The board of directors of any company is inextricably linked to a company’s success or failure, which is why a dysfunctional board threatens to wreak havoc on even the most successful companies. 

Sandra Beswick, Director at Fluence Capital, says the effect of a lack of governance at a board level is similar to mismanagement being the main cause of financial distress experienced by companies in business rescue – the board can significantly damage a company in an incredibly short space of time.  

“The board is only as good as the information provided to it by management, determining the relevant questions to ask is a skill obtained from experience. This is very similar to a practitioner placing reliance on information provided from the management of stressed or distressed companies.”

According to a survey run in partnership with London Business School’s Leadership Institute, 30% of respondents said their board was partially effective, largely ineffective or totally ineffective.

But, Sandra says one needs to distinguish between  tension and conflict. 

“Tension is not always harmful, and can often create robust debate within a board setting.  A study of boardroom conflict by the Institute of Company Secretaries and Administrators  found that tension is not necessarily harmful, defining it as ‘disagreement that is often uncomfortable, but which can be resolved by healthy debate’. Conflict, on the other hand, is ‘aggressive tension that escalates to extreme and unresolvable levels’. The report concluded that tension is a positive and indeed necessary  force for all effective boards, while conflict tends to be detrimental.”

Shesays today’s boards face extremely high expectations as well as increased scrutiny by the public, politicians, and press, meaning organisations simply cannot afford board inefficiencies and mismanagement arising from conflict.

Key signs of a dysfunctional board include:

• The board is divided and personal agendas emerge
• The business consistently fails to meet objectives
• Leaking of confidential information
• Lack of order and transparency at meetings 
• The board has been penetrated by interference from the shareholders with their own agendas 
• Governance is flouted 

4 ways a dysfunctional board can wreak havoc on a business:

Cause irreparable damage to a business’s reputation

In today’s highly connected world, where news can spread at the click of a button, a company’s reputation can suffer irreparable damage if news emerges of a dysfunctional board. 

The business will lose good people

A dysfunctional board will have a detrimental impact on employee morale. Often, a pattern begins to emerge where highly experienced and capable professionals continue to leave, and suspensions, resignations and acting positions become the norm. 

Failure to manage emerging threats

A non-cohesive board will only create internal confusion which will filter down towards all management levels. This internal confusion threatens to ‘blindside’ key decision makers to emerging risks and threats and a lack of internal agreement will delay swift reactions to pressing issues. 

A gaping leadership vacuum

A high leadership turnover not only creates instability, but also causes a lack of trust among key stakeholders. There’s also a significant risk that substantial damage can be done during periods when the board is in between leaders

Conclusion

When it comes to a board, the saying “the fish rots from the head”, is highly apt.  Little can be more damaging to an organisation than a dysfunctional board. Not only can it be detrimental to  your bottom line, but it can threaten to destroy not only the reputation of the business, but the reputation of the company’s directors as well. 

Sandra says regular compliance checks need to be conducted to ensure problems are picked up early.  Other measures critical to the successful functioning of a board include good corporate governance, and self-aware leaders who are able to view the business objectively and take advice from third parties. 

“It is vital to always be mindful of maintaining fiduciary duties as a director. Always speak up if the integrity of an entity is being challenged, stay true to your beliefs and principles. Choosing to let problems fester will only make the situation worse for everyone involved.”