Director’s dissent: Where your undue silence will be used against you (2014-09-29)

February 20, 2015  3013  3013   

Article by Terrance M. Booysen and reviewed by Deloitte

Yet in so many of these cases, the directors somehow seem to get off scot-free and stakeholders are left counting the costs.  Whilst there may be a variety of reasons for the collapse of organisations, one of the most often over-looked areas for an organisation’s inability to perform optimally -- and hence its failure -- may be found in directors who fail to take a stand against issues they know is undesirable or even detrimental for the organisation and they remain silent on the issue.

No matter how one looks at any of the circumstances or reasons for a director’s inaction, there’s no doubt that directors are expected to protect the interests of an organisation at all times.  They must be able to demonstrate their fiduciary duties, including the fact that they are in full control of the organisation’s affairs.   For this to happen, directors -- be they executive or non-executive -- need to have an enquiring, probing mind that interrogates all possible areas of risk which could expose the organisation to unnecessary, unwanted damages.  If a director does not have a clear understanding of the organisation, its business and its full operating environment, including the ability to stand firmly upon their own convictions about that which is right for the organisation, this can become a sure recipe for disaster at a number of levels.  Frankly put, if a director does not actually show their disapproval and verbalise such dissent in the boardroom upon any matter which can cause the organisation harm, then they are simply not doing their job of protecting the organisation, neither are they fulfilling their fiduciary duties owed to the organisation.

In ideal conditions where legal sanctions are applied to individuals who fail to apply their minds to the myriad of matters placed before them, directors may be held jointly and/or severally accountable for their failure of not dissenting upon matters which were actually deserving of such dissent.  Indeed -- through such accountability -- where the organisation suffers damage and the director cannot reasonably prove they took reasonable steps to robustly debate a particular matter until such time that they were completely informed and in agreement with their fellow directors; their silence upon such matters (or inaction) is tantamount to their failure to protect the organisation.

Clearly by not performing the duties expected of a director, which may include upsetting the boardroom collegiality if need be, will surely lead to a variety of consequences, not least incurring some form of liability; be this at the level of the board or at the door of the laggard director.  As the ancient axiom goes; “the fish rots from the head down”.  This axiom says a lot about the role of directors and how this affects the ultimate success of the organisation.

The board of directors of an organisation is essentially a deliberative body.  As such, they are expected to strive toward reaching consensus when making decisions on behalf of, and for the benefit of the organisation.  However, there may be instances when a director may not agree with the course of action proposed by the board.  When this occurs, directors are expected to voice their dissent in the boardroom in a respectful manner, stating their reasons for such dissent.  However, there may be a number of reasons why directors remain silent, and most often this is to the detriment of the organisation.

Remaining silent in the boardroom may potentially be enough to cause the organisation to suffer serious loss or damages and it may be -- done often enough -- the final nail in the organisation’s proverbial coffin.  Many directors have, in the past, remained silent when they should have dissented against a particular decision.  This phenomenon begs various questions.
  

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