RESOLVING BOARDROOM DISPUTES
CD: Reflecting on the last 12-18 months, could you explain some of the recurring causes of board disputes?
Mowat: Board disputes commonly arise in owner-managed companies, where directors are also shareholders. A party can wear different hats as a shareholder and a director, and they can act differently according to which hat they are wearing. This is bound to lead to conflicts within some companies, especially as a board can be made up of a group of diverse and independently minded people. We commonly find that board disputes also arise because of a lack of clarity about the roles of the board and management, and because of poorly drafted articles and shareholder agreements. In many cases, smaller and mid-sized companies do not even have shareholder agreements, which is a recipe for problems when disagreements arise. Disputes ought not to come as a surprise. In 2013, CEDR and the IFC Corporate Governance Group conducted a global survey of 191 directors and board members, which revealed that 29.6 percent of respondents had experienced a boardroom dispute which affected the survival of an organisation and 42.8 percent reported that conflict had reduced the level of trust between board members.
Lockwood: Board disputes most often arise when there are pre-existing factions within the board. For example, disputes can arise between board members representing a minority private equity investor and management. Another frequent source of board disputes is when an activist investor has obtained board representation. Disputes also arise when the board of a public company loses faith in the founder.
Oct-Dec 2015 issue
Cleary Gottlieb Steen & Hamilton
Kingsley Napley LLP
Skadden, Arps, Slate, Meagher & Flom LLP