How To Get Rid of a Bad Director
By William J. Holstein

December 5th, 2007 @ 10:53 am


Categories: General, Management, Board Management

Tags: Solution, Gig, Board, Problem, Director, Corporate Governance, Business Operations, Corporate Law, William J. Holstein

So you’re the chief executive officer of a company and you rely on your board of directors for sound advice and counsel. But there’s one director who isn’t delivering. He or she doesn’t read the meeting materials before hand. Dozes during the meeting. Goes on long-winded rants not related to the business at hand. Clearly, this person is a problem and is detrimental to the culture and effective functioning of your board. So what do you do?

The traditional solution is to simply wait the person out. When the director’s term is up, the Nominating Committee simply doesn’t nominate him or her. The gig is up. Problem is, that can take a year or more. Damage continues to be inflicted.

Depending on the way your board is structured, a direct approach might work. If you are CEO and chairman, you have the right, indeed the responsibility, to act in your role as chairman of the board to advise the board member that some issues have arisen. But if you are the CEO and not the chairman, meaning that position is held by someone else, then the CEO can’t make a direct approach. Another formulation is for a board to have a lead director. In these situations, the CEO has to move with great delicacy. After all, the CEO works for the board. A couple solutions:
Self-evaluations. Every member of the board fills out a questionaire about each other member. If 11 directors are unanimous in saying that the 12th director is a problem, that gives the CEO/Chairman/Lead director enough ammunition to move. But the problem is, board members tend not to be very frank in these kinds of exercises. Caution and deference are built into their DNAs.
Independent third-party evaluation. There is no shortage of consultants who will come in and create a process in which they interview top management and everyone on the board. What’s said in these interviews is confidential so some candor may creep into the discussion. Even if the consultants clearly identify that a director is a problem, however, who delivers the message. Most boards don’t want an outsider to deliver the news. So it’s back to the dilemma of, who is the messenger of bad tidings?

So there is not any single magic formula for getting rid of a bad director. But the consensus is increasingly clear: don’t just wait it out. You must find a mechanism for signaling that there is a problem. And if the director in question doesn’t alter his or her behavior, then it’s up to the CEO/Chairman/Lead Director (depending on how the board is structured) to force a resignation. Tough love is required.