Tags: Corporate governance
Often it can be difficult, if not impossible, for a dissenting director to stay on the board to implement a major decision that they have fundamentally disagreed with and voted against. But dissenting directors should not feel that resigning is their only option.
We live in times of dissent where the only consensus seems to be that we can’t agree on the biggest issues facing the country. We have seen senior leaders resign on principle rather than support proposals that they find unpalatable.
Do we have similar pressures building for boards?
Most of the time boards reach big decisions by discussion, debate and refinement of a proposal, resulting in a consensus that every director is willing to support. Differences of opinion around the board table help shape that consensus and compromises are made to find a middle ground. Diversity of thought and experience amongst the directors is vital to refining and improving the proposal. At the end, even if individual directors would each have preferred a slightly different outcome, they are prepared to live with the final consensus.
Sometimes, however, consensus is not enough. A good Chair will sense those big decisions which require unqualified, unanimous support around the table and may even call for a formal vote of the directors. These decisions are usually on major matters of strategy, where the outcome will shape the future agenda for the board and where any subsequent reopening or questioning of the decision would be damaging for the board going forward. Often it will be difficult, if not impossible, for a dissenting director to stay on the board to implement a major decision that they have fundamentally disagreed with and voted against.
However, the same tensions can also arise for a dissenting director who has an ethical objection to a proposal, even if that proposal does not relate to a major aspect of strategy.
We are in the midst of a refreshing debate about a company’s purpose beyond maximising short-term profits and have seen a heightened focus on the factors which a board is required to take into account in its decision making under section 172 of the UK Companies Act. This means that the compromises involved for stakeholders will be more visible for boards, and ethical dilemmas for individual directors are likely to arise more frequently. Ethical matters are rarely crystal clear and it is quite possible for two directors with equally high standards of personal integrity to fundamentally disagree on the actions that should be taken. Given the role of the board in setting the ethical tone for a company, resolving those differences is of enormous cultural significance. Dissenting directors should not feel that resigning is their only option.
Individual directors will need to frame their objections carefully and be clear when they are dissenting to a proposal on ethical grounds. Without compromising their authority, Chairs will also need to be more sensitive to these situations and judge when unqualified unanimity is required from the board. Chairs should be prepared to push back for reconsideration proposals where a dissenting director cannot be convinced through debate, ensuring that the re-worked proposal is one which can earn the unanimous support of the board.
Associate Director - Governance, IBE, firstname.lastname@example.org
Mark brings 30 years of experience from a successful career in business to help grow the IBE’s interaction with boards, regulators and policy makers.
After graduating in Zoology from Oxford University, Mark re-trained as a lawyer and spent his early years at Slaughter and May in their London and New York offices before moving into business. During his career, he managed world-class global functions responsible for governance, legal and regulatory risk management in large, complex, regulated businesses. He was General Counsel & Group Company Secretary at RSA Insurance Group and at Worldpay Group, and held senior positions at American Express and GE Capital. He retired as Deputy Group Company Secretary of HSBC in 2018 to pursue a second career, which also includes non-executive and advisory work. Mark is a former member of the CBI’s Financial Services Committee.
For many years, Mark has had a successful career as a charity trustee, most recently as Chair of Amref Health Africa and prior to that as a trustee of WWF, where he chaired the Audit Committee and oversaw the development of the charity's exemplar new headquarters building. Mark was a finalist in the 2014 Sunday Times Non-Executive of the Year Awards.
The truth of the matter is that you always know the right thing to do. The hard part is doing it. – General H. Norman Schwarzkopf