When and how to quit from the Board of Directors

Anything that starts comes to an end. It is important to prepare for your exit. When you get appointed as a Board member for

Anything that starts comes to an end. It is important to prepare for your exit. When you get appointed as a Board member for any company, time will come when you have to exit. Below are ways or red flags that your term could come to an end and when it does, how to exit honourably.

1.Term limits

If your term has ended, it is time to let go. It is difficult to add something new if you overstay. Leave the Board when your term has come to an end. For example if you are called to serve two- three year terms and this term expires, don’t hang on. Quit honourably.

2. No time to attend Board meetings

If you are finding it too difficult to make it for Board meetings when and as they are called, it is high time to call it quit. Most of the time when Board meetings are called does it conflict with your other obligations? If yes, consider resigning. Your record will not only become bad in terms of professional attention to the issues but also it will indicate that you are a poor time manager and planner. When you accept appointment to the Board and out of the four meetings of the Board you can only afford to attend one, may be you have so many other commitments, this way you are not adding any value to the company. When you are Board member, there are certain expectations people want you to deliver but then you are not doing it. We have seen a situation where people feel just proud to say I am a Board member of XX company even when they are not adding any value. You are Board member and you do not have time to attend the meetings, the best way is to put a resignation to the person who appointed you. “Given my other commitments, I am unable to continue serving to my capability”. Do not deny the company an opportunity of having another capable member serving the Board.

3. You are not happy with the company especially the managing director

The Board of Directors is responsible for recruiting and supervising the managing director. Once you recruit the MD, you then provide oversight and risk management of the company through the managing director. This means, the managing director MUST be fully accountable to the Board. Many times, after joing as a Board member you may find  the MD has visible weaknesses to steer the company. It may be s/he was not competitively recruited and are too much ‘overhelming’ in terms of influencing the Board. If you generally think the direction the managing is not good and you voice this concern to the Board but they are not listening, it is a red flag. As a new Board member, you can easily see things which are not right but when you raise your complaints, you see a lot of resistance. In many organizations there is organizational politics. The managing director knows which Board members to influence and how i.e. what are their weaknesses or pain points?

For example, the MD/ CEO knows that one of the Board member’s weaknesses is that they do not have money, as they are in retirement. The managing director will try to give them some money in form of allowances. In that situation, the Board member becomes ‘corrupted’ because s/he is getting a lot of allowances by the virtual of their position on the company and all this at the mercy of the MD/ CEO whom s/he is supposed to supervise. Now if this favor is extended to many members of the Board, it means the MD has definitely taken control. Any decision the MD will want, the Board will approve it because each of the Board member has no moral authority to question the MD’s position. When you come in as a new Board member to such a Board and raise your concerns, you will find a cold feet. The Board members are already vulnerable and cannot prevail over the managing director. The best decision for you as a new Board member is to quit since you cannot add significant value to the Board. If the Board just rubber stamps the position of the CEO/ MD, of what use it as far as oversight and risk management are concerned?

4. Ownership interference underminding your role/ mandate

You  may join a Board and find that the owners are interfering in the day-to-day activities of the business. This is a big problem in the private sector whereby you find the owner is the Board chair, managing director, finance manager and s/he decision is final. Usually, the appointment of the Board is a result of say the bank’s advise so that the company projects good governance practices. In reality, nothing works as there is limited or no separation of powers.

You must be worry of such companies that set up window dressing boards. Because they want to get some benefits like loans or donations, they try to project the image of good governance byestablishing structure that indicate good governance to the outsiders. Structures like Internal audit, external audit, Board of Directors and documented policies and procedures, try to show impressions of good governance. However, on a closer look, you find Internal audit is say not empowered to be effective – they have no budget, report to the Board through the Managing Director and or the head of the department lacks requisite professional qualifications, skills and experience to deliver the role due to limited support. In that case, the ‘good structures’ are just for window dressing. On the surface the company has a Board of directors, but when you dig deep, it is not functional. In that case when you come to a Board like this you are unlikely to add any value as the Board is not in a position to make decisions or influence strategic direction. The best thing to do is resign.

How do you resign?

If some of those above red flags exit, you consider resigning. It will be the best decision you can make as a professional.

In addition, you could resign because when you visit the company and read through the documents you are not happy with the direction the company is taking. Since the Board is responsible for oversight, risk management and going concern. To ensure going concern, every business must have a strategic foundation. It is possible to find no strategic foundation for the business. Now if you review the strategic plan or things which have been articulated, you see the business is not in the right direction. When you are a Board member and see the business is not in the right direction you resign you write a report to the Chair; present to the full board and if you see no one sees it the way you see, it may consider to exit. Take time to help people see the business clearly. Also, try to articulate this to the person who appointed you on the Board.

If everything else fails, resign. However, before you resign, manage relationships.

Before you even write a letter, talk to the Board chairman or the person who appointed you so that you are not leaving in a bad taste. As a professional, you must be concerned with relationship management. May be you could be appointed on another Board. However, if you leave a bad record, it may not be possible. It is very important to engage the people before you do anything.

You want to resign in a professional way to ensure no one is hurt in the process especially the shareholders. For some public companies, if a key member of the board exits, it could cause a run on the company in terms of loss of value in the share prices since valuations depends a lot on future value which is a result of good governance and risk management.

Happy 2015.

Copyright Mustapha B Mugisa, MBA 2015. All rights reserved.

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