Common causes of boardroom disputes

Michael Frape discusses the common causes of boardroom disputes.

All company directors have one overarching duty which is to promote the success of their business. This duty, on one hand, seems a simple notion but, as Michael Frape a specialist in Dispute Resolution at Ashtons Legal in Cambridge explains, differences of opinion about how success will be achieved can lead to boardroom disputes and have a detrimental effect on the company’s success.

In Michael’s experience, ‘Recognising the most common causes of boardroom disputes will help companies to avoid them and will save time and money having to be spent on dispute resolution, rather than business growth.’

Clash of personality

Directors are also individuals and each will have a unique personality. There is no guarantee that directors will always see eye to eye, and no two people will agree to the precise definition of ‘promoting the success of the company’. Indeed, a director’s opinion on what constitutes the ‘success of the company’ can vary subjectively throughout the business lifecycle and each person’s method of achieving that success may differ wildly.

When one director really does not fit well with the culture of the rest of the board, you will need to take swift action. Constant conflict amongst the leadership team will have a detrimental impact beyond the boardroom.

Competing objectives

All companies go through challenging phases and one source of tension between directors can be balancing their aspirations against economic reality. There will always be a tension between those directors who wish to retain cash in a business to invest, and those directors who would like to take money out and enjoy the rewards of their labours.

Such differing objectives can become particularly apparent when a director wishes to retire. It is important that you engage in succession planning with your professional advisers at an early stage to avoid tensions mounting in the boardroom.

Deadlock in decisions

A deadlock in decision making can arise where there are an even number of directors, and their votes are consistently split between two factions – usually requiring the chairman to make a casting vote.

One simple solution may be to ask your solicitor to amend the shareholders’ agreement to avoid deadlock decisions. However, if this is a regular problem then it may also be indicative of deeper conflict within the company

Lack of experience

Many company directors achieve their positions without any relevant training or experience, and this can become apparent in the boardroom. If board members lack key skills in areas such as finance, operational delivery or business development, these deficiencies may be remedied by appointing one or more non-executive directors who will bring a wealth of experience to the boardroom – including predicting and heading off potential disputes between directors.

Breach of directors’ duties

The directors of a company are under a number of statutory duties. One of the challenges for directors is to understand the parameters of these duties; they are structured to be vague in order to enable the individual director to mould their duties to the specific needs of the company – but such ambiguity can lead to disagreements.

Aside from the statutory duties which directors are bound by, there are also a number of additional duties which board members must be aware of. For instance, the directors of a company are collectively responsible for ensuring compliance with health and safety legislation, environmental regulations and anti-corruption legislation.

Boards should ensure that they undertake routine appraisals and training to understand and appreciate their roles and statutory duties. A breach of directors’ duties can expose an individual director to civil and potentially criminal liability.

How we can help

A board of directors is in itself entitled to call upon external advisers, such as solicitors, for impartial advice. The solicitor in this situation is instructed by the company rather than the individual directors, which means that the advice is both independent and will also be in the interest of the long-term success of the company.

Get in touch with Michael Frape for more information on 01223 431127 or email michael.frape@ashtonslegal.co.uk.