Julie Garland McLellan – Management Library

August 1, 2013January 28, 2022

Governing an entrepreneur – a dilemma

Zander has joined the board of a privately owned company that is growing rapidly and has plans to list within the next year or two. He is excited by the prospect of the IPO and determined to do a good job as a director, even though he has no prior board experience.

He is finding the role unexpectedly difficult as the CEO, who is also the founding entrepreneur and chairman, is very independent and views the board as a nice think tank – but not as an authority over him. On a few occasions the board has met without seeing up to date financial reports because the CEO was, by his own admission, “too busy building the business to worry about administration”. Whilst the business does appear to be going well Zander is worried that he is not discharging his duty.

Zander had a coffee with the CEO to discuss his concerns. At that meeting, the CEO let slip that he had set up a board because the company had reached a growth threshold where a board was required rather than because he felt any need for guidance or control.

At the latest meeting it became apparent that the capital structure of the company was changing and that new investors were being invited to take up shares. The board had not approved a prospectus or information memorandum or any valuation of the company. The meeting became quite disorderly as the two professional non executives expressed their concerns and the CEO refused to divulge information because it was ‘his company’ and he didn’t think they should know how much he got from the sale.

Directors’ fees were due for payment a week after the meeting but have not been paid. The CEO is not returning calls or replying to emails and Zander is wondering what he should do.

How would you advise him to proceed?

Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, again, we are posting an unpublished case study and inviting YOU to respond.

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Zander. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

The newsletters will be compiled into a book. If your advice relates to a legal jurisdiction, the readers will be sophisticated enough to extract the underlying principles and seek detailed legal advice in their own jurisdiction. The first volume of newsletters is published and available at http://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.auor visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

July 6, 2013January 28, 2022

Can a director serve two interests? – a dilemma

Xevach is a director on the board of a government trading enterprise. He also chairs the governance committee. The company has a significant geographic monopoly and owns and operates a vital piece of infrastructure in the industry. One of Xevach’s colleagues on the board, Yolanda, is a former director of a larger, competing, government trading enterprise from a neighbouring geographic area. She has worked in the industry for all her life and, in addition to her seat on this board, is a well-respected consultant in the industry.

Xevach’s company is seeking development consent for expanding its infrastructure. At the same time the government is reviewing industry structures and considering imposing a levy to fund the cost of dealing with industry externalities, such as pollution, noise and nuisance for neighbouring communities. Yolanda has been retained by a group of customers to represent their interests and draft a submission to the government about the effects of the proposed structural changes to the industry. The effects on the customers will be different to the effects on Xevach’s board and Xevach is concerned that Yolanda may find herself in a position of conflicted interests, lobbying for both the customers and the supplier. Yolanda asserts that this proves she will be seeking a ‘win / win or optimal outcome and that there is no conflict.

Xevach’s chairman admits that he is not sure of the right course of action and has asked Xevach to advise the board on how to move forward with the issue. What should Xevach advise?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Xevach. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

What would you advise?

May 15, 2013January 28, 2022

When a director knows what isn’t in the papers – a dilemma

Male executive going over business files

Winsome is a director of a large listed company. She has a strong track record in M&A advisory work and is now embarking on a non-executive career. She is finding the ‘hands off’ aspects of the role quite challenging as she is instinctively and by training a detail focused manager. She has been mentoring one of the young analysts at the company and recently helped him by reviewing a report that he was asked to prepare for the board.

The report concerned an acquisition that had been thoroughly analysed and was a compelling proposition due to a strong strategic fit and an advantageous price. The only negatives were:

1- The long standing employees who would have very high redundancy and retirement costs.

2- One of the international operations which uses agents and shows a historical tendency for large ‘round-number’ sums to be paid to these agents before tenders are awarded. This operation is only 3% of revenue and 2% of profit but the analyst is concerned that the forecast growth of the operation may not eventuate if the payments cease. He is aware that the board has a ‘zero tolerance’ policy for bribes and facilitation payments.

Winsome is concerned because the report covered these issues and called for the board to discuss and decide on a course of action. She has now received her ‘official’ version of the report in her board papers and all references to the suspicious payments have been edited out. Her mentee, when questioned, informed her that the CEO insisted on the edits as it was a small issue with a small part of the target company and the board was only to focus on the big picture.

Winsome is worried that if she says anything she will get her mentee into trouble but also that if she doesn’t say something the board could approve an acquisition that would later cause embarrassment and possibly worse. What should she do?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Winsome. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

What would you advise?

May 5, 2013January 28, 2022

Should the MD have a vote? – a dilemma

Victor is a director on a medium sized listed company board. The Chairman has been ill for several months and is not going to get better. He has announced that he wishes to retire. The Managing Director is keen that one of the directors, who had a strong track record as an executive within the industry and is very knowledgeable about the operations, be appointed as the successor to the current Chairman.

The board is divided as half the directors support another candidate who chairs the Audit and Risk committee and has a lot of credibility with the two institutional investors. Both candidates have voiced a desire to take the role. The current Chairman feels he is not entitled to vote as he will not be a member of the board under his successor. Neither candidate will vote. If the MD votes then his preferred candidate will be elected by one vote. If the MD does not vote then the board is split 50:50.

To complicate matters the opposing candidates have begun arguing about whether the MD has a conflict of interest and is entitled to vote. The MD is upset as he feels that he is a director and, under the constitution, entitled to vote. Others disagree as he is a close friend of his preferred candidate.

How can Victor help his colleagues to resolve their current impasse?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Peter. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

What would you advise?

April 7, 2013January 28, 2022

Association boards and conflicts of interest – a dilemma

Ursula is a director on of an industry association. Although they use terms such as ‘Councillor’ and ‘council’ it is constituted as a board and the members have the same duties and responsibilities as directors under the corporations act. All directors are nominated by companies within the industry and serving on ‘The Council’ is seen as an indication that a person has been identified as a future leader within their organisation and within the industry.

Councillors use the Council to promote their own profiles and enhance their networks.

Ursula is concerned at another aspect of their behaviour; using information that comes to the Council to benefit their own organisations. Information about proposed regulatory changes has leaked allowing first movers to gain an advantage; Ursula suspects her colleagues are involved.

Now the Council is deciding on a package of grant funding that will benefit the smaller participants in the industry as well as attract start-ups. Although this is clearly in the interests of the industry the councillors all come from larger, well established, companies and oppose the program as it will create competition for them. At the last meeting the Chairman remarked “I don’t see why we should be helping upstarts to eat our lunch.” Another board member responded “My boss will certainly not thank me if this gets approved.”

Staff at the government department are mystified as to why a good grant package is taking so long to get industry sponsorship and is continually bogged down in discussions. They have asked Ursula for her opinion on the best way to expedite it.

How should Ursula respond to this request?

Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, again, we are posting an unpublished case study and inviting YOU to respond.

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.auor visit her author page at http://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

February 6, 2013January 28, 2022

Issues for a prospective owner director – a dilemma

Businessman burying his face in his palms

Sam is an experienced manager and has worked for over twenty years in his industry. He has also sat on two not for profit boards and enjoys the governance role. Now he has an opportunity to buy an equity stake in a small business that has a product and service for which market demand is growing.

The business has not been growing as quickly as the market and revenue has been pretty flat for the past three years. The current owners are a husband and wife team and are tired; they have run the business for many years and want to retire.

The proposal is that Sam should purchase 40% of the company and take a seat on the board. The existing owners would retain 30% equity each and a shareholders agreement would stipulate that board decisions would require a 70% majority to be agreed. The current board has three members consisting of the owners and an ‘independent’ chairman who is the lawyer and a long-standing friend of the owners. The proposal is that he should remain as “He adds a lot of value and sees things we would miss”.

Sam intends not to work in the company but to be merely a shareholder and director. He has ideas for improving the growth and increasing the value of the company but wants to retain his full time employment in a larger corporation as a security measure. His employer is happy for him to take on a board seat and there is no direct competition between the two companies so Sam would have no conflict of interest; however, Sam’s boss, who is a friend and mentor to Sam, is uneasy and has suggested that Sam could find himself outmanoeuvred in the boardroom and overcharged for his equity. Sam is appreciative of the counsel but believes the shareholder agreement protects his interests. He would like to discuss board dynamics with the current owners but they seem not to be interested as they say the chairman handles all the compliance and they just run the business so there is nothing to worry about.

How should Sam handle this issue?

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.au or visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

November 6, 2012January 28, 2022

How to manage excessive demands on time (from a powerful person)? – a dilemma

Can you advise Stuart?

Stuart is a well-respected professional company director who has developed a prominent profile in his industry. He is president of the industry association and has recently been appointed to chair the board of a government owned organisation that is a highly important part of the industry ecosystem.

He has been pleasantly surprised by the diligence and contribution of his directors and the professional expertise of the CEO and management team. He also loves being able to contribute to the strategic development of the industry even though the Chairmanship pays less than his other industrial roles as a NED.

The Minister clearly appreciates his expertise and has taken to asking Stuart to speak at functions which the Minister either cannot attend or is not confident to address. He also drops by the office for coffee and advice as well inviting Stuart to attend a lot of official functions and conferences. He has also planned an overseas study trip which Stuart is concerned will take him away from his other boards (and this one) for a length of time that will be harmful to the companies.

The workload is spinning out of control and Stuart, who usually sees himself as highly organised and capable, is starting to feel that he isn’t coping and that something is going to be missed. He has tried turning down the requests from the Minister’s office citing workload and pre-existing commitments but these polite refusals are rejected and he is told that he ‘must’ attend as part of his role.

Stuart is happy that his expertise is recognised but can’t spread himself this thin. He doesn’t want to resign any of his board seats as the workload should be easily manageable were it not for the constant time demands from his Minister.

How should Stuart handle this issue?

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.au or visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

October 11, 2012January 29, 2022

Hopelessly conflicted? – a dilemma

Business executive in office working on her computer

Rina has asked for your advice. She is a long standing director of a holding company for a large group of companies. The holding company Chairman, Quentin, has been a friend and mentor to her over many years.

Recently the holding company bought a stake in a small listed company and Rina was appointed to the board as Quentin’s nominee. She was aware that some of her co-directors believed that Quentin wanted to gain control of the company without paying a premium and worked hard to demonstrate her independent judgement so as to win their trust.

Robert, the CEO of the listed company is an outstanding individual with a commercial flair and detailed but quick grasp of the key issues facing his company. He is vitally important to the company’s success. Rina has often praised Robert in her talks with Quentin. Now Quentin has decided to offer Robert a position as CEO of one of the large wholly owned subsidiaries of the holding company with a clear indication that, if he performs well, he can become CEO of the holding company.

Rina is torn. She knows that she has a duty to the listed company that includes acting to retain key staff and protect the IP that exists within the management team; she has a duty to the shareholders of the holding company which would include ensuring that each subsidiary had the best management it could find, and she also feels beholden to Quentin, who has helped and advised her in her career thus far.

Quentin has asked Rina to urge Robert to accept his offer but she is not sure if that would be ethical and, indeed, feels partly responsible for bringing Robert to Quentin’s notice.

What should Rina do?

If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Rina. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

What would you advise?

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website atwww.mclellan.com.au or visit her author page athttp://www.amazon.com/Julie-Garland-McLellan/e/B003A3KPUO

September 5, 2012January 29, 2022

How to undo the damage a board has done? – a dilemma

Peter has asked for your advice. He is a director of a not-for-profit company in the arts sector. A few months ago his organisation’s funding was increased by 40%. The board and management were ecstatic.

Shortly after the funding was announced the Chairman informed the board that he had authorised a staff member to change working arrangements and move to a part time role in other premises and reporting directly to the board.

The CEO had been informed of this decision verbally immediately before the meeting and was clearly not happy. The grant funding application had stated that this role was full time and in head office very close to the government department to allow frequent liaison.

At the end of that meeting the Chairman solicited dates for an ‘in camera’ (NED only) board meeting which Peter attended a week or so later. At that meeting the Chairman discussed ‘general staff discontent’ and a need to restructure.

Peter and a few colleagues asked why the CEO was not involved in this discussion and were told that he was too busy with day to day issues to think strategically. This seemed strange as the organisation was running well and Peter felt the CEO was capable of making a great strategic contribution.

At the meeting the NEDs resolved to restructure and split the organisation into two parts; one would be headed by the part time staff member and one by the CEO. Peter asked that the CEO and staff member both present to the board before this decision was finalised but was overruled by the majority who wanted fast progress.

Now the CEO has resigned and is taking leave. Worse, the organisation is rudderless with junior staff unable to operate either of the two new structures without the CEO’s leadership. The Department is asking for explanations and threatening to cancel the funding.

What should Peter do?

Many readers of this blog will be familiar with my newsletter The Director’s Dilemma. This newsletter features a real life case study with expert responses containing advice for the protagonist. Many readers of this blog are practicing experts and have valuable advice to offer so, again, we are posting an unpublished case study and inviting YOU to respond.

The first volume of newsletters is published and available at http://www.amazon.com/Dilemmas-Practical-Studies-Company-Directors/dp/1449921965/ref=sr_1_1?ie=UTF8&qid=1321912637&sr=8-1

Julie Garland-McLellan has been internationally acclaimed as a leading expert on board governance. See her website at www.mclellan.com.au or visit her author page

August 4, 2012February 22, 2023

When facilitation fails – a dilemma

Businesswoman in office sitting in front of her laptop

Olba has asked for your advice. She has been appointed to a government sector board to represent her local peoples in decision-making and resource allocation. The organisation has been constituted with legislation that mirrors many provisions of the corporations act. Directors are not paid but Olba is happy to gain experience and serve the community.

The Minister appoints the board members and also a ‘facilitator’ to chair the board meetings. Olba resents the facilitator and knows that her colleagues on the board share her feelings. The government use this facilitator for a number of board and committee functions; she is well credentialed, politically well-connected, and somehow a ‘power behind the throne’ with several local organisations.

The facilitator is paid a sitting fee and does not appear to carry the duties that are imposed upon directors under the legislation. She is also often late for the meetings, arrives without having read the papers beforehand, and, on one memorable occasion, got some way through the agenda before realising which board she was chairing. This appeared to be a major conflict of interest as it became obvious she was currently also chairing a board that competes with Olba’s board for funds.

Olba has done some governance training and a lot of reading on the topic. She aspires to be a prominent and useful board member and a good ambassador for her people. The facilitator could cause an embarrassment that would thwart Olba’s aspirations. She is also, in Olba’s opinion, not performing well enough and possibly harming the organisation.

What should Olba do?

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If you would like to publish your advice on this topic in a global company directors’ newsletter please respond to the dilemma above with approximately 250 words of advice for Olba. Back issues of the newsletter are available at http://www.mclellan.com.au/newsletter.html where you can check out the format and quality.

What would you advise?