Difficult Conversations About Director Performance
Written by Domini Stuart - January 16, 2017
Every board must discuss difficult issues from time to time – and the right approach can have a positive impact on the outcome.
James Birch AM, chairman of the Australian Red Cross Blood Service, has found that poor, or less than optimal, performance from the chief executive officer (CEO) tends to top the list of sensitive issues. This is followed by poor performance from a director or the board as a whole.
“I’m happy to say that none of this applies to any of my current boards, though I have experienced these problems in the past,” he says.
There will also have to be tough conversations after a serious event, such as a breach of security or a major issue with safety or quality.
“This particularly applies in health care and it has the potential to do a great deal of damage to the reputation of the organisation,” says Birch. “The public exposure of a systemic problem will also put great pressure on directors as long-term governance will inevitably be called into question. There’s always a risk that defensiveness will get in the way of a transparent discussion.”
Extra pressure on NFPs
In the not for profit (NFP) sector, the introduction of the National Disability Insurance Scheme (NDIS) is shining a particularly bright spotlight on boardroom performance. Inevitably, this is giving rise to some difficult conversations.
“Those affected by deregulation must consider how they can remain true to their purpose as they implement what is, effectively, a commercial strategy,” says Doug Kimberley, chairman of integratedliving Australia. “Organisations are having to move away from the relative certainty of being paid in advance by the government to delivering a range of services in a competitive environment where the emphasis is on profit and loss and, in particular, cash flow. This is a very different area of focus for many directors and it makes for some very sensitive and difficult conversations.”
Along with a good grasp of finance today’s NFP boards must be able to think and plan strategically.
“It’s no longer enough to appoint someone from the community who has a good heart but lacks the necessary skills,” says Kimberley. “A number of boards are struggling with this.”
“Volunteers on the board of an NFP may also feel the weight of the community’s expectations,” adds Christine Morris, a former banker and president of the Cohuna Retirement Village (CRV) board. “This can make tough and sensitive discussions even more difficult.”
Whatever the sector, board members should have the courage to raise sensitive issues promptly, and to talk about them honestly and openly.
“If your head or heart says something is wrong, it usually is,” says Birch. “Don’t try to convince yourself the problem will go away.”
If there is an issue with the CEO or senior management, part – or all – of the board meeting can be held in camera.
“This is the only option when you want to speak freely,” says Morris.
Where one of the directors is a cause for concern, Alexandra Zammit, CEO of Thomas Holt and an experienced director, recommends speaking first to the chairman.
“This is a courtesy, and it also gives the chairman an opportunity to resolve the issue,” she says.
Kimberley agrees that difficult conversations are part of the chairman’s role.
“When there’s a problem with a director the chairman needs to arrange a private meeting where they can work through the issues and, hopefully, put some agreements in place that will lead to resolution,” he says. “If that’s not achievable, the chairman must ensure that the separation is as harmonious as possible.”
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But what if the directors believe that the chairman is falling short?
“That’s a very difficult situation,” says Zammit. “The best way to handle it will depend on the dynamics of the board, though I believe it’s always best to start with a one-on-one conversation. The chairman may not be aware of his or her poor performance and welcome the feedback.”
Directors who are in agreement might be tempted to approach the chairman collectively.
“I’ve been in this situation and it didn’t work,” says Zammit. “I think it can appear to be quite confrontational.”
An effective strategy
The most effective communications strategies facilitate and encourage productive discussion of all board matters, including the difficult subjects.
“A sound governance framework provides guidelines for performance and behaviour and a reference when there’s an element of doubt,” says Zammit. “It doesn’t matter what system you use as long as everyone on the board agrees with it, signs off on it and is prepared to adhere to it.”
Birch believes that sound governance helped to mitigate the effect of the recent Red Cross Blood Service data breach.
“We’re still in recovery so the impact is continuing to play out but the organisation’s outstanding governance infrastructure, protocols and policies have made it much easier for us to have the difficult conversations,” he says.
Zammit recommends finishing every meeting with a short poll.
“I’m a strong advocate for asking four or five questions such as how the directors thought the meeting ran, whether every item on the agenda was covered, whether there was enough time for discussion and whether there are any concerns,” she says. “This way, issues are less likely to build up into serious challenges.”
Regular full-board evaluations can pick up more significant problems while there’s still time for remediation.
“I’ve found that it can work well to have an annual online self-evaluation one year and an external review the next,” says Birch.
A balanced conversation
Sensitive issues can inflame passions – but it’s vital that difficult discussions remain balanced and fair.
“It’s important that the chairman encourages less vocal members of the board to speak out,” says Morris. “We have 12 board members at CRV and, before we close a meeting, each one is asked if there is anything he or she would like to raise or comment on.”
Good communication is also predicated on a high level of trust.
“I was once on a board made up of good, experienced people with a skills matrix that suggested the right mix but we had ongoing problems with various behaviours,” says Birch. “At the suggestion of the chairman we all agreed to undertake a Myers Briggs analysis of behaviour traits and that the findings should be transparent. This triggered quite a staggering turnaround in board behaviour. We found that knowing what made the other board members tick gave us an insight into how best to communicate with each other, and that built mutual trust. I think it’s true of all boards that you have fewer problems when you’re functioning well as a team and that, when difficult issues do arise, you’re well placed to discuss them in a constructive way.”
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About Domini Stuart
Domini contributes regularly to Company Director, Listed@ASX and NAB’s online business, health and agriculture magazines and has written about health for publications including My Business magazine, the Sunday Telegraph and Wellbeing. She is also an editor, author and speaker.