As American singer Charlie Rich memorably noted in his 1973 chart-topper: “No one knows what goes on behind closed doors.”
The silver-haired country crossover star was referring to the privacy of the marital home but the same veil of discretion tends to be drawn across the boardroom.
Yes, when strong-minded men and women meet to discuss the future of a business, the exchanges may be robust and very occasionally downright angry, but once the decisions have been reached, everyone falls into line.
As far as the staff, customers, suppliers and the world in general knows, the announcement that a company is to expand into Europe or plans to halve its product range has been agreed and endorsed by the whole board.
Indeed, when the MD and finance director stand together at a press briefing, explaining the thinking behind a new strategy, no one would guess that 48 hours earlier, they were still arguing over key elements of the plan. That’s the way it should work. Boards take collective decisions then present a united front to the world.
But sometimes the fault lines are so intense that any disagreements spill out from the boardroom into the public arena, where they are picked over by journalists and seized upon by competitors. In these situations it appears that everyone knows (or thinks they know) what goes on behind closed doors. The boardroom bust-up has gone public and the result may be resignations or sackings.
Disputes can arise at just about any time in the evolution of a business. Even if you keep the management and investment structure mean and lean – perhaps just you and your original partner – there is always the chance that at some stage a radical difference over the direction of the company will emerge.
Bring in private equity investors and suddenly you are working with people who not only have a signifi cant economic stake in your business, but also their own clear ideas about how it should be run and the strategy it should follow. Indeed, being ousted by investors probably ranks high on the list of founders’ nightmares. And it happens. These days serial entrepreneur Ben Way is managing director of The Rainmakers, a company set up to develop new technologies, but he first came to prominence as the youthful founder of internet search tool business Pulsar. It was, to say the least, a mixed experience.
The company did well enough for Way to make it on to the Sunday Times Rich List, but that achievement coincided with him being sacked by its investors. He’s sat on quite a few boards since then, coming to the conclusion that director unity can be a fragile thing.
“Boards can fall apart really easily,” he says. “One major event can destabilise a board.”
Cause and effect
The result of a disunited boardroom can be stasis or damage to fi nances and reputations, so how do you avoid acrimonious disputes? The fi rst step is to give some thought to the causes.
Differences over strategy are probably the most common reason for boardroom bust-ups. “Very often it boils down to the fact that the vision has changed for the business,” says David Gordon, founder of DG Law. “And everyone is either with it or against it.”
And as David Moss, head of the corporate department at law fi rm Kingsley Napley, adds, partners often fall out over exit strategy. “I see a lot of disputes that could be characterised by the question ‘to sell or not to sell’,” he says. “Succession issues can also be a source of friction.”
It’s not always about strategy. “Unequal contribution is another flashpoint,” Moss says. “For instance, when one partner feels that the other is not making the contribution that was promised when they began to work together.”
This kind of personal difficulty can be exacerbated by the growing pains encountered by most businesses. As partners grapple with setbacks in the marketplace or serious cashflow problems, relationships are often put under severe strain.
Larger companies tend to have more departmental representation at board level than their smaller counterparts, so in addition to the MD/CEO and his FD, you could well have IT, sales, marketing and even HR directors sitting around the top table. The danger here is that board meetings split into factions.
“There are often differences between the operational side of the business and the service side,” says Andy Cook, managing director of HR consultancy Marshall James, a company that provides advice to boards on a range of issues. “For instance, you often get a situation where the IT director wants to spend money on a project and he sees the FD as being obstructive. Very often there are big personalities here and neither is willing to back down.”
Situations such as this ought to be the easiest to resolve. Yes, there will probably always be disagreements involving the FD and certain other directors who are blithely tabling costly business plans, but a strong chairman or MD should be able to prevent a certain creative tension from modulating into sullen discord. However, if that strong hand isn’t there, the results can be very damaging.
“Factional disputes at board level tend to spill out into the company as a whole,” Cook says.“You get a silo mentality in the departments concerned.”
Less easy to deal with is the other classic boardroom split that can occur between those who run the company day to day and the directors appointed by investors. “The more stakeholders you have, the more likely it is that there will be tensions,” says Way.“ They often occur between the managers who run the company and those who represent the investors.” The danger is that if the investors feel the CEO or MD is not growing the company fast enough or that a certain strategy is pushing back an exit date, they can take action in the form of an executive shake-out. “Sometimes directors will manufacture a dispute in order to achieve a certain outcome; for example, the exit of a particular director,” Gordon warns.warns.
That said, shake-outs of this nature can be justified. The management team that took a company from start-up through to its first or second round of investment may not be the right one to steer it towards a listing on AIM, for example. “Very often you get cases where the investors take the view that if the company is to move to the next level, new managers are required,” Mosssays.Moss says.