News - Midlands
At blows in the boardroom
"I've been in a room where a son started beating up his father because he wouldn't let him sell the business."
So says Roger Buckley, corporate finance partner at accountancy BDO Stoy Hayward, adding: "Businesses can work effectively, but when things go wrong it can turn into a heady cocktail of business and personal issues intertwining."
Many boardroom meetings take place with an element of tense discussion, but when disputes spiral out of control the consequences can be disastrous.
"Most boardrooms are filled with big personalities, each with their own agenda," says Mike Collis, head of portfolio management at Aberdeen Asset Management. "It's no surprise they clash from time to time."
Where a resolution can't be reached over a pint, it's often down to the chairman to find a workable solution.
"Having the right person in charge is critical," says Ann Benzimra, commercial and dispute resolution partner at law firm Hammonds. "Many companies don't take selection of their chairman seriously enough. They're there to ensure everything works effectively and use their knowledge of the processes and individuals to settle disputes."
An independent non-executive can do the job just as well. They have less of an emotional connection to the business and can approach issues with impartial eyes.
"Every business performs better with a skilled non-executive on board," says James Grenfell, of corporate finance practice Orbis Partners. "Companies need to be driven by strong leaders for strategic direction, team building and conflict management. They must understand the strengths, weaknesses and personality traits of every individual."
Prevention is better than cure and many disputes can be avoided if the necessary measures are in place.
Alex Bishop, partner in the dispute resolution team at law firm Shoosmiths, recommends protocols outlining how the business should be run and guidelines on dealing with dispute.
She adds: "I'm a litigator and often the voice of doom, but often it needn't have got to that stage.
"Documentation is crucial. You've got to take time over Articles of Association. A shareholder agreement should also be in place to determine what happens in disputes," she says.
Being forced to retain a director whom colleagues no longer respect or trust can be hugely damaging to the boardroom and stability of the business.
"The service agreement for each director should deal with issues such as confidentiality, fraud and conflict of interest," says Bishop. "If you discover someone is taking a backhander, you want them out. It needs to incorporate restrictive covenants so when a director leaves they don't take business and employees with them."
If problems escalate, boardroom strife can be hugely damaging.
"If board members are arguing they're not doing their job," says Benzimra. "Companies have been known to close down as the consequence of dispute."
And then there are the fees demanded by advisers. "The winners are the lawyers and accountants," says Bishop. "I dealt with a case where four members of a board told a fifth to pack his bags, but they discovered that, as a shareholder, he could make various demands.
"The courts tend to insist on buying the director out at market value. A huge battle ensued with everyone arguing over the sum. The accountancy fees totalled half the share value."
Disputes are particularly acute in owner-managed and family businesses where issues tend to be more emotive.
"Those relationships are far more complex," says Grenfell. "Those running the business aren't necessarily the ones who created the value or most qualified to carry it forward. Boards are often not as disciplined or as well structured as with larger companies and, when individuals have power of veto, it can be a barrier to change."
Nowhere is this tension more apparent than in succession. "The source of some of the most acrimonious disputes," says Bishop. "I've seen family members tearing one another to pieces over the future of the business while the owner was being buried because no succession plan was in place."
Be it appointing non-execs to act as mediators or having the right documentation in place, there are relatively simple steps every business can take to make itself more robust in times of strife.
"It's rare for family businesses to air their problems outside," says Barry Smith, head of the Midlands entrepreneurial and family company tax practice at accountant PricewaterhouseCoopers. "We're not often asked to come up with some big bang solution such as demerging the business or arranging for someone to be bought out. But it does happen and I've seen three or four cases where the situation was irretrievable."
If a resolution can't be reached in the boardroom, a growing number of companies are requesting the services of an independent mediator.
"If a management team has to bring someone else in then they really are at the end of the line," says Collis.
But when positions are entrenched and other channels of communication blocked off, intervention is often the only option.
"Third party mediation does work," stresses Benzimra. "Trained negotiators can help broker a settlement in an emotionally charged situation."
So says Roger Buckley, corporate finance partner at accountancy BDO Stoy Hayward, adding: "Businesses can work effectively, but when things go wrong it can turn into a heady cocktail of business and personal issues intertwining."
Many boardroom meetings take place with an element of tense discussion, but when disputes spiral out of control the consequences can be disastrous.
"Most boardrooms are filled with big personalities, each with their own agenda," says Mike Collis, head of portfolio management at Aberdeen Asset Management. "It's no surprise they clash from time to time."
Where a resolution can't be reached over a pint, it's often down to the chairman to find a workable solution.
"Having the right person in charge is critical," says Ann Benzimra, commercial and dispute resolution partner at law firm Hammonds. "Many companies don't take selection of their chairman seriously enough. They're there to ensure everything works effectively and use their knowledge of the processes and individuals to settle disputes."
An independent non-executive can do the job just as well. They have less of an emotional connection to the business and can approach issues with impartial eyes.
"Every business performs better with a skilled non-executive on board," says James Grenfell, of corporate finance practice Orbis Partners. "Companies need to be driven by strong leaders for strategic direction, team building and conflict management. They must understand the strengths, weaknesses and personality traits of every individual."
Prevention is better than cure and many disputes can be avoided if the necessary measures are in place.
Alex Bishop, partner in the dispute resolution team at law firm Shoosmiths, recommends protocols outlining how the business should be run and guidelines on dealing with dispute.
She adds: "I'm a litigator and often the voice of doom, but often it needn't have got to that stage.
"Documentation is crucial. You've got to take time over Articles of Association. A shareholder agreement should also be in place to determine what happens in disputes," she says.
Being forced to retain a director whom colleagues no longer respect or trust can be hugely damaging to the boardroom and stability of the business.
"The service agreement for each director should deal with issues such as confidentiality, fraud and conflict of interest," says Bishop. "If you discover someone is taking a backhander, you want them out. It needs to incorporate restrictive covenants so when a director leaves they don't take business and employees with them."
If problems escalate, boardroom strife can be hugely damaging.
"If board members are arguing they're not doing their job," says Benzimra. "Companies have been known to close down as the consequence of dispute."
And then there are the fees demanded by advisers. "The winners are the lawyers and accountants," says Bishop. "I dealt with a case where four members of a board told a fifth to pack his bags, but they discovered that, as a shareholder, he could make various demands.
"The courts tend to insist on buying the director out at market value. A huge battle ensued with everyone arguing over the sum. The accountancy fees totalled half the share value."
Disputes are particularly acute in owner-managed and family businesses where issues tend to be more emotive.
"Those relationships are far more complex," says Grenfell. "Those running the business aren't necessarily the ones who created the value or most qualified to carry it forward. Boards are often not as disciplined or as well structured as with larger companies and, when individuals have power of veto, it can be a barrier to change."
Nowhere is this tension more apparent than in succession. "The source of some of the most acrimonious disputes," says Bishop. "I've seen family members tearing one another to pieces over the future of the business while the owner was being buried because no succession plan was in place."
Be it appointing non-execs to act as mediators or having the right documentation in place, there are relatively simple steps every business can take to make itself more robust in times of strife.
"It's rare for family businesses to air their problems outside," says Barry Smith, head of the Midlands entrepreneurial and family company tax practice at accountant PricewaterhouseCoopers. "We're not often asked to come up with some big bang solution such as demerging the business or arranging for someone to be bought out. But it does happen and I've seen three or four cases where the situation was irretrievable."
If a resolution can't be reached in the boardroom, a growing number of companies are requesting the services of an independent mediator.
"If a management team has to bring someone else in then they really are at the end of the line," says Collis.
But when positions are entrenched and other channels of communication blocked off, intervention is often the only option.
"Third party mediation does work," stresses Benzimra. "Trained negotiators can help broker a settlement in an emotionally charged situation."