Addressing Director Toxicity on Company Boards. The increasing level of scrutiny that boards and their directors face has highlighted a concerning trend: rising director toxicity. PwC’s 2023 Annual Corporate Directors Survey showed that nearly half (45%) of directors expressed a desire to replace a board member due to toxic behaviour. Similarly, Harvard Business Review reports some 64% of executives have experienced toxic behaviour from directors.
Although difficult to quantify, there is no question that the damage caused by toxic directors can be substantial. It can lead to poor decision-making, decreased morale and eroded trust. It often permeates the company’s culture, too, stifling innovation, increasing risk and potentially damaging the company’s reputation.
Detecting Toxicity
Addressing toxic behaviour early is crucial. Here are some warning signs to look out for:
- Poor Communication: Directors who withhold information, communicate dismissively, or display hostility can undermine board dynamics and decision-making.
- Lack of Confidentiality: Toxic directors may disregard confidentiality, inappropriately sharing sensitive information both internally and externally, which risks the company’s interests.
- Disruptive Behaviour: This includes being late for, failing to attend, or interrupting meetings, dominating discussions, focusing on problems without offering solutions, and exhibiting consistent negativity. These behaviours prevent constructive dialogue and may discourage others from participating.
- Conflict of Interest: A director prioritising personal gain over the company’s best interests poses a significant threat to board governance and integrity.
- High Executive Turnover: A high rate of executive resignations is often a sign of serious deep-seated issues with one or more board members. This discontent can trickle down, too, effecting staff morale and increasing turnover.
Dealing With Toxicity
When toxicity becomes apparent, swift action is essential to protect the company. Here are a few checks to minimise potential problems:
- Clear Governance Policies: Ensure your company governance documents set clear standards of conduct, including for board behaviour, and the process for removing directors for cause. Regularly review and update these documents to keep them relevant.
- Performance Reviews: While performance reviews of staff on at least an annual basis are normal, this is not always done with boards, despite being expected. An annual review of the performance of the board and each director can reveal early signs of inappropriate behaviour and provide an opportunity for correction.
- Succession Planning: This should be a priority within your board calendar, addressing succession plans for directors, executives and throughout the company.
Should toxic behaviour by a director become apparent, start with a private conversation, typically between the board chair and the individual concerned, to address the issue and attempt resolution. Should this be unsuccessful, mediation can sometimes help. However, if the situation remains unresolved, removal of the director as quickly as possible is generally necessary. Provided your documentation and record-keeping are comprehensive and clear, and procedures are in accordance with company law are followed, legal counsel may not be required for this process.