Boardroom Disputes

Regrettably for many firms a boardroom dispute is very common, whether it’s a limited company or a trading partnership.

In this article I am making the assumption that the directors are also shareholders, which is typically the case for small, limited companies.

Debate and disagreement can of course be healthy in the normal course of business, but I am referring to the types of disputes where the damange is beyond repair.

So what are the common causes of disputes

Relationship breakdown outside of the business  This could be due to divorce, split with an unmarried partner or just plain politics at the gym.

Differences in strategy which are irreconcilable A change of thinking is needed BUT the directors have very opposite views of the future of the business.

Unfairness A director who believes he or she is working harder than the rest of the board – bringing in more clients or driving most of the new sales – but is not being remunerated to reflect this.

Sleeping partners The business now stands on its own two feet as it needs very little management and so and the person with the money is surplus to requirements

Non-executive director only there for advice/ part time working Although it may have worked out well in the olden days , now that profits are steadily increasing the working partner or director has picked up enough knowledge and experience to manage on their own.

Issues like these usually are often there for some time before anyone actually does something about it and so they are not dealt with and then things just explode.

People can fallout over a variety of different reasons. I recall one case where a director effectively stole the customers and started a similar business down the road just because she was angry and because the issues she was going through were not dealt with or noticed.

The effects can be devastating, especially if they reach a point when no one wants to do anything or deal with the issues at hand. For instance :

• Loss of direction
• Slowly losing clients
• Cashflow problems
• Staff problems
• Stalled projects
• Poor publicity

The list above is purely business related but there’s the personal toll in terms of stress and huge legal fees.

It is important that parties understand the need to identify and address their differences early on, typically with the onus on the aggrieved party to make the first move as their co-director or partner may be blissfully unaware of the how their colleague is feeling.

Mitigation can work BUT it’s important to have the proper paperwork in place at the outset of the business relationship, such as shareholder and partnership agreements, terms and conditions and an understanding the remits of each party.

However, these usually address how to deal with a problem, especially if it is the end of the road. It is impossible to take legal action for every eventuality, particularly when it boils down to perceptions of fairness.

Prevention is of course better than cure and the second article in this series will examine how to approach the dispute with the intention of solving it to the satisfaction of both parties, which is much harder or even impossible to do if things have been left unresolved for a long period of time.

Ultimately the key is to deal with things as soon as you notice them and act.