Scenario: A Director is Caught Off Guard
BOARDROOM BREAKTHROUGH: Exploring boardroom missteps and how to course-correct.
Scenario:
Big $ Investco provides pension investment services to public pension plans, including Pensions Are Us. Stella is both a trustee of Pensions Are Us and a director of Big $ Investco.
There is a viral negative public story about Big $ Investco’s work environment and culture. At the next board meeting of Pensions Are Us, the other trustees ask Stella about the incident and how the Big $ InvestCo board plans to address the situation. The Big $ Investo board hasn’t been updated, so Stella feels unprepared for the trustee’s questions.
Stella raises the concern with Big $ Investco management and requests that a report to sent to the directors. At the next board meeting the Big $ Investco board is provided with a high-level update on the incident and given assurances about the organization’s culture. Stella asks many questions and requests that information about the incident and cultural be shared with Pensions Are Us.
Stella is frustrated by the slow notification to the board and the lack of transparency with Pensions Are US. She worries how the trustees of Pensions Are Us will react, and how they will respond to member questions.
Big $ Investco’s management team is concerned that a board member (and client) is digging into a sensitive operational issue, as they feel the situation is under control.
Governance is often complex, and when reporting expectations are unclear or key issues aren’t being proactively addressed with the board, directors can find themselves without the information they need or expect.
What Went Wrong?
This scenario highlights a few governance weaknesses that many organizations experience:
Reactive Rather than Proactive Governance – Instead of anticipating and addressing board and stakeholder concerns quickly, Big $ Investco waited until information was requested.
Lack of Consideration – Big $ Investco was not sensitive to how its directors or its key stakeholders may react to a public controversy, or the extra pressure on stakeholder-appointed directors.
Unclear Roles and Responsibilities – Management may consider workplace incidents to be operational in nature and not recognize when the situation deserves board involvement. Pensions Are Us trustees may also not understand the limitations on Stella to discuss Big $ Investco matters.
What Stella Did Right
Rather than ignoring the issue or speculating on a response, Stella took a constructive governance approach: she raised the concern and asked Big $ Investco management to report back to the board. This ensured that the board could oversee the issue appropriately rather than individual directors managing concerns on their own.
How To Do Better
Boards and management teams can learn from this situation and take proactive steps to prevent directors from being caught off guard:
Provide Timely Transparent Information – Boards function best when management provides timely, transparent information and directors are confident that management will capably handle the situation.
Proactively Discuss Potential Risks – Ensure regular updates on key risks and policies, including reputational risk, workplace culture and crisis management. Proactive discussions about potential risks can ensure directors feel confident in their oversight role. Boards should also consider if and when updates or discussions should be held in advance of the next board meeting.
Clarify Governance Grey Zones – Directors need a clear understanding of their responsibilities versus those of management, especially in situations considered to be a “grey zone” between managing the issue and oversight. This may require regular discussions and scenarios to identify when the board will be informed or involved.
Prepare Directors for Public and Stakeholder Scrutiny – Organizations should have a strategy for responding to media or stakeholder concerns, and directors should be briefed on that strategy. Stakeholder-appointed directors should also be supported so they are confident in how to respond to situations where their conflicting roles and confidentiality requirements may create tensions.
Lastly, Pensions Are Us and Big $ Investco could proactively develop a structured approach to what, how and when information will be reported.
Strengthening Your Board’s Governance Practices
Situations like Stella’s don’t have to catch directors off guard. Proactive governance, clearer role definitions, and strategic board reporting can help boards stay ahead of potential controversies.
How Can I Help?
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