Preparing for conflict in the boardroom: Thoughts and strategies for general counsel

There is a common perception that corporate board meetings are rather staged and, frankly, boring. After all, boards approach decision making through a deliberative, consensus-building process. Certain issues are deliberated and voted on; other issues request director observations to guide management.

But external factors are forcing change. With increasing transparency demanded of public companies combined with growing investor activism, corporate board meetings are becoming more visible and more contentious—in a polite sort of way. Conflicts in boardrooms should not be surprising, given the that most of the easy questions in the life of a corporation are answered at management levels far below that of the CEO, the CFO, the general counsel and the company’s board of directors.

The more difficult and material issues that senior management and directors tackle in board meetings include such things as long-term strategy, competition, business expansion, risk appetite, succession, executive compensation, regulation and management talent. With such key business and directional issues at stake, there will be differences of opinion and direction amongst the board and members of management. And where there is a possibility that those conflicts, if not resolved, could become public, there is a greater amount of time and effort needed to understand and address differences of opinion.

The highly publicized boardroom brawl at Hewlett-Packard a few years ago is a case in point. Directors were caught off guard when confidential discussions in the boardroom were reflected shortly thereafter in articles appearing in national publications. Obviously there was a leak somewhere in the company, and the lead director and general counsel set out to find out where it originated. Relationships between management and directors became strained, suspicions between the directors mounted, the press stories continued and all avenues to fix the problem appeared to be messy at best—and at worst, had the potential to destroy the company and its reputation. Ultimately, the price that HP paid was huge, particularly given its status as an iconic company.

Even though in almost all circumstances the board chairman, lead independent director, committee chairs and CEO will take the lead in board deliberations, the GC has a unique role to play in these processes. And there are some key steps that, if regularly followed, will help the GC and the board be prepared if real challenges occur:

  1. Annual review of board governance policy. Use hypotheticals to illustrate how key policies will work in crisis circumstances. Putting the board through the process of discussing hypotheticals such as major information technology breaches, an unwanted bidder, the unexpected departure of a key executive or similar challenges, gives the board an opportunity to understand how decisions would be made under the policy and how the process should work.

  2. Report of the GC in executive session. Annually, in a board executive session, the GC should review lawyers’ fiduciary responsibilities to the corporation and its shareholders, much like the fiduciary duties of directors to the shareholders who elected them. This discussion with the GC helps directors understand that the GC has a responsibility that is different from other members of management, and that the GC understands and is fully prepared to carry out that role.

  3. The GC’s assessment.The general counsel should be prepared for the director who asks, “What is your opinion on this?” The GC serves as a member of management yet has a legal and fiduciary duty to the corporation and its shareholders. The GC’s candid assessment must be planned and well thought out. If you have reservations about an issue, will you be prepared to discuss those reservations with the board? If so, has management taken steps to address those reservations? If so, discuss those with the board. If not, and you have made your reservations known to management, you should discuss that. Finally, you should state your intention to share your board assessment discussion with management unless the board would prefer you do otherwise.

Join the Conversation

Advertisement. Closing in 15 seconds.