Problems in private companies<\/span><\/h4>\nThere can be even more complex challenges when underperformance or inappropriate behaviour takes place in a private company that has closely held shares.<\/p>\n
\u201cIf the person involved is an employee, a director and a shareholder, it can be deeply problematic,\u201d says Dr Matthew Turnour FAICD, chair of Neumann & Turnour Lawyers.<\/p>\n
\u201cIt\u2019s often possible to end the employment relationship in a relatively straightforward way, but it can be harder to end the directorship and even harder to recover shares.\u201d<\/p>\n
Turnour advises the boards of private companies to ensure that there is a shareholders\u2019 agreement firmly in place that addresses these possibilities. \u201cUsually, the shareholders\u2019 agreement will provide that, if a person ceases to be an employee, they must also cease to be a director,\u201d says Turnour. \u201cSometimes, there is also provision for recovery or transfer of shares at a predetermined price or by a predetermined mechanism. It would be very awkward if, for example, the employment was terminated because of sexual harassment, but then the perpetrator was entitled to continue attending board meetings where the victim was a fellow director.\u201d<\/p>\n
In a charitable organisation, \u201cresponsible people\u201d are tasked with ensuring the entity is well- governed, responsibly managed and meets its obligations under the law.<\/p>\n
The Australian Charities and Not-for-profits Commission (ACNC) can prohibit anyone from being a \u201cresponsible person\u201d if they have been disqualified from managing a corporation under the Corporations Act 2001, or disqualified from being a responsible person by the ACNC Commissioner within the previous 12 months.<\/p>\n
The ACNC provides a register of disqualified persons on its website. Along with the overarching demands of good governance, appearing on these registers \u2014 or refusing to sign a declaration that they are not disqualified \u2014 are also reasons to remove a director from the board.<\/p>\n
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Frank discussions in the boardroom<\/span><\/h4>\nRemoving a director is difficult and disruptive. While there\u2019s no choice in instances of bad behaviour, it makes sense for boards to prevent it wherever they can. For example, board evaluations that assess the performance of individual directors can shine a spotlight on any problems and encourage underperforming directors to lift their game before the hard choices have to be made.<\/p>\n
It\u2019s in a director\u2019s own interest to improve their performance as losing their seat on a board could well have serious personal and professional consequences.<\/p>\n
\u201cGiven that many directors are younger these days \u2014 and, in many instances, the boardroom is a career in itself rather than a post-retirement occupation \u2014 any impact on reputation, income and a shortened career as a director can be both financially and professionally devastating,\u201d says Robinson.<\/p>\n
Peer evaluations of each director by every other director can be an excellent way of gathering feedback. This can also provide a structured methodology for the chair to discuss performance with each director and, where unavoidable, recommend that they resign or make it clear that they will not be supported by the board in any future election.<\/p>\n
\u201cWhile regular board evaluations are important, they\u2019re not as important as the strong relationships that come with honest accountability,\u201d says Turnour. \u201cThere\u2019s no substitute for speaking directly and frankly with one another about board performance. In our firm, we have an evaluation at the end of each board meeting. If someone isn\u2019t happy with someone else\u2019s contribution, they raise the matter then. The success of this frank, face-to- face and accountable discussion depends on the quality of the relationships.\u201d<\/p>\n