In this video, Corporate Governance Expert David Beatty describes a personal experience with a dysfunctional board, and the unfortunate outcome that this dysfunction created.
The Sad Example of a Dysfunctional Board
David Beatty: I was Chairman of a Board in the metallurgical coal business. It was acquired by an American company also in the metallurgical coal business for a significant premium, so it took my Directors about a nanosecond to put their hands up that this was a great sale and I went on the Board of the American company that had taken over. It turns out that Board was largely dysfunctional. The Chair of the Committee was 91 and sometimes lost the thread of his attack or explanation. Another Director was in his mid 70s who really loved Italian wine, so any topic that was raised at the Board meeting ended up in a vintage discussion about whether this was better than that and the taste.
The Chair would let these folks ramble on and the metallurgical coal prices were dropping. It was a time of significant cash flow stress. The Chinese customers were getting very upset about the fixed price contracts they’d inherited, and and and and, so there was a tremendous amount of managerial angst, a tremendous amount amongst those of us on the Board not afflicted with either dementia or a case of Italian wine, and I went to the Chair on three separate occasions one on one. This just isn’t working. This company is in a lot of stress, we’re going to be getting under more stress. These two guys aren’t contributing. You should either shut them up or get them replaced by somebody who knows something a little more intimate about the businesses we’re in and he didn’t.
Eventually, the sad ending is the company went into Chapter 11, went bankrupt. They never did address the problems. I resigned from the Board being unable to change the process that this man had installed and it was a very unhappy time. I thought the management team was exceptionally good and the Board was just completely dysfunctional. Not only did it not add value to the course of the strategy of how to get through this crisis in metallurgical coal prices, but I think it actually helped sink the ship.
David Beatty is an adjunct professor and Conway chair of the Clarkson Centre for Business Ethics and Board Effectiveness at the Rotman School of Management. Over his career, he has served on more than 39 boards of directors and been chair of nine publicly traded companies. He was the founding managing director of the Canadian Coalition for Good Governance (2003 to 2008). A version of this article will also appear in the Winter 2017 edition of Rotman Management, published by the University of Toronto’s Rotman School of Management.