Feb 22, 2015

Should I stay or should I go?

When should a director resign from a board? 

This question was put to me recently by a reader. It is a conundrum I’ve faced on various occasions.

I’ve resigned from boards when I did not agree with the corporate strategy, or I believed the chief executive needed replacing but I could not persuade my co-directors of the merits of my argument. Resigning in such circumstances can sometimes feel like a form of cowardice or even laziness. It is rather similar behaviour to institutional investors selling shares in a quoted company that is going astray rather than pressing for change.

It is rarely worth resigning because of short-term, minor disputes. You need to pick your battles, and give way gracefully if you are misguided or firmly outvoted. Attempting to impose your will on everyone on each occasion is certain to end in disaster, even if you do control the business. Boards comprised of dominant figures surrounded by sycophantic, nodding-donkey non-executives tend to go badly wrong — Robert Maxwell at Maxwell Communication Corporation being a vintage example. Of course, small defeats can be used as an excuse to depart if you are looking to jump ship anyway.

The typical fault line on a public company board in disarray is between the management team and the non-executives. Usually the chair holds the power, unless the executives own lots of shares. But it can feel lonely if you are the only non-executive agitating for revolution, and the rest of the board just wants a quiet life.

One important rule: don’t threaten to leave unless you want to carry out your ultimatum. Once off the board, you are impotent. A classic case of someone who made this mistake was Greg Dyke, who resigned as director-general at the BBC in the wake of the Hutton report. In his autobiography, Inside Story, he writes about how he regretted it, and wishes he had stayed and fought. He went because he felt he no longer had the backing of the BBC governors. His chairman, Gavyn Davis, had already gone. Time has shown that Dyke was right — the “weapons of mass destruction” in Iraq never existed, and the BBC’s reporting of the matter was not necessarily poor journalism. Meanwhile, the vastly more important question of whether Britain went to war on false pretences has never been properly answered.

Abrupt board resignations usually signal a row, and management disharmony. Of course, such boardroom punch-ups are rarely visible to the outside world, but occasionally participants break ranks. Generally speaking, board members bury their differences publicly for the greater good — and to avoid gaining the reputation of being troublemakers. There was much speculation over the sudden exit of Harriet Green from Thomas Cook recently. Did she go voluntarily or was she pushed? Who knows, but she did rather well financially (as, indeed, did Thomas Cook shareholders thanks to her turnaround) so no one will be shedding tears on her behalf.

I usually step down from a board when I sell out of a company, since I no longer have so much at stake. I also tend to resign if I find the board meetings unbearable owing to office politics, even if the organisation is competently run. Curiously, I have found the boards of charities and non-profit institutions to be far more factious, and hence fraught with unpleasant manoeuvring, than companies owned by shareholders. For the latter, the purpose of the whole undertaking tends to be plain, the measurement of success more straightforward, and motivations rather clearer.

By contrast, non-profit boards are more likely to be comprised of weak characters or status seekers. Both types of personality can be poor at discharging the duties of intelligent stewardship. They may tick the technical boxes of textbook governance, but in terms of understanding priorities, taking difficult but necessary decisions and ensuring the organisation achieves its objectives, many non-profit boards fail.

Too many directors stay on boards past their sell-by date. At Channel 4 we had a six-year limit for non-executives. In general I approve of such a restriction. It prevents the boardroom becoming stale and allows room for fresh blood.

Chairmen and women who hang around for too long end up behaving like they own the organisation, which, unless they do, leads to trouble. Few chief executives are capable of doing an excellent job for more than 10 years. Leadership wears them down or ends up corrupting them. Founders who own a business are perhaps an exception to this rule, but even they can eventually lose the plot, like Armand Hammer at Occidental Petroleum. Of course, few bosses want to surrender the reins of power. Many (possibly subconsciously) cannot bear the idea of someone taking over from them, and fail to organise succession. Margaret Thatcher was a classic example.

So in answer to the reader’s question: life is short — stay and fight if the issue really matters; otherwise go, and find more profitable pastures where you can have full confidence in the leadership of the business.