will lead is not yet clear, but it’s a stark reminder that playing fast and loose with governance can have unhappy consequences for all boards – including associations!

Bavaria 1

Michael Hoare FIAM

@mjhoare

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