Boardroom disputes – causes, effect and what it’s telling you.

You may be familiar with headlines in the financial press or mainstream media about arguments between the people at the top of a company or less commonly between them and their shareholders.

These are very public displays of discord but unfortunately for many smaller firms that are not household names a boardroom dispute is all too familiar, whether limited companies or partnerships. These may not make it to the news, but the effects are usually more devastating for those involved.

No big payoffs, no golden handshakes - just misery and financial distress.

It’s one thing to know what the causes and effects are but often there is an underlying message for the business that is hidden within the context of the argument.

Debate and disagreement are normal and healthy in a business, with decision-makers needing to be challenged regularly. When it moves from being part of the cut and thrust within the normal course of business and morphs into a dispute that becomes a rift , it often inflicts damage beyond repair both in the operation and in the lives of the people involved.

Common causes of disputes between directors and / or shareholders are:

  • Breakdown in relationship outside of the business. This could be due to family relationships, social circle hierarchies or politics at the church.
  • Irreconcilable differences in strategy. Businesses need to shift their direction every now and then and the directors may have polar opposite views of the future or they may agree but the shareholders do not.
  • Felling of unfairness. A director who believes he or she is working harder than the rest of the board but not being adequately recognised or remunerated to reflect this, bringing in more clients, coming up with the most innovative ideas or driving most of the new sales.
  • Sleeping partners. The business now stands on its two feet and the person with the money who enabled the business to get going or kept it afloat in difficult times, is now surplus to requirements and has no inclination to sell their shares.
  • Part-time or non-executive director only there for advice. Although it may have worked out well some time ago now that profits are going up steadily the working partner or director has picked up enough knowledge and experience to manage on their own.

Issues like these usually fester over time and often go unaddressed which means they can burst onto   the scene little or no warning. Some of the players may have seen it coming or hand an inkling that all is not well, but it usually catches stakeholders unawares, which can make it all the more difficult to deal with.

People do not like unpleasant surprises.

It is this element of surprise that magnifies and exacerbates the effect of a dispute which turns it rapidly into a rift. Even the company’s trusted business adviser – their accountant -  has to walk a very fine line given that they deal with all or most of the parties involved, but as a neutral 3rd party the solution could well lie in their hands, given their wide business experience and ability to support everybody in a mediation, which is almost certainly far better than going to law.

The message hidden within the dispute is telling you that things have moved on since agreements were first drawn up. If you think about it, it makes perfect sense sometimes. What held true 10 or 20 years ago does not necessarily do so today – markets change and people change.

Perhaps it is time to sell the business and let everybody go their own separate ways. Think about it – selling up while things are going well and letting everybody go and do their own thing Is surely preferable to a prolonged damaging dispute that might well bring about a forced sale at a much reduced price. Maybe that message is “time up everybody” – why should that be a problem, if it’s the truth?

Fallout from boardroom disputes can take on a variety of formats, from not talking to one another all the way through to sabotaging the client base. You may be surprised to learn that when people stop talking to one another in a financial dispute, they can cut off their noses to spite their faces. They act in haste and inflict irreparable damage on everybody, including themselves.

Just stop and think what could happen to you if you have guaranteed a business loan against your house and your colleague in the boardroom engineers the implosion of the firm to get even with you!

Prevention is better than cure and mitigation can lie with having the proper paperwork in place at the outset of the business relationship, such as shareholder and partnership agreements. However, these usually address how to deal with a problem especially if it is the end of the road, and it is impossible to legislate for every eventuality, especially when it boils down to perceptions of fairness.

The best way to avoid disputes getting out of control is to review the relationships regularly and at the first sign or inkling of a problem consult with a neutral external party who knows the business and personalities well enough to see through the fog and get to the crux of the matter. Typically this is the company’s accountant, somebody who can bring around a common sense based agreement.

Somebody may have to “come off their high horse” but it’s worth it. 

Share: