6.6 When Does Management Cross the Line?

Whether through inexperience, or a reluctance to relay bad news and to take responsibility for it, there are times when management is less than completely forthcoming with the Board. These occasions test the mettle of the directors, both in evaluating how serious the incident may be, and what to do about it. Let’s take a couple of examples:

Case 1: Management withholds certain information from the Board. On the one hand, the Board does not want to hear a long list of operational problems that are management’s to solve, but on the other hand, it must have the material information to make proper decisions. The test should be that if the information or lack of it could change the Board’s course of action, then that information must be disclosed. But what if it isn’t? What should the Board do when it finds out?

Case 2: Management failing to abide by the Board’s direction.
If the Board has approved a course of action and management does not follow through, how serious is the problem? If management is tardy, the issue may not be serious, and easily dealt with. However, if management willfully disobeys clear directions, then the Board must act.

Case 3: Spending money outside the approved budget or making material decisions without seeking Board approval when required. This may happen frequently. In a rapidly changing situation, management often acts expediently. How should the Board react?

In a mature company, transgressions like these might be dealt with formally. However, in an early stage technology company, Boards need to exercise discretion and restraint. Often the errors arise from a lack of experience in times of stress. Properly managed by the Board, the incidents should be an opportunity to educate management and the Board. Trust should strengthen.

Disciplinary action should be a last resort and applied only in cases where there has been willful misconduct. Should it come to this, trust between management and the Board may be irrevocably broken, leading to worse problems down the road.

In most cases, constructive criticism in the form of an informal chat between Chairman and CEO should be sufficient. If there has been a pattern of minor events contrary to the Board’s direction, then the Board may issue a verbal reprimand in an informal meeting so as not to be minuted. In the rare event where management has willfully acted against the Board’s explicit direction, then a formal written reprimand in the minutes of a Board meeting may be required. Serious cases, of course, could be grounds for termination.


This article first appeared in the Spring 2009 edition of The Hire Standard – the newsletter of Corporate Recruiters, British Columbia’s leading recruiters of high technology talent.