A new academic article offers interesting commentary on the elements of board structure and processes that can contribute to board deadlock and other similar forms of debilitating disagreements between directors.
Deadlock is traditionally associated with boards in which control is shared equally by different constituencies, pursuant to bylaws, contract or other agreement. However, as the authors point out, there is potential for "deadlock" to occur in more traditionally structured boards. The authors reference surveys in which 67 percent of directors report an inability to decide about certain issues in the context of board discussion, while 37 percent report that they have encountered circumstances of deadlock or division that have threatened the viability of the corporation.
A particularly threatening byproduct of deadlock identified in the article is the entrenchment of an unpopular or unsuccessful CEO, and the inability to remove the CEO and change his/her policies. There are, of course, other governance risks associated with deadlock (e.g., inability to authorize financial/budget or strategic plans and reports).
The authors identify several scenarios, beyond shared governance, that can trigger deadlock or similarly stifling division among directors. These include (i) long director tenure, which may prompt directors to act strategically (and thus perhaps reticent to accept strong CEO candidates); (ii) director diversity, which can also affect the risk of deadlock to the extent the diverse directors' skills and experience are not associated with strategic change and long term value; and (iii) board composition, especially where new directors are "negatively associated with strategic change."
The potential for board/committee deadlock is a significant governance concern. This new academic article is a useful prompt for governance committee dialogue on the potential for deadlock or material director division to arise at the board or committee level, and on ways in which such a risk can be reduced.
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