Behind the Scenes: The Dangers and Traps of Board Members Meeting Outside the Boardroom
There are many ways the board members might interact offline and when board meetings are several months apart, or when there is a heavy workload, it can make sense for boards to keep things moving along between meetings.
Some boards encourage members to meet offline to strengthen internal board relationships. Other boards prohibit discussions of any nature outside of the boardroom meeting.
Where the board permits and encourages board members to interact outside of board meetings, individuals need to be able to draw the (fine) line between strengthening their relationships versus forming strong bonds that could result in alliances and factions within the board.
It makes sense to try to enhance relationships as much as possible, but the board must always act as a single unit and not as groups of individuals. When relationships cross the lines into partisan discussions, and are used to sway opinions and votes, they must be stamped out at all costs.
Additionally, where there are established back channels outside of the boardroom it can make it very difficult for a new director to get settled. This is particularly problematic for incoming directors of underrepresented groups, who find it a struggle to join any kind of ‘in-crowd’ or to penetrate pre-existing relationships on the board.
Board matters must never, accidentally or otherwise, exclude a director or group of directors. At best, this can result in communication errors, delays, conflicts and have a negative impact on the overall functionality of the board. At worst, Directors have legal rights to the access of information and without this they cannot perform their director duties effectively. Where a director is ‘shut out’ or ‘excluded’ in some form, they may have a claim for ‘Oppression’ under Section 232 of the Corporations Act (2001).
What happens outside of board meetings should be as open and transparent as what happens inside and must always be in the best interests of the business.
A sidebar conversation is any meeting and/or discussion that takes place outside of the board meeting. These meetings can be pre-approved by the board; such as in the instance of the Chair and CEO who have many conversations and catch-ups together as part of their respective roles.
They can be ad-hoc; such as one director phoning or meeting with another to get clarity or perspective on an issue.
Other types of sidebars occur when senior executives and stakeholders engage with directors and vice versa. For instance a director with marketing expertise might meet with the Marketing Director to ask them questions and/or provide support. This may, or may not, be encouraged. Some boards require directors to be more resourceful and hands-on and other boards are strictly strategic and forbid the directors getting involved (cough cough meddling) with operational matters.
The Board Charter should clearly outline the rules for any contact between directors and other parties (including fellow directors) and these rules should be clearly followed in all instances.
In most cases, the communication between the Board and Management is via the Chair and CEO. This is to maintain the flow of communication and keep everyone informed and on the same playing field. There may be the odd exception, such as in the case of special projects, but generally the more contained the information is kept, the better it flows back and forth.
Sidebar conversations are generally a bit leaky. Not all the facts are at hand and not all the discussions are reported accurately to the board. Directors making decisions should have all equal access to all of the facts.
Where boards permit sidebar conversations, it is still best practice for these to be disclosed, even if they seem innocuous (it’s better to let the board be the judge of what is and isn’t relevant to them). Pre-approved offline conversations usually result in a report back to the board to keep communications fluid and open and it so it makes sense for ad-hoc meetings to follow the same process.
A good question for a Chair to ask at the beginning of each meeting is “Have any members of the board met with each other or with members of the business or key stakeholders since our last meeting? If so, what was the purpose and outcome of your meeting?”
According to Harvard Business Review, in the article “Back Channels in the Boardroom” (https://hbr.org/2019/09/back-channels-in-the-boardroom), if these offline conversations are conducted improperly, they can encourage political manoeuvring, marginalise members with key expertise, foster inappropriate alliances, and lead to poor decisions. Instead of making the team better, they make it dysfunctional.
The board must have sound dispute resolution processes and be able to facilitate robust conversations to encourage matters to be dealt with in the ‘board arena’ and not offline among individuals.
Chairs must encourage, value, and reward directors who are transparent and candid. If your board can accept strong opinions, even if there is disagreement, then the discussion is less likely to happen offline. In the right trusted environment directors are able to make their opinions and views known (tactfully) in front of the full board.
Ultimately the business and board environment, trust of the directors, and skills of the Chair will determine whether sidebar conversations will be of help or hindrance to the business.
Check out our other articles or click on the links below for more resources for existing and aspiring Company Directors: