Steinhoff International’s board was dominated by its CEO. Discuss the effect of a dominant personality of the board including possible methods of dealing with dominant personalities and the effect of a dominant personality on the fiduciary duties of the other directors.
According to Kneal (2012), a dominant personality is an individual who is able to, through force of character or other means, impose his way of thinking on others, so that they do not oppose his or her opinions. A single individual who is both chairman/chairperson and CEO may, for example, be a dominant personality, who does not allow for or encourage dissenting views during board discussions and may perpetuate poor governance practices. A number of corporate collapses have been attributed to a dominant individual, in many instances acting in a dual role as chairperson and chief executive, running the company as a personal kingdom and with complete disregard to the interests of shareholders and other stakeholders. Well-known examples: Brett Kebble, Jeff Levenstein (Regal Bank), or any other acceptable example.
According to Kneal (2012), the balance of power is a central issue in corporate governance, and thus the most important issue in the running of the company is the balance of power among the board members. Balance at the board will request that no-one induvial board Chairman or CEO will exert too much pressure, power, and influence on other members of the whole board. Rather, there should be checks and balances that will prevent one individual from dominating the decisions of others. Identifying ways in which one can be restricted from dominating others, the board will be having ways to which it can deal with dominant personalities.
The negative aspect of the dominant personality is that it leads directors to work in self-interests and disregards the interests of all other stakeholders. Kneal (2012) put it well and stated that companies with dominant personalities are badly governed companies, and these badly governed companies have opportunities of creating autocratic leaders, who disregard the views of other board members and thus lead to company failure. There are various ways in which the problem of dominant personality can be dealt with within an organization, among other ways are discussed below.
Dealing with Dominant Personality at Board Level
The various ways in which the board of directors can deal with dominant personality rest with the ability to have independent views, more importantly from the independent non-executive directors. It is important to take note that, the goal is not of complying with codes of governance and ensuring that more independent non-executive has been appointed to the board, rather their contribution and deliberation towards board issues are borne of contention. Upon appointment to the board, the independent non-executives should acknowledge that there are accountable and responsible for the affairs of the company the same way the executives are. In that regard, these independent non-executives need to ensure that they continuously improve their effectiveness on the matters that will be presented in board meetings, and thus contribute towards fostering the interesting shareholders on board deliberations and playing the devil’s advocate where necessary.
Sufficient Number of Non-Executive Directors
Kneal argued that there should be a majority of non-executive directors on the board to create a suitable balance of power and prevent the dominance by one individual or by a small group of individuals, of the board. Kneal (2012) went on and said that non-executive directors should be appointed to provide a counterbalance to powerful executive directors and to give the benefit of their experience and know-how to the decision-making by the board. At a minimum, there should be 4 independent non-executive directors, 3 members of the audit committee as stipulated in the Companies Act 71 of 2008, and the chairman, who is recommended by the King Reports. In Steinhoff, the Chairman was not independent, for he has been in the executive positions of Steinhoff subsidiaries prior to the appointment of Chairman.
Avoiding undue reliance on a specific individual for decision making
In trying to reduce the problem of a dominant personality, the board and its committees should ensure that there is no undue reliance on specific individuals during the decision-making process. These can be achieved through refreshing and rotation of committee memberships as well as making sure that those who are entitled to attend the nomination, remuneration, and audit committee meetings do so, rather any other individuals will do through invitation.
As stated above, the best ways of dealing with dominant personalities on the board are through improving the effectiveness of non-executive directors. The three main ways in which non-executive directors effectiveness is improved include (1) improving the knowledge of the non-executive directors, (2) increasing the amount of time non-executive directors spend at the companies they have been appointed to work at, (3) meeting of the non-executives in the absence of the executive probably with the internal auditors and external auditors.
The quality of the decision-making process at the board level is determined by the amount of information all directors have and as such, the company secretary should that all directors do have all the necessary information needed in improving the decision-making process, even if it means providing education and training development so that the non-executive can have more knowledge about the company. The non-executive should not accept too many directorships from various companies so that they can improve the effectiveness of their decision-making in the deliberation of board matters.
Effect of a dominant personality on the fiduciary duties of the other directors
Section 76 of the Companies Act states the fiduciary duties of directors, as the duty
- Skill & care
- No secret profit
- No conflict of interest
Fair dealing is among these duties. With the problem of a dominant personality, most directors will fail to check and work in accordance with the law requirements. By aligning and failing to question the decisions of the dominant part directors will be failing on their duty of skill and care as well as on the duty of secret profit and conflict of interest. To larger, this emanates from the fact that directors are individually and severally liable to the actions and decisions made by the board.
Failure to exercise these fiduciary duties, directors will be failing on the duty to work as agents of the company, which emphasize that directors should work in the best interest of the company not in their own interest, thus by supporting the dominating part directors will be neglecting their duty to act in the interest of the company, rather they will be working in the interest of the dominating part.
It is important for directors to take note that, directors’ fiduciary duties are connected with risk management and require compliance with the laws and regulations, such that allowing the dominating party to override their decisions in the board, the other directors will contravening the requirements of the companies act.
More can be said by defining the duties and elaborating on the tests of the fiduciary duties.
