Board Of Directors Conflict: Mediating to Resolution
Mediations are a leading means to bring about resolution of a conflict that resulted in the filing of a lawsuit. But mediation can also be a valuable tool to prevent a crisis from spiraling to the point that legal steps become necessary. Conflicts can arise in most any context but one that is not uncommon is in the management of a closely held company or a 501(C)(3). There, conflict can periodically brew as power and control over the organization may change from year to year resulting in transitional issues.
One of the challenges of small organizational leadership is resolution of a power crisis. In general, the purpose of the Board and Officers is to serve as fiduciaries who owe, among other things, a duty of good faith and fair dealing to the organization. The fiduciary has an obligation to investigate allegations of accounting misstatements, fraud, and legal issues that threaten the organization. When a Board is composed of several individuals as well as officers, conflict between the officer, meaning the President or the Treasurer, and the Board of Directors can be divisive. Whether the President or Chair is disinterested in the issue or can be objective can prevent resolution and sometimes even pour gasoline on the fire.
Sometimes what happens is the newer officers assume the office and continue in the traditional way of managing the organization. Other times the newer officers make efforts to torpedo the record of the past, effectively attempting to blow out the candles from a prior year so the next year’s candles comparatively shine brighter.
One example of this in a smaller lower budget organization involves accounting. It is not uncommon for low funded organizations to be lax in the accounting standards. This does not mean anything is awry, it just is a reality of how much attention may be paid when people want the talking points without the underlying details. Sometimes all that is focused on is the bottom line profit or loss without mention of the major expenses or itemization of the expenses and profit sources, let alone an accurate year over year comparison. So the newer administration may look for flaws in the underlying expenses and income components and begin to distrust the prior administration and vice versa, as meanwhile, the folks who held the prior offices are often still part of the Board either in an emeritus position, or as a director, or in some other capacity.
A challenge exists for the Officer who runs a Board meeting at which the Officer is effectively accusing the prior holder of that office, or the associates who assisted the prior office holder, of impropriety, carelessness, or accounting mistakes. A single change of a data point can turn a favorable legacy into one that is ne’er do well. A once profitable year can become a loss. As a result, the emotions can run high.
Even more difficulties arise if all sides believe the meeting was not run fairly—in part because the person running the meeting is invested in or indentured to one side of the conflict. The discussion leadership in that case is not neutral.
After the meeting explodes into a nonproductive shouting match the Board in all its allure becomes non-productive. The organization is derailed. What can happen, though, to bring the train back on line is for one of the Board Members who was not an officer in a year critical to the conflict, who is disinterested and uninvolved in events that give rise to the high emotions, who does not do business with the other board members, can step in and ask to run the meeting or suggest the use of a mediator.
Were the biased or interested President or Chair to nonetheless run the meeting, the conflict would decrease confidence in the organization as well as the legitimacy of the meeting to take place. There is significant risk of an otherwise productive meeting environment devolving into a kangaroo court. The results could be heightened sense of distrust and added points of contention, rather than a lasting resolution or decrease in contentiousness.
As a matter of practice, a mediator, like a good Chair of any Board or even serving as a temporary Chair for a single meeting, can help the Board to reach some level of resolution. Critically the mediator needs to become familiar with the nuances of the underlying conflict; but this is a learning process that often plays out in the meeting itself. The mediator should allow the parties present to speak fully and do so in an orderly fashion, all the while being patient with both sides of the conflict. In seeking to reach resolution, the mediator should allow the organized opportunity to brainstorm solutions to the underlying problem where both sides have the chance to listen to one another. The session, like any Board meeting, should be kept in a single room and caucus should be avoided if at all possible. If using an evaluative style and asked for an opinion, a mediator should focus on the organization’s collective success, reputation, and good works, and ask the parties to consider the harm in moving forward towards a peaceful resolution instead of rehashing the past.
In the end, organizational conflict is just like any other conflict. There are at least two sides and each needs a chance to be heard and to hear the other. Then the sides need the chance to collaborate to find solutions. Giving the parties a chance to listen to one another is far more likely when the person running the meeting is not an involved party. Accordingly the mediator should refrain from showing any bias, interest, or preference for any outcome. The mediator should decline to serve as mediator in this situation if the mediator’s business interests rest with a party on a side of the conflict.
One possibility is for the mediator to ask both sides (all those present whether in conflict or not) for permission to serve as the Chair for the purposes of the meeting. Ask for a motion. Also, on reaching what would be the terms of the mediated agreement, be sure this course of action is expressed as a formal resolution. Let there be further discussion of the resolution as expressed if there is anything further that any Board member or officer wants to share. Then ask if anyone wants to call the question, and upon so doing vote on the resolution itself. Instead of a standard mediated settlement agreement, the Parties have in their own minutes a copy of the resolution of the conflict and a tally of the vote. You may not be able to resolve all the issues, but sound mediation techniques can bring a majority to agree to a resolution so the organization can move forward.
Just like in a legal conflict in the courts, the emotion and tensions of the parties can be particularly high. Giving the parties a chance to vent their frustrations, to be heard and to share concerns is essential to them later coming to reach a solution. This is particularly so where the parties are fiduciaries of an organization who, rightly so, believe it necessary to raise and fully explore accounting mistakes. An agreement to forget the past and move forward, much like a clean slate, cannot erase the personal memory but can restart the organizational memory. In the alternative the outcome may be to bring in an auditor who effectively serves as an expert who proposes the solution including steps toward reconciliation of the books.
On a whole, mediation is an option even at high conflict Board meetings when a topic directly involves the diligence of the Officers or Board members themselves.
About the author: Andrew Tolchin is an attorney and mediator in the greater Houston area, and founder of 713 Mediator, LLC and Tolchin Law Firm, PLLC.